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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CHECK ONE:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-20606
CAPSTONE PHARMACY SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2310352
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2930 WASHINGTON BOULEVARD,
BALTIMORE, MARYLAND 21230
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 646-7373
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of registrant's voting stock held by
non-affiliates of the registrant, computed by reference to the price at which
the stock was sold, or average of the closing bid and asked prices, as of March
25, 1997, was $12.375.
On March 25, 1997, 34,066,915 shares of the registrant's $0.01 par value
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Part III, Items
10, 11, 12 and 13 of this Form 10-K: Portions of the Registrant's definitive
proxy materials for its 1997 Annual Meeting of stockholders.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Capstone Pharmacy Services, Inc. ("Capstone" or the "Company") is a leading
provider of institutional pharmacy services to long-term care facilities and
correctional institutions throughout the United States. The Company provides
long-term care facilities with comprehensive institutional pharmacy services
that include the purchasing, repackaging and dispensing of pharmaceuticals,
infusion therapy, Medicare Part B services, and pharmacy consulting services,
all of which are supported by computerized record keeping and third-party
billing services. Capstone services approximately 115,000 long-term care beds
in 15 states and over 110,000 inmates in correctional facilities nationwide.
The Company serves its long-term care clients primarily through regional
pharmacies most of which are open 24 hours, seven days a week. The Company has
established regional pharmacies in certain large metropolitan areas, each
capable of serving in excess of 10,000 patients. Management believes that the
Company can compete more effectively in metropolitan markets by providing a
broader range of services to its long-term care clients on a more
cost-effective basis than many of its competitors. Management further believes
that Capstone's expanded national presence enables it to compete more
effectively for larger customers who operate multiple facilities, in part by
achieving purchasing efficiencies and other economies of scale. The Company has
developed relationships with several large operators of long-term care
facilities.
In the correctional business, where it currently is the largest non-captive
provider of pharmacy services in the United States, the Company provides
pharmaceuticals under capitated and other contracts to correctional institutions
that have privatized their inmate health care services. Management believes the
Company's experience in managing capitated correctional contracts, which
involves the utilization of closed formularies, generic substitution, rigorous
drug utilization review and proactive physician education, will provide a
significant competitive advantage as managed care becomes more prevalent in the
long-term care industry.
In connection with an investment by Counsel Corporation ("Counsel") in
December 1994, the Company installed a new management team, refocused its
operating strategy on its core institutional pharmacy business and initiated an
aggressive acquisition strategy. As a result of these efforts, the Company's net
sales increased to $144 million for the year ended December 31, 1996 from $56
million for the twelve months ended December 31, 1995. Capstone's profitability
also improved during the same time period, with income from continuing
operations before costs relating to pharmacy closures and restructuring charges
of $6.4 million for the year ended December 31, 1996 compared to a loss from
continuing operations of $736,000 for the twelve months ended December 31,
1995. Capstone's strategy is to enhance its position as a leading provider of
institutional pharmacy services by: (i) acquiring institutional pharmacy
companies in metropolitan markets; (ii) achieving regional market density in
order to enhance its operating leverage; (iii) entering preferred provider
agreements with long-term care companies; and (iv) emphasizing
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internal growth through the addition of new clients and the expansion of
ancillary services. Capstone acquired six institutional pharmacy service
companies in 1996, including Symphony Pharmacy Services, Inc. ("Symphony"), a
subsidiary of Integrated Health Services, Inc. ("IHS"). The Symphony
Acquisition increased the number of long-term care beds served by Capstone by
approximately 40,000 and enabled Capstone to enter six new states. In 1996 the
Company entered into preferred provider agreements with 5 long-term care
companies, including IHS, that operate approximately 30,000 beds pursuant to
which the Company has the right to provide certain institutional pharmacy
services to such beds subject to various terms and conditions. Since December
31, 1994, Capstone has increased its long-term care bed count from
approximately 16,200 to approximately 115,000 and the number of inmates served
in correctional institutions from approximately 65,000 to approximately
110,000.
RECENT DEVELOPMENTS
ACQUISITIONS
During October 1996, the Company acquired the assets of the institutional
pharmacy division of Happy Harry's, Inc., a Delaware based provider of pharmacy
services. The division serves approximately 2,500 long-term care beds, with
annualized revenues of approximately $4.0 million.
During December 1996, the Company acquired the assets of Institutional
Pharmacy, Inc., a Parsons, Tennessee based provider of institutional pharmacy
services. Institutional Pharmacy services approximately 3,700 long-term care
beds, with annualized revenues of approximately $4.6 million.
During January 1997, the Company acquired by merger both Clinical Care-SNF
Pharmacy, Inc. and Portaro Pharmacies, Inc., providers of institutional pharmacy
services in southern California. These acquisitions solidify the Company's
leadership position in the California market place, adding an aggregate of
approximately 19,000 beds and approximately $30.0 million annualized revenues.
Also, during January 1997, the Company acquired the stock of Alger Health
Services, Inc., a California based provider of institutional pharmacy services
to nursing homes in the greater San Francisco metropolitan area. Alger services
approximately 3,500 long-term care beds, with annualized revenues of
approximately $8.5 million.
During March 1997, the Company acquired substantially all of the assets of
Pennsylvania Prescriptions, Inc., an institutional and retail pharmacy business
operating under the name Emerald Drugs in Harrisburg, Pennsylvania. This
acquisition will significantly expand the Company's presence in Pennsylvania,
adding approximately 2,200 beds and approximately $12 million in annualized
revenues.
Also, during March 1997, the Company acquired substantially all of the
assets of Pharmacare Inc., a Virginia based provider of institutional pharmacy
services. Pharmacare services approximately 2,000 long-term care beds, with
annualized revenues of approximately $5.5 million.
CREDIT FACILITY
In December 1996, the Company entered into a revolving $125 million Credit
Facility with a syndicate of banks for which Bankers Trust Company acts as
agent (the "Credit Facility"). Approximately $32 million of the Credit Facility
was used to pay off borrowings under the
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Company's prior credit facility with Creditanstalt-Bankverein. The Credit
Facility provides the Company with a significant additional source of capital
to fund its aggressive acquisition strategy and an additional source of working
capital for servicing new preferred provider agreements.
SUPPLIER AGREEMENTS
During the fourth quarter 1996, the Company selected McKesson Health
Systems to be the primary supplier of pharmaceuticals. This agreement will lower
drug acquisition cost and will be fully phased in by the end of the first
quarter 1997.
THE COMPANY
INDUSTRY OVERVIEW
Institutional pharmacies purchase, repackage and dispense pharmaceuticals
primarily to residents of long-term care facilities such as nursing homes,
sub-acute facilities, assisted living facilities and, in certain instances, to
inmates in correctional institutions. Unlike acute care hospitals, most
long-term care facilities do not maintain on-site pharmacies because they do
not generally require a volume of prescribed medications sufficient to make a
pharmacy cost-effective. Prior to the 1970s, the pharmacy needs of long-term
care facilities generally were fulfilled by local retail pharmacies. In
response to increasingly strict nursing home regulations, changes in the
reimbursement environment and the increasing acuity of long-term care patients,
the breadth of pharmacy services required by long-term care facilities has
increased substantially. In addition to providing oral medications, many
institutional pharmacies provide infusion therapy, Medicare Part B services
such as enteral nutrition services and urologic supplies, and pharmacy
consulting services, including monitoring the control and administration of
pharmaceuticals within a facility, assistance in complying with applicable
regulations, therapeutic monitoring and drug utilization review services. The
Company believes that institutional pharmacy companies are best positioned to
meet evolving market demands in the long-term care industry and to assume a
proactive role in influencing the effectiveness and cost of health care.
Industry analysts estimate that the provision of institutional pharmacy
services is a $4.5 billion industry that is growing approximately 10% per year.
Management believes this growth is being driven by two primary factors: (i) the
increasing number of residents receiving treatment in long-term care or other
institutional settings and (ii) the increasing acuity of residents in
long-term care and correctional institutions. Management believes that several
factors will continue to influence the increase in the number of patients
residing in long-term care settings including the aging of the population,
earlier discharge of patients from acute care settings into lower cost
institutional settings, growth in the number of assisted living beds and a
decreasing
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tendency for families to maintain the role as primary care giver for elderly
relatives. Factors influencing the increase in medications administered to
institutional patients include advances in medical technology, which have
resulted in new drug therapy alternatives, and the increasing acuity of nursing
home and sub-acute patients as a result of quicker discharge following acute
care procedures. Management believes that the average long-term care patient
receives approximately six to eight medications per day.
The long-term care segment of the institutional pharmacy industry is highly
fragmented, with small retail pharmacies serving approximately 27% of long-term
care facilities, independent institutional pharmacy companies serving
approximately 43% of long-term care facilities and in-house captive pharmacies
serving the remaining 30% of such facilities. Management believes that
consolidation will accelerate as long-term care providers migrate from
traditional retail pharmacies to larger institutional pharmacy companies.
Factors driving consolidation in the institutional pharmacy industry include:
Economies of Scale. Larger institutional pharmacies are able to leverage
corporate purchasing agreements to reduce drug costs. Management believes
that industry-wide drug costs average between 50% and 60% of sales, making
purchasing efficiencies critical to controlling costs. Industry
participants purchase the majority of their drug supplies from large drug
wholesalers, and larger industry participants have greater bargaining power
to reduce costs associated with such purchases.
Ability to Provide a Broad Range of Services. As a result of their ability
to serve multiple facilities from a single location, larger pharmacies
generally are able to offer more services at a lower cost per bed. These
services include 24 hours, seven days per week coverage, clinical
pharmacists, registered nurses and more frequent deliveries.
Regulatory Expertise and Systems Capabilities. Long-term care facilities
are demanding more sophisticated and specialized services from pharmacy
providers due, in part, to increasingly complex government regulations
requiring enhanced planning, monitoring and reporting capabilities
regarding patient care. As a result, long-term care administrators seek
experienced institutional pharmacy providers which offer computerized
information and documentation systems designed to monitor patient care and
to assist in controlling facility and payor costs.
SERVICES
Pharmacy Services. Capstone's core business is providing pharmaceutical
dispensing services to residents of long-term care facilities and correctional
institutions. The Company purchases pharmaceuticals in bulk quantities from
wholesalers and manufacturers and dispenses both prescription and
non-prescription drugs in patient-specific unit dose or blister packages in
accordance with physician orders. Prescription and non-prescription medications
are delivered at least daily to long-term care facilities for administration to
residents by the nursing staffs of such facilities. Capstone's pharmacists
package drugs to meet each patient's needs for either single-day
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or multi-day dosage requirements. Capstone can customize the timing and
packaging of its delivery system to meet specific client needs.
Capstone uses an order processing system that enables its long-term care
clients to order pharmaceuticals using either a pre-printed label or monthly
order forms. Clients generally take delivery of routine orders within 24 hours;
however, many of the Company's pharmacies are open 24 hours to provide emergency
service when needed. Once a physician order is received by Capstone, it is
entered into one of the Company's pharmacy computer systems where information is
screened for drug and food interactions, allergies, and refill limitations. Upon
entry, the prescription becomes part of the permanent patient record, and a
label is printed for application to the Company's blister package. The package
label contains specific patient information as well as physician name,
medication, dosage information and cautionary messages. Prior to delivery to the
long-term care facility, the completed prescription with patient-specific label
attached is reviewed by one of the Company's pharmacists and re-verified against
the original order entry data. Following this final quality assurance check, the
prescription is delivered by courier service to the facility.
As an additional service, the Company furnishes its clients with customized
information from its computerized medical records and documentation system. This
system aggregates and organizes detailed patient medical records, facility drug
usage and monthly management and quality assurance reports. Management believes
this system of client-tailored information management, combined with the
Company's patient-specific unit dose delivery system, results in improved
efficiency and accuracy in the administration of medications and reduces the
likelihood of drug-related adverse consequences.
In addition to its core long-term care and correctional business, the
Company also provides pharmacy management services to six acute care hospitals
pursuant to management contracts on either a single-year or multi-year basis.
Pharmacy Consulting Services. Capstone provides value-added consulting
services that help clients comply with federal and state regulations applicable
to long-term care facilities, manage medication costs more effectively and
maximize the efficacy of drug regimens. These pharmacy consulting services
include (i) a review of each patient's medical record and drug regimen to
facilitate the monitoring of potential adverse drug reactions, (ii)
recommendation of therapeutic alternatives, where appropriate, (iii) monthly
evaluation of facility-wide drug usage and drug costs and (iv) maintenance of
drug administration records that assist the long-term care facility with
regulatory compliance.
Ancillary Services. Capstone provides long-term care facilities with
infusion therapies and Medicare Part B services, including enteral nutrition and
urologic supplies, as well as counseling and assistance with regulatory
compliance in connection with such services. The Company's registered nurses
provide on-site training to client facility staff members in the use of infusion
and enteral supplies and equipment. Prior to the acquisition of MediDyne Corp.
in July 1996 and the Symphony Acquisition in July 1996, ancillary services did
not comprise a material component of Capstone's net sales.
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OPERATIONS
Organization. Capstone's long-term care operations are divided into five
geographic regions, each headed by a regional vice president. Management
believes this regional organizational structure provides the flexibility to
accommodate continued growth. Capstone believes that the institutional pharmacy
business is dependent in large part on personal service and encourages its
pharmacists to develop personal relationships and to be responsive to local
market demands. The Company uses more centralized financial and inventory
control systems support than typically available to small, independent pharmacy
operators. Additional services performed at the corporate level include quality
improvement oversight, financial and accounting functions, clinical program
development, group purchasing, marketing, acquisitions and corporate
development activities.
Pharmacy Distribution Model. In the long-term care business, the Company
typically provides services through regional pharmacies that have the capability
to serve long-term care facilities within a 150-mile radius. These regional
pharmacies are generally open 24 hours, seven days a week and are staffed with
clinical pharmacists, registered nurses and pharmacy technicians. The Company
provides services from 40 pharmacies in 15 states. In the correctional
business, the Company dispenses pharmaceuticals via overnight delivery
primarily from a centralized mail service pharmacy operation located in
Baltimore, Maryland.
Formulary Management. Capstone utilizes a closed formulary management
system, Capstone Select(SM), in its capitated correctional business. Under the
Company's closed formulary, Capstone pharmacists assist prescribing physicians
in selecting the most appropriate drug among therapeutic alternatives,
including generic substitutions, and in the use of more cost-effective dosage
amounts.
Management believes that its experience with formulary management in its
correctional business, combined with Symphony's newly established long-term care
formulary program, should enhance Capstone's ability to implement an effective
formulary management system that will be attractive to long-term care providers
and third-party payors.
Sales & Marketing. The Company's marketing efforts are directed at
long-term care facility operators and providers of health care services to
correctional institutions. While pricing is an important factor in the selection
of pharmacy providers, Capstone's experience is that the primary factor,
particularly among long-term care operators, is the quality and range of
services offered. Consequently, the Company strives to provide high-quality
services that are tailored to each client's needs. Once a relationship is
established, Capstone then attempts to expand the range of services it provides.
Capstone's marketing efforts are conducted by its regional vice presidents
with support from local pharmacy managers and regional salespersons. The
Company's consultant pharmacists and nurse consultants also are integral to the
marketing effort because of their daily contact with the facility managers and
the residents in those facilities.
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Suppliers. Capstone purchases substantially all of its pharmaceutical
inventories from wholesalers and manufacturers. During the fourth quarter of
1996, Capstone negotiated a new primary wholesaler agreement with terms that are
more favorable to Capstone than its previous contracts. Capstone also has in
place secondary wholesale agreements to minimize its purchasing channels while
maximizing inventory quality and cost savings. Because of readily available
alternatives, Capstone is not dependent on any one supplier.
Customers. The primary customers of the Company are long-term care
facilities, correctional facilities, and hospitals. The Company is not dependent
on any one customer. The table below sets forth the percentage of revenues from
continuing operations derived from each payor source for the periods presented:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended Year Ended
Payor Source December 31, 1996 December 31, 1995 February 28, 1995
- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Long-Term Care Facilities 86.4% 63.3% 59.2%
Correctional Facilities 12.1 23.1 21.1
Hospital 1.5 13.6 6.8
Medical/Surgical 0.0 0.0 12.9
</TABLE>
COMPETITION
The institutional pharmacy market is highly fragmented and competition
varies significantly from market to market. The Company's competitors include
small retail pharmacies, large chain pharmacies, in-house captive pharmacies and
a small number of national institutional pharmacies. Management believes that
the competitive factors most important in the Company's lines of business are
quality and range of service offered, reputation with referral sources, ease of
doing business with the provider, ability to develop and to maintain
relationships with referral sources and competitive prices. Some of the
Company's present and potential competitors are significantly larger than the
Company and have, or may obtain, greater financial and marketing resources than
the Company. In addition, there are relatively few barriers to entry in the
local markets served by the Company, and it may encounter substantial
competition from local market entrants.
REIMBURSEMENT
The Company is reimbursed, directly or indirectly, by government-sponsored
programs for a majority of its institutional pharmacy services.
The Medicaid program is a federal-state cooperative program designed to
enable states to provide medical assistance to aged, blind or disabled
individuals, or to members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
State participation in the Medicaid program is voluntary. To become eligible to
receive federal funds, a state must submit a Medicaid "state plan" to the
Secretary of HHS for approval. The federal Medicaid statute specifies a variety
of requirements which the state plan must
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meet, including requirements relating to eligibility, coverage of services,
payment and administration. For residents eligible for Medicaid, the Company
bills the individual state Medicaid program. Medicaid programs are funded
jointly by the federal government and individual states and are administered by
the states. The reimbursement rates for pharmacy services under Medicaid are
determined on a state-by-state basis subject to review by the Health Care
Financing Administration and applicable federal law. Federal regulations and the
regulations of certain states establish "upper limits" for reimbursement for
prescription drugs under Medicaid. Pharmacy services are priced on a
state-by-state basis at the lower of "usual and customary" charges or cost
(which generally is defined as a function of average wholesale price) plus a
fixed dispensing fee which is adjusted to reflect associated costs on an annual
or less frequent basis. State Medicaid programs generally have long-established
programs for reimbursement which have been revised and refined over time and
have not had a material adverse effect on the pricing policies or receivables
collection for long-term care facility pharmacy services. Any future changes in
such reimbursement program or in regulations relating thereto, such as
reductions in the allowable reimbursement levels or the timing of processing of
payments, could adversely affect the Company's business.
Medicare, a federally-funded health insurance program, consists of two
parts: Medicare Part A, which covers, among other things, pharmaceutical costs
for eligible long-term patients; and Medicare Part B, which covers certain items
and services provided by medical suppliers, including enteral nutrition and
urologic supplies. Medicare Part A requires long-term care facilities to submit
all of their costs for patient care, including pharmaceutical costs, in a
unified bill. Thus, fees for pharmaceuticals provided to Medicare Part A
patients are paid to the Company by the long-term care facility on a monthly
basis. Pricing is consistent with that of private pay residents. Medicare Part A
has a cost-sharing arrangement under which patients must pay a portion of their
costs. These non-covered co-payments are billed by the facility directly to the
residents or the state Medicaid plan, as the case may be.
Payment for Medicare Part B is based on a fee schedule, which varies
depending on the state in which the patient receiving the items resides, and is
made on a per-item basis directly to the supplier. The Company either bills
Medicare directly for Medicare Part B covered products for each patient or,
alternatively, assists the long-term care facility in meeting Medicare Part B
eligibility requirements and prepares bills on behalf of the facility. Medicare
Part B also has an annual deductible as well as a co-payment obligation on
behalf of the patient, and the portion not covered by Medicare is billed
directly to the patient or appropriate secondary payor.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
and freezes and funding reductions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental reimbursement
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programs will continue to be based on the current methodology or remain
comparable to present levels. In this regard, the Company may be subject to rate
reductions as a result of federal budgetary legislation related to the Medicare
and Medicaid programs. In addition, various state Medicaid programs periodically
experience budgetary shortfalls which may result in Medicaid payment delays to
the Company. To date, the Company has not experienced any material adverse
effect due to any such budgetary shortfall.
In addition, the failure, even if inadvertent, of Capstone and/or its
client institutions to comply with applicable reimbursement regulations could
adversely affect Capstone's business. Additionally, changes in such
reimbursement programs or in regulations related thereto, such as reductions in
the allowable reimbursement levels, modifications in the timing or processing of
payments and other changes intended to limit or decrease the growth of Medicaid
and Medicare expenditures, could adversely affect the Company's business.
For patients carrying third-party insurance, the patient's individual
insurance plan is billed monthly. For those patients who are ineligible for the
Medicaid and Medicare programs and are not covered by private insurance, the
Company bills the individual or another responsible party monthly based on
prevailing regional market rates or "usual and customary" charges. In New York,
the Company receives the majority of its payments directly from the long-term
care facilities it serves.
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
serve, are subject to extensive federal, state and local regulation. These
regulations cover required qualifications, day-to-day operations, reimbursement
and the documentation of activities. Capstone continuously monitors the effects
of regulatory activity on its operations.
States generally require that companies operating a pharmacy within the
state be licensed by the state board of pharmacy. The Company currently has its
pharmacies licensed in each state in which it operates a pharmacy. In addition,
the Company currently delivers prescription drugs from its licensed pharmacies
to many states in which the Company does not operate a pharmacy. Most of these
states regulate the delivery by out-of-state pharmacies of prescription drugs to
patients in such states, and Capstone's pharmacies hold these requisite
licenses. In addition, Capstone's pharmacies are registered with the appropriate
state and federal authorities pursuant to statutes governing the regulation of
controlled substances.
Long-term care facilities are also required to be licensed in the states in
which they operate and, if serving Medicare or Medicaid patients, must be
certified to be in compliance with applicable program participation
requirements. Long-term care facilities are also subject to state and federal
nursing home regulations which impose strict compliance standards relating to
quality of care for long-term care facilities operations, including extensive
documentation and reporting requirements. In addition, pharmacists, nurses and
other health care professionals who provide services on the
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Company's behalf are in most cases required to obtain and maintain professional
licenses and are subject to state regulation regarding professional standards of
conduct.
Federal and state laws impose certain repackaging, labeling, and packing
insert requirements on pharmacies that repackage drugs for distribution beyond
the regular practice of dispensing or selling drugs directly to patients at
retail. A drug repackager must be registered with the Food and Drug
Administration. The Company holds all required registration and licenses, and
its repackaging operations are in material compliance with applicable state and
federal requirements.
The long-term care pharmacy business operates under regulatory and cost
containment pressures from state and federal legislation primarily affecting
Medicaid and, to a lesser extent, Medicare. As is the case for nursing home
services generally, Capstone receives reimbursement from both the Medicaid and
Medicare programs, directly from individual residents (private pay), and from
other payors such as third-party insurers. The Company believes that its
reimbursement mix is in line with long-term care expenditures nationally.
Federal regulations contain a variety of requirements relating to the
furnishing of prescription drugs under Medicaid. First, states are given broad
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Second, federal Medicaid law establishes standards
affecting pharmacy practice. These standards include general requirements
relating to patient counseling and drug utilization review and more specific
requirements for long-term care facilities relating to drug regimen reviews for
Medicaid patients in such facilities. Recent regulations clarify that, under
federal law, a pharmacy is not required to meet the general standards for drugs
dispensed to long-term care facility residents if the long-term care facility
complies with the drug regimen review requirements. However, the regulations
indicate that states may nevertheless require pharmacies to comply with the
general standards, regardless of whether the long-term care facility satisfies
the drug regimen review requirement, and the states in which the Company
operates currently do require its pharmacies to comply therewith. Third, federal
regulations impose certain requirements relating to reimbursement for
prescription drugs furnished to Medicaid patients.
In addition to requirements imposed by federal law, states have substantial
discretion to determine administrative, coverage, eligibility and payment
policies under their state Medicaid programs which may affect the Company's
operations. For example, some states have enacted "freedom of choice"
requirements which may prohibit a long-term care facility from requiring its
residents to purchase pharmacy or other ancillary medical services or supplies
from particular providers. Such limitations may increase the competition which
the Company faces in providing services to long-term care patients.
The Company is subject to federal and state laws that govern financial and
other arrangements between health care providers. These laws include the federal
anti-kickback statute and physician self-referral prohibitions. The
anti-kickback statute was originally enacted in 1977 and amended in 1987, and
which prohibits, among other things, knowingly and willfully soliciting,
receiving, offering or paying any remuneration directly or indirectly in return
for or to induce the referral of an individual to a person for the furnishing of
any item or service for which payment may
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be made in whole or in part under Medicare or Medicaid. Many states have enacted
similar statutes which are not necessarily limited to items and services for
which payment is made by Medicare or Medicaid. Violations of these laws may
result in fines, imprisonment, and exclusion from the Medicare and Medicaid
programs or other state-funded programs. Federal and state court decisions
interpreting these statutes are limited, but have generally construed the
statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute. In August 1994, the Office of Inspector
General ("OIG") of the Department of Health and Human Services, issued a Special
Fraud Alert regarding prescription drug marketing schemes which it believes may
violate the anti-kickback statute. Among the specific activities identified in
the Fraud Alert were a "product conversion" program in which a drug company
offered cash awards to pharmacies who changed from another company's drug
product to their product. The Fraud Alert also targets marketing programs in
which drug companies offer cash or other benefits to pharmacists in exchange for
marketing tasks in the course of pharmacy practice related to Medicare or
Medicaid.
The physician self-referral prohibition, commonly referred to as the
"Stark" law, prohibits a physician from referring Medicare or Medicaid patients
to "designated health services" in which the physician (or family member) has a
financial interest, either through ownership or compensation arrangements.
Prohibited referrals will not be reimbursed by Medicare or Medicaid, and the
statute makes it illegal to seek reimbursement from any other source. In
addition, violations may result in fines and/or civil penalties and exclusion
from the Medicare and Medicaid programs. The list of "designated health
services" includes outpatient prescription drugs. Some states have also passed
similar "anti-self referral" legislation. The Company does not believe that the
Stark law or similar state laws, have had, or will have, a significant adverse
impact on the operations of the Company.
In addition, a number of states have recently undertaken enforcement
actions against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions arose
under state consumer protection laws which generally prohibit false advertising,
deceptive trade practices, and the like. Further, a number of states involved in
these enforcement actions have requested that the Federal Food and Drug
Administration ("FDA") exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, the
FDA involvement would have on the Company's operations.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
Employees. As of March 25, 1997, the Company had approximately 1,363
full-time employees and approximately 539 part-time employees. Management
believes the company's relationship with its employees is good. None of the
Company's employees are represented by labor unions under any collective
bargaining agreement.
12
<PAGE> 13
ITEM 2. PROPERTIES.
The following table sets forth certain information regarding significant
properties owned or leased by the Company at December 31, 1996:
<TABLE>
<CAPTION>
SQUARE FEET EXPIRATION
ADDRESS (APPROXIMATE) OF LEASE USE
------- ------------- ------------- --------------------------
<S> <C> <C> <C>
LEASED:
9901 E. Valley Ranch Parkway 7,776 July 1999 Executive Offices
Irving, Texas
2930 Washington Boulevard 63,000 June 2002 Executive Offices and
Baltimore, Maryland Pharmacy
414 Alfred Avenue 23,487 October 1997 Pharmacy
Teaneck, New Jersey
700 Washington Blvd. 198 December 1997 Pharmacy
Baltimore, MD
5 O'Dell Plaza 8,300 October 1999 Pharmacy
Yonkers, NY
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
SQUARE FEET EXPIRATION
ADDRESS (APPROXIMATE) OF LEASE USE
------- ------------- ------------- --------------------------
<S> <C> <C> <C>
5301 East River Road, #101 13,747 January 31, 2001 Pharmacy
Minneapolis, MN
2507 Gravel Drive 9,000 July 31, 1999 Pharmacy
Ft. Worth, TX
4802 Pittsburgh Avenue 5,400 December 15, 2000 Pharmacy
Erie, PA
6250 19th NW 23rd Street 2,750 July 31, 1997 Pharmacy
Gainesville, FL
5350 Alla Road 21,141 June 30, 2002 Pharmacy
Los Angeles, CA
603 North Eckhoff 4,800 November 30, 1999 Pharmacy
Orange, CA
3813 Jefferson Highway 5,400 Month to month Pharmacy
Jefferson, Louisiana
5185 Campus Drive 11,000 March 22, 2000 Pharmacy
Plymouth Meeting, PA
955 East Fillmore Street 3,250 January 31, 2000 Pharmacy
Colorado Springs, CO
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
SQUARE FEET EXPIRATION
ADDRESS (APPROXIMATE) OF LEASE USE
------- ------------- ------------- --------------------------
<S> <C> <C> <C>
6576 80th Avenue North 5,000 February 28, 1998 Pharmacy
Pinellas Park, FL
2101 NW 33rd Street 7,443 February 28, 2000 Pharmacy
1400 A & 1500 A
Pompano Beach, FL
1130 Palmyrita Avenue, #350 6,627 October 31, 2000 Pharmacy
Riverside, CA
5730 Clark Road 5,450 January 31, 2000 Pharmacy
Sarasota, FL
6201 16th Avenue 4,000 February 28, 1999 Pharmacy
Brooklyn, NY
111 Cedar Lane 5,000 April 30, 1999 Pharmacy
Englewood, NJ
708 Enterprise Drive 13,000 January 2006 Pharmacy
Oak Brook, IL
111 Ruthar Drive 13,600 October 2009 Pharmacy
Newark, DE
325 East Main Street 8,000 December 1999 Pharmacy
Parsons, TN
153 Stewart Road 5,312 November 22, 2001 Pharmacy
Wilkes-Barre, PA
10 Bearfoot Road 9,276 December 1, 2000 Pharmacy
Northborough, MA
80 Little Falls Road 13,500 December 31, 2002 Pharmacy
Fairfield, NJ
</TABLE>
15
<PAGE> 16
The Company considers that, in general, its physical properties are well
maintained, in good operating condition and adequate for their intended
purposes.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit, Marvin Levine, Gloria Levine, and John McBay v. Capstone
Pharmacy Services, Inc., Premier Pharmacy, Inc. ("Premier"), and Compuscript,
Inc., was filed in the Supreme Court of the State of New York, County of
Westchester (No. 19238/95) on November 15, 1995. The plaintiffs sold the stock
of Compuscript, Inc. ("Compuscript") to Premier in 1993 pursuant to the terms
of a purchase agreement (the "Agreement") and claim that Premier, which the
Company has acquired, and Compuscript owe them approximately $1,000,000 under
promissory notes delivered to them as part of the consideration for their
Compuscript stock. Plaintiffs also claim that Compuscript and Premier owe them
an additional $1,100,000 because of the alleged occurrence of certain events
that would give rise to such an obligation under the Agreement. Finally, the
plaintiffs claim the Company is liable for tortiously interfering with their
rights under the Agreement and under the promissory notes. The complaint seeks
total judgments of $7,100,000, plus interest and costs against the defendants.
The defendants, including Capstone, have answered the complaint and are
vigorously contesting the plaintiffs' claims. In addition, Premier has filed a
counterclaim against the plaintiffs for breaches of certain representations and
warranties in the Agreement. Capstone does not believe that this litigation is
likely to have a material adverse effect on the Company's financial position or
results of operations.
The Company is from time to time subject to claims and suits arising in the
ordinary course of business, including claims for repayment of monies paid to
the Company under Medicare or Medicaid. Although the Company and its
subsidiaries are not parties to any such litigation in which, in management's
opinion, an adverse determination would have a material effect on the Company's
financial position, there can be no assurance that the Company will not become
involved in such litigation in the future.
Except for the above described proceedings, as of March 25, 1997, there
were no material legal proceedings pending against the Company nor, to the
Company's knowledge, were any material proceedings against it contemplated by
any governmental authority.
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1996, no matters were submitted to
a vote of the Company's security holders.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Shares are traded on the NASDAQ National Market System (the
"NASDAQ Stock Market") under the designation "DOSE." The following table
indicates high and low sales quotations for the periods indicated based upon
information supplied by the NASDAQ Stock Market. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
BID QUOTATIONS
--------------------
HIGH LOW
TEN MONTHS ENDED DECEMBER 31, 1995(1) ---- ---
- -------------------------------------
<S> <C> <C>
1st Quarter $ 5.00 $2.81
2nd Quarter 5.56 4.00
3rd Quarter 6.94 5.19
4th Quarter (December only) 7.88 6.25
YEAR ENDED DECEMBER 31, 1996
- ------------------------------------
1st Quarter $ 9.25 $7.00
2nd Quarter 13.38 8.50
3rd Quarter 13.63 9.75
4th Quarter 13.13 9.38
</TABLE>
- -------------
(1) Effective December 31, 1995, the Company changed its year end from
February 28 to December 31.
As of March 25, 1997, the number of record holders of the Company's shares
was approximately 570, which does not include individual participants in
security position listings. The Company believes that the number of beneficial
owners of the Company's shares exceeds 400, the minimum number required by the
NASDAQ Stock Market. On March 25, 1997, the closing bid quotation for the
Company's common stock was $12.375, as reported by the NASDAQ Stock Market.
The Company has not paid cash dividends on its common stock and anticipates
that, for the foreseeable future, any earnings will be retained for use in its
business and no cash dividends will be paid. The COMPANY'S LOAN ARRANGEMENTS
PROHIBIT THE PAYMENT OF DIVIDENDS.
In the past three fiscal years the Company has sold the following
securities without registration under the Securities Act:
<TABLE>
<CAPTION>
Date Title Amount Purchasers Consideration
---- ----- ------ ---------- -------------
<S> <C> <C> <C> <C>
1/94(1) $3.50 Warrant 40,000 Equity Group Services rendered
12/94(1) Common Stock 2,000,000 Counsel Corporation $7.30 million
$4.50 Warrant 1,000,000
$5.50 Warrant 800,000
5/95(2) Common Stock 1,600,000 Private placement to $5.84 million
$4.50 Warrant 800,000 various investors
$5.50 Warrant 640,000 including Counsel
and Company affiliates
12/95(1) $7.31 Warrant 15,000 Creditamstalt Credit Facility adjustment
8/95(2) Common Stock 3,500,000 Private placement to Approximately $15 million
various investors
including Counsel and
Company affiliates
1/96(1) Common Stock 1,007,692 Shareholders of Sale of business. Stock
Geri-Care Systems, Inc. represented $6.55 million
in purchase price consideration
2/96(1) $7.50 Warrant 75,000 Shareholder of IMD Sale of business. Warrant
Corporation was part of the
purchase price consideration
4/96(2) Common Stock 1,035,000 Equitable Securities Approximately $9 million
Corporation acted as
placement agent to
various investors
7/96(1) Common Stock 2,112,490 IHS Sale of business.
Stock represented $25
million in purchase price
consideration
7/96(1) Common Stock 2,112,490 Counsel $25 million
1/97(1) Common Stock 1,354,402 Shareholder of Sale of business.
Clinical Care-SNF Stock represented $15
million in purchase
price consideration
1/97(1) Common Stock 1,354,402 Shareholder of Sale of business.
Portaro Pharmacies Stock represented $15
million in purchase
price consideration
1/97-3/97(1) $12.00 Warrants 213,685 ACA Investors Issued pursuant to
acquisition consulting
agreement in connection
with various acquisitions
</TABLE>
- -----------------
(1) Offering made pursuant to Section 4(2) of the Securities Act in reliance
upon the limited number of offers and sales and the nature of the
transaction and the purchaser.
(2) Offering made pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act in reliance upon criteria set forth in Regulation D.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR TEN MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994 1993
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $ 144,398 $ 48,841 $ 43,608 $ 51,254 $ 39,555
Income (loss) from continuing
operations 3,365 (645) (10,781) (521) (1,351)
Income (loss) from operations of
discontinued business segments 19 (135) (340) (241)
Gain (loss) on disposal of
discontinued business segments, net 565 (503)
Net income (loss) 3,125 222 (11,420) (862) (1,593)
EARNINGS PER SHARE DATA
Primary:
Continuing operations $ 0.15 $ (0.06) $ (1.67) $ (0.08) $ (0.22)
Discontinued operations 0.05 (0.10) (0.06) (0.04)
Extraordinary Item (0.01) 0.03
----------- ----------- ---------- ---------- ----------
Net income (loss) $ 0.14 $ 0.02 (1.77) $ (0.14) $ (0.26)
=========== =========== ========== ========== ==========
Fully diluted:
Continuing operations $ 0.14 $ (0.05) $ (1.67) $ (0.08) $ (0.22)
Discontinued operations 0.05 (0.10) (0.06) (0.04)
Extraordinary item (0.01) 0.02
----------- ----------- ---------- ---------- ----------
Net income (loss) $ 0.13 $ 0.02 $ (1.77) $ (0.14) $ (0.26)
=========== =========== ========== ========== ==========
Weighted average number of
common shares outstanding
Primary 22,916,764 11,337,997 6,458,891 6,071,687 6,187,376
=========== =========== ========== ========== ==========
Fully Diluted 23,214,767 12,398,401 6,458,891 6,071,687 6,187,376
=========== =========== ========== ========== ==========
SUMMARY OF BALANCE SHEETS
Total Current Assets $ 80,884 $ 21,950 $ 11,758 $ 15,617 $ 17,654
Total Assets 271,001 42,131 19,212 24,360 26,717
Total Current Liabilities 24,203 11,135 5,848 13,685 16,134
Total Long-Term Liabilities 42,053 4,156 8,586 2,358 1,506
Total Stockholders' Equity 204,746 26,840 4,778 8,316 9,077
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the related notes,
and the other financial information incorporated by reference herein.
18
<PAGE> 19
RISK FACTORS. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company hereby makes
reference to items set forth under the heading "Risk Factors" in the Company's
Registration Statement on Form S-3, as amended (Registration No. 333-08403).
Such cautionary statements identify important facts that could cause the
Company's actual results to differ materially from those projected in forward
looking statements made by or on behalf of the Company in this or any other
section of this annual report on Form 10-K.
GENERAL
Capstone is a leading provider of institutional pharmacy services to
long-term care facilities and correctional institutions throughout the United
States. The Company provides its long-term care clients with comprehensive
institutional pharmacy services that include (i) the purchasing, repackaging and
dispensing of pharmaceuticals, (ii) infusion therapy and Medicare Part B
services, which are comprised of enteral nutrition and urologic supplies, and
(iii) pharmacy consulting services, all of which are supported by computerized
recordkeeping and third-party billing services. The Company serves its long-term
care clients primarily through regional pharmacies that are open 24 hours, seven
days a week. In the correctional business, the Company provides pharmaceuticals
primarily under capitated contracts at correctional institutions that have
privatized inmate health care services.
Health care providers are continuing to be challenged to reduce costs while
maintaining the quality of patient care. Management believes that these factors
will result in the continuing consolidations of institutional pharmacy providers
during the new few years. In addition, the Company believes that its strategy of
creating larger regional pharmacies in metropolitan areas will allow it to
reduce the costs of providing services to the residents it serves. The Company
is also developing a formulary and various other clinical programs which it
believes will enhance the quality of patient care while reducing the costs of
providing this care.
In May 1995, the Company implemented a corporate restructuring plan that
included installation of a new management team, refocusing the Company's
operations on core institutional pharmacy businesses and the initiation of an
aggressive acquisition strategy. In conjunction with the restructuring, the
Company exited certain non-strategic, unprofitable lines of business. The
Company sold its medical/surgical supply operation, closed a long-term care
pharmacy in Missouri, discontinued its long-term care mail order pharmacy
operations and sold its computer software division. The Company took certain
charges and realized certain gains relating to the discontinuation of these
operations.
During the third quarter of 1996, the Company implemented a restructuring
plan that will consolidate and integrate the Company's recent acquisitions with
existing operations, as well as promote an efficient structure to support
continued growth. Key aspects of this plan include the consolidation of
California, Pennsylvania and Maryland long-term care pharmacies and the closure
of excess facilities. The Company will relocate its corporate headquarters to
Irving, Texas during 1997.
The acquisition of institutional pharmacy companies has resulted in a
significant change in the Company's financial profile. Since May 1, 1995 the
Company has completed 12 acquisitions. On a pro forma basis for all
acquisitions, the Company's net sales and net income for the year ended
December 31, 1996, were $276,976,000 and $8,317,000 respectively, compared to
actual net sales of $144,398,000 and $3,125,000 of net income. All of these
acquisitions have been accounted for using the purchase method of accounting,
and as a result the Company will incur significant future amortization expense
associated with goodwill.
19
<PAGE> 20
Fiscal Year Ended December 31, 1996 Compared to the Ten Months Ended December
31, 1995
NET SALES. Net sales increased to $144,398,000 in 1996 from $48,841,000 in
1995, an increase of $95,557,000 or 196%. This increase is primarily
attributable to the acquisition of Symphony and other institutional pharmacy
businesses during 1996. Additionally, the Company anticipates that continued
acquisitions of institutional pharmacies will be a significant contributor to
revenue growth in the next few years. Net revenue in 1997 will also be higher
than 1996 as a result of realizing a full year's contribution from businesses
that were acquired during 1996. In addition to growth through acquisitions, the
Company anticipates net revenues will increase in future years as a result of
new contracts, preferred provider agreements and the increase in ancillary
services provided such as infusion therapy and Medicare Part B services.
COST OF SALES. Cost of sales includes the cost of pharmaceuticals sold to
patients and institutions. Cost of sales increased to $85,532,000 in 1996 from
$30,654,000 in 1995 an increase of $54,878,000 or 179%. The increase in dollar
amount of cost of sales is due to the corresponding increase in revenue levels
for 1996. As a percentage of net sales, cost of sales decreased to 59.2% in 1996
from 62.8% in 1995. This is a result of more favorable reimbursement in the
markets of the acquired companies, the addition of higher margin infusion
therapy, Medicare Part B services and purchasing efficiencies related to
greater purchasing volume. In addition, the Company entered into a new prime
vendor and group purchasing organization agreements during the fourth quarter
of 1996. The Company anticipates that these agreements will result in a further
reduction in the cost of pharmaceuticals purchased in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include salaries, benefits, facility and delivery
expenses and other administrative overhead. Selling, general and administrative
expenses increased to $46,592,000 in 1996 from $17,469,000 in 1995, an increase
of $29,123,000 or 167%. The increase in the amount of selling, general and
administrative expenses during 1996 was due to the six acquisitions finalized
in 1996. As a percentage of net sales, selling, general and administrative
expenses were 31.6% in the 1996 period compared to 35.8% in the 1995 period.
This decrease is a result of the corporate restructuring discussed above and
initial operational synergies achieved through the acquisition of Symphony.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to $
4,634,000 in 1996 from $1,103,000 in 1995, an increase of $3,531,000 or 320%.
This increase is attributable to assets and goodwill associated with
acquisitions completed during 1996.
NON-OPERATING EXPENSE. Non-operating expenses include interest, acquisition
financing fees and expenses and other non-operating items. Non-operating
expenses increased to $6,324,000 in
20
<PAGE> 21
1996 from $245,000 in 1995. During 1996, the increase in non-operating expenses
is attributable to one time charges of $4,574,000 related to acquisition
financing fees for the Symphony transaction and increased interest expense
primarily resulting from borrowings related to 1996 acquisitions. The ten
months ended December 31, 1995 include a gain on the sale of the Company's
medical/surgical business.
INCOME TAXES. Income taxes in the 1996 and 1995 periods consist of accruals
for estimated state and local incomes taxes based upon apportioned state taxable
income, offset by estimated refundable federal income taxes resulting from the
benefit of net operating loss carryforwards. In 1996, the Company realized a
benefit for income taxes of $5,120,857 which was primarily a result of the
reversal of a deferred tax asset valuation allowance established in prior
periods.
Ten Months Ended December 31, 1995 Compared with the Fiscal Year Ended February
28, 1995
NET SALES. Net sales for the ten months ended December 31, 1995 were
$48,841,000 compared to $43,608,000 for the fiscal year ended February 28, 1995.
Of this difference, net revenues increased by approximately $13,815,000 due to
the acquisition of Premier. Net sales decreased substantially due to the sale of
the medical/surgical business, partially offset by the addition of new
correctional contracts.
COST OF SALES. Cost of sales for the ten months ended December 31, 1995 was
$30,654,000 compared to $27,970,000 for the fiscal year ended February 28, 1995.
Of this difference, approximately $8,148,000 was attributable to the Premier
acquisition. As a percentage of net sales, cost of sales for the ten months
ended December 31, 1995 was 62.8% compared to 64.1% for fiscal 1995. The
decrease as a percentage of net sales was primarily due to the sale of the lower
margin medical/surgical supply business. In addition, the Company renegotiated
its purchasing contracts during the 1995 period, lowering its cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the ten months ended December 31, 1995 were
$17,469,000 compared to $18,637,000 for the fiscal year ended February 28, 1995.
As a percentage of net sales, selling, general and administrative expenses for
the ten months ended December 31, 1995 were 35.8% compared to 42.7% for fiscal
1995. The decrease as a percentage of net sales was due to the sale of the
medical/surgical supply business and reduced costs as a result of the corporate
restructuring discussed above. The Premier acquisition added approximately
$4,800,000 of additional selling, general and administrative expense.
INTEREST EXPENSE. Net interest expense for the ten months ended
December 31, 1995 was $677,000 compared to $905,000 for the fiscal year ended
February 28, 1995. This decrease primarily resulted from the reduction of the
Company's debt using proceeds from private placements and the difference
between the ten month and twelve month periods.
21
<PAGE> 22
OTHER INCOME. Other income for the ten months ended December 31, 1995 was
$432,000 compared to $104,000 for the fiscal year ended February 28, 1995. The
difference primarily resulted from a gain on the sale of assets from the
Company's medical/surgical supply business.
INCOME TAXES. Benefit for income taxes for the ten months ended December
31, 1995 was $225,000 compared to $466,000 for the fiscal year ended February
28, 1995. The benefit for income taxes for the ten months ended December 31,
1995, primarily resulted from the carry back of a prior year taxable loss to
prior periods.
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOW
The Company requires capital primarily for the acquisition of institutional
pharmacy companies, to finance its working capital requirements and for the
purchase of equipment for existing pharmacies.
The Company's net cash flows from operating activities were ($6,899,000),
($3,588,000) and ($1,123,000), respectively, for the year ended December 31,
1996, the ten months ended December 31, 1995, and the year ended February 28,
1995, respectively. Generally, the cash flows from operating activities in each
of the periods resulted from increased working capital requirements associated
with the Company's acquisitions. During 1996, cash flows from operations were
affected primarily by cash paid for acquisition financing fees related to the
Symphony acquisition of $4,574,000. Net cash from operating activities was
impacted by a $11,420,000 net loss and a $3,500,000 litigation settlement
payment by the Company in the fiscal year ended February 28, 1995. These
capital needs are met through bank financing, and private and public equity
offerings. The continuing availability of capital is crucial to the Company's
future acquisition strategy. There can be no assurance that additional
financing will be available to the Company on terms acceptable to the Company
or at all.
The Company's net cash flows for investing activities were $(161,106,000),
$(6,559,000) and $9,000 for the year ended December 31, 1996, the ten months
ended December 31, 1995 and the year ended February 28, 1995, respectively. The
Company's net cash to investing activities were primarily impacted by
$158,703,000 related to the acquisition of Geri-Care, IMD, MediDyne, Symphony,
Happy Harry's and Institutional Pharmacy Services during 1996 and by $4,169,000
of acquisition spending for Premier, and a $2,243,000 advance associated with a
subsequent acquisition during the ten months ended December 31, 1995.
22
<PAGE> 23
Net cash flows from financing activities were approximately $174,649,000,
$12,364,000 and $1,218,000 for the year ended December 31, 1996, the ten months
ended December 31, 1995 and the year ended February 28, 1995, respectively. Net
cash flows from financing activities were impacted by public and private equity
offerings for net proceeds of $145,048,000, net borrowings of $32,497,000 and
$2,500,000 related to Symphony acquisition financing fees in 1996. Net cash
flows from financing activities in 1995 were impacted by equity offerings for
net proceeds of $21,682,000 and net debt repayments of $8,934,000 in the ten
months ended December 31, 1995.
During December 1996, the Company entered into a revolving $125 million
credit facility (the "Credit Facility") with a syndicate of banks for which
Bankers Trust Company acts as agent. Approximately $32,000,000 of the Credit
Facility was used to retire amounts outstanding under the Company's prior
credit facility. Borrowings under the agreement are secured by substantially
all of the assets of the Company. The Credit Facility bears interest, at the
option of the Company, at (a) Bankers Trust Company's prime rate plus between
0% to .50%, based on the Company's leverage ratio, or (b) the prevailing
Eurodollar rate quoted by Bankers Trust Company, plus between .50% to 1.50%,
based on the Company's leverage ratio. Borrowings under the Credit Facility are
subject to other provisions and covenants, all as defined by the underlying
agreement. The Company incurred an extraordinary loss of approximately
$240,000 related to the retirement. As of March 25, 1997, the Company had
outstanding borrowings of approximately $81,500,000.00 under the Credit
Facility.
The Company's current ratio was 3.32:1 at December 31, 1996 and 1.97:1 at
December 31, 1995. The increased current ratio at December 31, 1996 was due
primarily to an increase in accounts receivable, inventories and prepaid
expenses partially offset by increases in accounts payable, accrued expenses
and other current liabilities, all as a result of acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data are attached hereto, following
page 26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
23
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) & (2) and (d) Financial Statements and Financial Statement
Schedules. See Index to Financial Statements included elsewhere in this Annual
Report.
(a) (3) and (c) Exhibits. See Index of Exhibits annexed hereto.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K dated within
the quarter ended December 31, 1996:
The Company filed a periodic report on Form 8-K dated October 2,
1996, to report pursuant to Item 5 certain unaudited restated
quarterly financial data for 1995 to reflect the Company's fiscal
year change.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPSTONE PHARMACY SERVICES, INC.
By: /s/ James D. Shelton
-------------------------------
James D. Shelton,
Chief Financial Officer
March 27, 1997
POWER OF ATTORNEY
Each person whose signature to the Annual Report appears below hereby
appoints R. Dirk Allison and James D. Shelton, and each of them, any one of
whom may act without the joinder of the others, as his attorney-in-fact to
execute in the name and on behalf of any such person, individually and in the
capacity stated below, and to file all amendments to this Annual Report, which
amendment or amendments may make such changes and additions in this Annual
Report as such attorney-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. Dirk Allison Chief Executive Officer and March 27, 1997
- ----------------------- Director
R. Dirk Allison
/s/ James D. Shelton Chief Financial Officer March 27, 1997
- -----------------------
James D. Shelton
/s/ Allan C. Silber Chairman March 27, 1997
- -----------------------
Allan C. Silber
/s/ Morris A. Perlis Vice Chairman March 27, 1997
- -----------------------
Morris A. Perlis
/s/ Albert Reichmann Director March 27, 1997
- -----------------------
Albert Reichmann
Director March 27, 1997
- -----------------------
J. Brendan Ryan
/s/ John E. Zuccotti Director March 27, 1997
- -----------------------
John E. Zuccotti
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C>
/s/ Gail Wilensky, Ph.D. Director March 27, 1997
- -----------------------------
Gail Wilensky, Ph.D.
/s/ Joseph F. Furlong, III Director March 27, 1997
- -----------------------------
Joseph F. Furlong, III
/s/ John Haronian Director March 27, 1997
- -----------------------------
John Haronian
/s/ Edward Sonshine, Q.C. Director March 27, 1997
- -----------------------------
Edward Sonshine, Q.C.
</TABLE>
26
<PAGE> 27
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(a) 1. Financial Statements:
The following financial statements of the Company are included herein.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - As of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations - For the year ended December 31, 1996,
the ten months ended December 31, 1995 and the year ended February 28, 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity - For the year ended
December 31, 1996, the ten months ended December 31, 1995 and the year ended
February 28, 1995 F-6
Consolidated Statements of Cash Flows - For the year ended December 31, 1996,
the ten months ended December 31, 1995 and year ended February 28, 1995 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Capstone Pharmacy Services, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Capstone
Pharmacy Services, Inc. (a Delaware corporation and formerly Choice Drug
Systems, Inc.) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1996, the ten months ended
December 31, 1995 and the year ended February 28, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Capstone Pharmacy
Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations, changes in stockholders' equity and their cash
flows for the year ended December 31, 1996, the ten months ended December 31,
1995 and the year ended February 28, 1995, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland
March 14, 1997
F-2
<PAGE> 29
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
Assets
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,407,354 $ 2,763,416
Accounts receivable, net of allowance
for doubtful accounts of $5,778,000
and $1,294,000 50,503,619 12,646,087
Inventories 13,541,511 5,023,008
Refundable income taxes -- 828,628
Prepaid expenses and other current assets 1,523,194 688,549
Deferred tax asset 5,408,381 --
------------ -----------
Total Current Assets 80,384,059 21,949,688
Equipment and leasehold improvements, net 10,468,963 2,692,298
Goodwill, net of accumulated amortization of
$4,074,000 and $1,554,000 178,778,162 14,580,564
Advances to affiliates -- 2,242,841
Other assets 1,369,982 665,204
------------ -----------
Total Assets $271,001,166 $42,130,595
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-3
<PAGE> 30
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 18,337,485 $ 6,137,272
Current portion of long-term debt 3,557,199 4,222,608
Current portion of non-compete agreements 200,000 200,000
Accrued restructuring charges 2,107,846 575,349
------------ -----------
Total Current Liabilities 24,202,530 11,135,229
------------ -----------
Deferred income taxes -- 542,787
Non-compete agreements, net of current portion 200,000 400,000
Long-term debt, net of current portion 39,165,739 2,692,202
Restructuring charges,
net of current portion 2,687,068 520,640
------------ -----------
Total Liabilities 66,255,337 15,290,858
------------ -----------
Commitments and Contingencies
Stockholders' Equity
Common stock $.01 par value; 50,000,000
shares authorized at December 31, 1996
and 30,000,000 shares authorized at
December 31, 1995; 31,134,221 shares
issued and 30,795,769 outstanding as of
December 31, 1996 and 13,610,810 issued
and outstanding as of December 31, 1995 309,957 136,108
Additional paid-in capital 213,593,829 38,985,006
Accumulated deficit (9,155,957) (12,281,377)
------------ -----------
Total Stockholders' Equity 204,745,829 26,839,737
------------ -----------
Total Liabilities and Stockholders' Equity $271,001,166 $42,130,595
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-4
<PAGE> 31
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996, the Ten Months
Ended December 31, 1995, and the Year Ended February 28, 1995
<TABLE>
<CAPTION>
Year Ended Ten Months Ended Year Ended
December 31, 1996 December 31, 1995 February 28, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $144,397,836 $48,841,443 $43,607,946
Cost of sales 85,531,996 30,654,118 27,969,532
------------ ----------- -----------
Gross profit 58,865,840 18,187,325 15,638,414
------------ ----------- -----------
Operating expenses:
Selling, general and administrative expenses 46,591,975 17,468,930 18,637,213
Depreciation and amortization 4,633,787 1,102,892 988,974
Costs in connection with litigation -- -- 4,389,163
Costs relating to pharmacy closure 246,446 -- --
Restructuring charges 2,825,000 240,000 2,069,432
------------ ----------- -----------
Total operating expenses 54,297,208 18,811,822 26,084,782
------------ ----------- -----------
Operating income (loss) 4,568,632 (624,497) (10,446,368)
------------ ----------- -----------
Non-operating expense (income):
Interest expense, net 1,899,784 677,009 905,404
Acquisition financing fees and expenses 4,573,530 -- --
Other income, net (149,206) (431,900) (104,076)
------------ ----------- -----------
Total non-operating expense (income), net 6,324,108 245,109 801,328
------------ ----------- -----------
Loss from continuing operations
before income taxes, discontinued opera-
ions and extraordinary items (1,755,476) (869,606) (11,247,696)
Benefit for income taxes (5,120,857) (225,082) (466,214)
------------ ----------- -----------
Income (loss) from continuing operations
before discontinued operations and
extraordinary items 3,365,381 (644,524) (10,781,482)
Discontinued operations:
Gain (loss) from operations of discontinued business
segments -- 18,667 (135,430)
Gain (loss) on disposal of business segments, net -- 564,844 (503,067)
------------ ----------- -----------
Net income (loss) before extraordinary items 3,365,381 (61,013) (11,419,979)
Extraordinary items:
Discount on repayment of vendor debt 283,364
Loss on extinguishment of debt, net of
tax benefit of $123,616 (239,961) -- --
------------ ----------- -----------
Net income (loss) $ 3,125,420 $ 222,351 $(11,419,979)
============ =========== ===========
Earnings (loss) per common and common equivalent share:
Primary
Continuing operations $ 0.15 $ (0.06) $ (1.67)
Discontinued operations -- 0.05 (0.10)
Extraordinary items (0.01) 0.03 --
------------ ----------- -----------
Net income (loss) $ 0.14 $ 0.02 $ (1.77)
============ =========== ===========
Fully diluted
Continuing operations $ 0.14 $ (0.05) $ (1.67)
Discontinued operations -- 0.05 (0.10)
Extraordinary items (0.01) 0.02 --
------------ ----------- -----------
Net income (loss) $ 0.13 $ 0.02 $ (1.77)
============ =========== ===========
Weighted average common and common equivalent shares outstanding:
Primary 22,916,764 11,337,997 6,458,891
============ =========== ===========
Fully diluted 23,214,767 12,398,401 6,458,891
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE> 32
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1996, the Ten Months Ended
December 31, 1995 and the Year Ended February 28, 1995
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- paid-in Accumulated
Shares Amount capital deficit
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, February 28, 1994 6,086,810 $ 60,868 $ 9,339,340 ($ 1,083,749)
Issuance of common stock:
Stock issued to Counsel Corporation
in connection with stock purchase
agreement, net of related issuance
costs 2,000,000 20,000 7,171,300 --
Stock issued in connection with
exercise of stock options 34,000 340 89,410
Stock issued in connection with
settlement of litigation -- -- 600,000 --
Net loss -- -- -- (11,419,979)
---------- -------- ------------- ------------
Balance, February 28, 1995 8,120,810 81,208 17,200,050 (12,503,728)
Issuance of common stock:
Stock issued in connection with
private placements, net of related
issuance costs 5,100,000 51,000 20,769,231 --
Stock issued in connection with the
acquisition of PremierPharmacy Inc. 35,000 350 157,150 --
Stock issued in connection with
exercise of stock options 355,000 3,550 858,575 --
Net income -- -- -- 222,351
---------- -------- ------------- ------------
Balance, December 31, 1995 13,610,810 136,108 38,985,006 (12,281,377)
Issuance of common stock:
Stock issued in connection with
private placements, net of related
issuance costs 3,147,490 31,475 33,350,784 --
Stock issued in connection with
settlement of litigation 98,563 986 (986) --
Stock issued in connection with
the acquisitions of Symphony
Pharmacy Services, Inc., Geri-Care
Systems, Inc. and Scripts & Things,
Inc. 2,781,720 27,817 29,469,051 --
Stock issued in connection with
conversion of warrants 685,010 6,850 3,928,401 --
Stock issued in connection with
public offering 10,350,000 103,500 107,235,306 --
Stock issued in connection with
exercise of stock options, net 122,166 1,221 626,267
Net income -- -- -- 3,125,420
---------- -------- ------------- ------------
Balance, December 31, 1996 30,795,759 $307,957 $ 213,593,829 ($ 9,155,957)
========== ======== ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 33
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996, the Ten Months Ended December 31, 1995,
and the Year Ended February 28, 1995
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended Year Ended
December 31, December 31, February 28,
1996 1995 1995
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,125,420 $ 222,351 $(11,419,979)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 7,316,345 1,145,669 988,974
Gain on sale of pharmacies (150,267) -- --
(Gain) loss on disposal of business segments -- (564,844) 503,067
Settlement of litigation -- -- 3,500,000
Change in assets and liabilities, net of effects of
acquisitions and dispositions:
(Increase) decrease in accounts receivable (9,938,491) (2,644,719) 2,161,906
(Increase) decrease in inventories (109,400) 357,029 1,297,829
Decrease (increase) in refundable income taxes 848,726 (238,168) (108,699)
(Increase) decrease in prepaid expenses and
other current assets (508,342) (51,870) 779,825
Increase in deferred tax asset (5,408,381) -- --
Increase in other assets (439,468) (133,629) (333,011)
Decrease in accounts payable and accrued expenses (3,734,342) (988,497) (145,061)
Increase (decrease) in accrued restructuring
charges 2,098,925 (691,200) 1,652,033
------------- ------------ ------------
Net cash flows from operating activities (6,899,275) (3,587,878) (1,123,116)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (2,643,629) (1,076,976) (252,943)
Proceeds from sale of equipment and leasehold
improvements 230,960 -- --
Acquisitions, net of cash acquired (158,702,741) (4,168,872) --
Proceeds from sale of business segment -- 700,000 --
Advances to affiliates -- (2,242,841) --
Repayments of notes receivable 9,277 229,571 261,555
------------- ------------ ------------
Net cash flows from investing activities (161,106,133) (6,559,118) 8,612
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from commercial bank borrowings 82,173,525 11,600,000 --
Net repayments of commercial bank borrowings (46,922,852) (9,650,000) --
Net proceeds from acquisition bridge loan 100,000,000 -- --
Net repayments of acquisition bridge loan (100,000,000) -- --
Payment of acquisition financing costs (2,500,000) -- --
Loan proceeds from affiliate -- 1,268,250 --
Loan repayments to affiliate -- (1,268,250) --
Non-compete agreement payments (200,000) (200,000) --
Repayments of other long-term debt (2,753,210) (10,884,850) (5,902,723)
Principal payments of capital lease obligations (196,224) (183,992) (160,183)
Proceeds from issuance of common stock, net 145,048,107 21,682,356 7,281,050
------------- ------------ ------------
Net cash flows from financing activities 174,649,346 12,363,514 1,218,144
------------- ------------ ------------
Net increase in cash and cash equivalents 6,643,938 2,216,518 103,640
CASH AND CASH EQUIVALENTS, beginning of period 2,763,416 546,898 443,258
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 9,407,354 $ 2,763,416 $ 546,898
============= ============ ============
Supplemental Disclosure of Cash Flows Information
Cash paid for:
Interest $ 3,678,922 $ 659,184 $ 887,691
============= ============ ============
Taxes $ 181,500 $ 144,149 $ 224,477
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 34
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995 AND FEBRUARY 28, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Capstone Pharmacy Services, Inc., (formerly known as Choice Drug Systems,
Inc.) together with its subsidiaries (the "Company"), a Delaware Corporation, is
principally engaged in the business of providing pharmaceuticals and related
services to long-term care facilities, correctional institutions, hospitals and
health maintenance organizations.
On August 28, 1995, the Company changed its state of incorporation from New
York to Delaware. Effective October 2, 1995, the Company changed its name from
Choice Drug Systems, Inc. to Capstone Pharmacy Services, Inc. Additionally,
effective December 31, 1995, the Company changed its year-end from February 28
to December 31.
As of December 31, 1996, Counsel Corporation, an Ontario corporation
("Counsel"), owned approximately 6,020,000 shares of the Company's common stock
together with warrants to purchase approximately 2,337,000 additional shares.
Counsel is a management and business development company operating primarily in
the United States health care industry.
Principles of Consolidation
The consolidated financial statements include the accounts of Capstone
Pharmacy Services, Inc. and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
period presentation.
F-8
<PAGE> 35
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist principally of purchased pharmaceuticals.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives or with respect to leasehold improvements, over the term
of the lease if shorter.
Furniture, fixtures and equipment 3-10 years
Automobiles and trucks 3- 4 years
Leasehold improvements 5-10 years
Equipment under capital leases 3-5 years
Equipment and leasehold improvements obtained in acquisitions of subsidiaries
are depreciated or amortized based on their remaining useful lives at the
acquisition date.
Goodwill
Costs in excess of fair values of businesses acquired are recorded as
goodwill and amortized using the straight-line method over periods of twenty to
forty years. Amortization of goodwill amounted to approximately $2,474,000,
$417,000, and $384,000 for the year ended December 31, 1996, the ten months
ended December 31, 1995 and the year ended February 28, 1995, respectively.
401(k) Benefit Plan
Effective May 22, 1995, employees of the Company may participate in a
supplemental retirement program established under Section 401(k) of the Internal
Revenue Code, as amended. Contributions by the Company may be made to the plan
subject to the discretion of the Board of
F-9
<PAGE> 36
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Directors. No Company contribution was made for the year ended December 31,
1996, or the ten months ended December 31, 1995.
Revenue Recognition
Revenues are recorded as products are shipped and services rendered. A
portion of the Company's sales are covered by various state and Federal
reimbursement programs, which are subject to review and/or audit. Reimbursement
programs are also subject to change from time to time.
Income Taxes
The Company files a consolidated Federal income tax return. Income tax
expense is based on reported earnings before income taxes. Deferred taxes on
income are provided for those items for which the reporting period and methods
used for income tax purposes differ from those used for financial statement
purposes, using the asset and liability method. Deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities.
Earnings Per Share
Net loss per common share for the year ended February 28, 1995, was
computed by dividing the net loss by the average weighted number of common
shares outstanding. For the ten months ended December 31, 1995, and the year
ended December 31, 1996, primary and fully diluted earnings per common share
were computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding. The amount of common
stock equivalents outstanding was computed using the treasury stock method.
2. ACQUISITIONS
Acquisitions during the year ended December 31, 1996
In January 1996, the Company purchased Geri-Care Systems, Inc. and Scripts
& Things, Inc. ("Geri-Care") which provide institutional pharmacy services to
long-term care facilities in the New York metropolitan area. The purchase price
was approximately $6,000,000, payable $1,320,000 in cash and promissory notes,
with the remainder representing 669,230 shares of the Company's common stock.
The agreement also includes an additional 338,462 shares of the Company's
common stock held in escrow as a contingent incentive payment for certain new
F-10
<PAGE> 37
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business to be generated through 1998 by the selling shareholders of Geri-Care.
Total goodwill at the date of acquisition was $6,259,000.
In February 1996, the Company purchased IMD Corporation ("IMD") which
provides institutional pharmacy services to long-term care facilities in the
Chicago metropolitan area. The total purchase price was $15,882,000. Total
goodwill at the date of acquisition was $13,146,000.
In July 1996, the Company acquired DCMed, Inc. and its wholly-owned
subsidiary MediDyne Corporation (collectively, "MediDyne"), a provider of
Medicare Part B services, which consist of enteral nutrition and urologic
supplies, as well as counseling and assistance with regulatory compliance in
connection with such services. The total purchase price was $7,500,000. The
agreement also provides for an earn-out based on the future adjusted earnings
of the business, payable in cash. Total goodwill at the date of acquisition was
$7,667,000.
In July 1996, the Company acquired the institutional pharmacy business of
Symphony Pharmacy Services, Inc. ("Symphony"), a subsidiary of Integrated Health
Services, Inc. ("IHS"). Symphony provides institutional pharmacy services,
including infusion therapy and Medicare Part B services, to long-term care
facilities in eight states. The total purchase price was $150,000,000, including
$25,000,000 representing the issuance of 2,112,490 shares of the Company's
common stock. Total goodwill at the date of acquisition was $131,303,000.
In October 1996, the Company acquired the institutional pharmacy business
of Happy Harry's, Inc., a Delaware based retail drug store operator. The total
purchase price was $3,695,000. Total goodwill at the date of acquisition was
$2,407,000.
In December 1996, the Company purchased Institutional Pharmacy, Inc., which
provides institutional pharmacy services to long-term care facilities in the
state of Tennessee. The total purchase price was $4,839,000. Total goodwill at
the date of acquisition was $4,068,000.
Acquisitions During the Ten Months Ended December 31, 1995
In May 1995, the Company acquired PremierPharmacy, Inc. ("Premier"), which
provides pharmacy services to long-term care facilities located in the New York
metropolitan area and hospitals located in the southeastern United States. The
total purchase price was $4,250,000. Total goodwill at the date of acquisition
was $10,494,000.
All business acquisitions described above have been accounted for by the
purchase method of accounting with the assets and liabilities of the acquirees
recorded at their estimated fair market values at the date of acquisition. The
operations of the acquirees, since the dates of acquisition, are included in the
accompanying consolidated statements of operations. Goodwill for these business
acquisitions is being amortized over twenty to forty years.
F-11
<PAGE> 38
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma combined results of operations of the Company for the
year ended December 31, 1996, and the ten months ended December 31, 1995, are
presented below. Such pro forma presentation has been prepared assuming that the
acquisitions described above and in Note 17 have been made as of March 1, 1995
(in thousands, except per share data).
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
(unaudited)
<S> <C> <C>
Net revenues $276,976 $236,224
Gross profit 117,524 101,486
Net income before extraordinary 8,557 3,013
item
Net income 8,317 2,793
Primary and fully diluted, net
income per share $ 0.23 $ 0.08
======== ========
</TABLE>
The unaudited pro forma results include the historical accounts of the
Company and the acquired businesses adjusted to reflect (1) depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the acquisitions, (2) the interest expense resulting
from the financing of the acquisitions, (3) the per share effect of stock issued
as part of the acquisition and (4) the related income tax effects. The pro forma
results are not necessarily indicative of actual results which might have
occurred had the operations and management teams of the Company and the acquired
companies been combined in prior years.
F-12
<PAGE> 39
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31, 1996 and 1995, are
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Leasehold improvements $ 474,546 $ 544,272
Furniture, fixtures and equipment 12,471,101 3,945,149
Data processing equipment 2,376,750 1,512,500
Automobiles and trucks 290,186 258,379
------------- ------------
15,612,583 6,260,300
Accumulated depreciation and
amortization (5,143,620) (3,568,002)
------------- ------------
Equipment and leasehold improvements,
net $ 10,468,963 $ 2,692,298
============= ============
</TABLE>
Depreciation and amortization of equipment and leasehold improvements
amounted to approximately $2,160,000, $686,000 and $605,000 for the year ended
December 31, 1996, the ten months ended December 31, 1995 and the year ended
February 28, 1995, respectively.
F-13
<PAGE> 40
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt at December 31, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Borrowings under a $125,000,000 revolving credit $37,200,000 $ -
facility with a group of five commercial banks,
interest at varying rates based on the type of
borrowing, secured by substantially all assets of the
Company, due at scheduled maturities through
Unsecured note payable to former owners of 1,651,086 -
MediDyne, non-interest bearing, payable quarterly
based on MediDyne's financial performance,
due January 1998
Borrowings under a $10,000,000 revolving loan with - 1,950,000
CreditAnstalt, interest at prime plus 0.5% secured by
substantially all assets of the Company, due on
demand
Unsecured note payable to relative of 215,319 297,938
former stockholder, payable in quarterly
installments with interest at 9% through
January 2000
Amounts due under a Medicare settlement 1,933,330 2,537,500
with the United States Government,
payable in quarterly installments with
interest at 7.75% through 2001
Unsecured notes payable to former 1,000,000 1,000,000
stockholders of a Premier subsidiary,
interest at 6%, currently payable
Unsecured notes payable to former 309,641 464,752
stockholders of a Premier subsidiary, due
in monthly installments of $14,898,
including interest at 6% through
October 31, 1998
Unsecured note payable to a former - 153,334
stockholder of a Premier subsidiary,
interest at 7%, due August 11, 1996
</TABLE>
F-14
<PAGE> 41
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Unsecured notes payable to former $ 90,000 $ 120,000
stockholders of a Premier subsidiary,
interest at 7%, due in annual installments of
$30,000 through June 30, 1999
Capital lease obligations (Note 10) 316,092 364,844
Other 7,470 26,442
----------- -----------
42,722,938 6,914,810
Less: Current portion (3,557,199) (4,222,608)
----------- -----------
Long-term portion $39,165,739 $ 2,692,202
=========== ===========
</TABLE>
Future maturities of long-term debt, exclusive of capital lease obligations
at December 31, 1996, follow:
1997 $ 3,426,957
1998 757,090
1999 539,480
2000 483,319
2001 37,200,000
-----------
$42,406,846
===========
To finance acquisitions, the Company extinguished its outstanding debt
under the revolving loan agreement with CreditAnstalt and replaced it with a
$125,000,000 revolving credit facility through a group of five commercial banks
("new credit facility") on December 6, 1996. Extinguishment of the existing debt
included payoff of the outstanding balance of $31,422,852 and an incurred loss
$239,961, net of tax, resulting from the write-off of unamortized deferred
financing costs. The loss is recorded as an extraordinary item in the
accompanying consolidated statement of operations. The Company incurred
approximately $1,010,000 in debt acquisition costs associated with the new
credit facility, which are to be amortized over the life of the debt.
Under the new credit facility, the Company has the option to borrow under
base rate and eurodollar rate revolving loans, swing line loans, and letters of
credit. Interest rates on base rate and swing line loans are at the higher of
the prime rate or 0.5% in excess of the federal funds effective rate, plus an
applicable margin based on the Company's leverage ratio at the time of
borrowing. The
F-15
<PAGE> 42
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
swing line loans are also adjusted for a commitment fee percentage tied to the
Company's leverage ratio. Interest on base rate and swing line loans is due
quarterly in arrears. Interest rates on eurodollar rate loans are calculated at
the eurodollar rate plus an applicable margin based on the Company's leverage
ratio at the time of borrowing. Interest is due at the end of the one, two, or
three month interest period elected by the Company. If the Company elects a six
month eurodollar rate loan, interest is payable in arrears at the end of the
third and sixth month. Letter of credit fees are based on the eurodollar loan
margin, plus the greater of 0.25% of the maximum available to be drawn for
letters of credit, as defined in the agreement, or $500, and is to be paid
quarterly in arrears. As of December 31, 1996, the Company's outstanding
borrowings total $37,200,000 under a base rate loan at an effective interest
rate, including the amortization of deferred financing costs, of 8.29%.
Scheduled reductions of the $125,000,000 maximum balance allowed under the
new credit facility on December 1 of each year are as follows:
1997 $ -
1998 10,000,000
1999 35,000,000
2000 40,000,000
2001 40,000,000
-------------
$ 125,000,000
=============
The new revolving credit facility is secured by substantially all assets of
the Company and stipulates certain covenants applicable to capital expenditures,
cash consideration on acquisitions, and sale of assets, as well as minimum
financial ratios. As of December 31, 1996, the Company is in compliance with all
debt covenants.
The average effective interest rate on amounts outstanding under the
CreditAnstalt agreement for the periods outstanding during 1996 and 1995 were
approximately 7.5% and 8.75%, respectively. A letter of credit fee at an
annual rate of 1.25% was paid on a monthly basis. Amounts available to be
borrowed under this agreement were based upon levels of accounts receivable and
inventories. The weighted average and highest outstanding balance under this
agreement for the period outstanding through December 6, 1996 were $21,581,000
and $31,422,852, respectively.
In connection with the Symphony acquisition, the Company entered into a
senior subordinated credit facility with a group of lenders pursuant to which
the lenders funded a $100 million bridge loan. The proceeds of the bridge loan
were used to pay a portion of the Symphony acquisition purchase price. The
bridge loan bore interest at a floating interest rate of LIBOR plus 6.01% to
6.25%. In connection with the bridge loan, the Company incurred a commitment fee
of $2,500,000, net of an early loan repayment discount. The bridge loan was
repaid in full by the Company on September 26, 1996, using the proceeds of the
September 1996 public offering.
F-16
<PAGE> 43
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included as acquisition financing fees and expenses in the accompanying
consolidated statement of operations is the $2,500,000 commitment fee, bridge
loan interest of approximately $1,813,000 and bridge loan closing costs of
approximately $261,000. In connection with the acquisition of MediDyne (See
Note 2), the Company incurred a $2,900,000 note payable to the former owners of
MediDyne in consideration for the purchase. The note is non-interest bearing
and is to be repaid quarterly based on MediDyne's earnings before taxes,
depreciation and amortization in excess of $600,000. As of December 31, 1996,
the outstanding balance of $1,651,084 is expected by management to be paid
within one year and, therefore, has been included in current portion of
long-term debt in the accompanying consolidated balance sheet.
On November 1, 1995, the Company elected not to make a scheduled
installment payment on a note payable to former stockholders of a Premier
subsidiary in the aggregate principal amount of $1,000,000, due to a dispute
with these former stockholders. This amount is recorded as current portion of
long-term debt in the accompanying consolidated balance sheets as of December
31, 1996 and 1995.
On October 31, 1994, the Company entered into an agreement with the United
States Government settling an investigation conducted by the U.S. Attorney for
the Eastern District of Pennsylvania into claims for reimbursement made by
certain of the Company's subsidiaries to the Medicare Program. The subject of
the investigation was the Company's claims documentation and Medicare
reimbursement practices for December 1993 and prior. Under the terms of the
settlement, without admitting any liability, the Company has agreed to repay, as
a return of revenue previously received, over a six-year period, $3,400,000 to
settle the Government's claims. Initially, $100,000 was paid upon the execution
of the agreement and $400,000 was paid on December 31, 1994. Thereafter,
$2,900,000 plus interest at an annual rate of 7.75% is payable in quarterly
installments over a six year period ending January 1, 2001. The full amount of
the settlement, including related legal fees, is included in costs in connection
with litigation in the accompanying consolidated statement of operations for the
year ended February 28, 1995.
Interest expense for the year ended December 31, 1996, the ten months ended
December 31, 1995, and the year ended February 28, 1995, was approximately
$3,713,000, $677,000 and $905,000 respectively. These amounts include
amortization of deferred financing costs of approximately $183,000, $43,000 and
$0, respectively.
Based on the borrowing rates currently available to the Company, the fair
value of long term debt, exclusive of capital lease obligations, as of December
31, 1996, is approximately $42,410,000.
F-17
<PAGE> 44
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PUBLIC STOCK OFFERING
In September 1996, the Company completed an offering of 10,350,000 shares
of common stock to the public at a price of $11.00 per share. Net proceeds of
approximately $107,235,000 were received, net of direct costs of approximately
$6,615,000. Direct costs included the underwriters discount, accounting and
legal fees, printing and marketing expenses and other miscellaneous costs.
6. PRIVATE PLACEMENTS
In December 1994, the Company entered into a Stock Purchase Agreement with
Counsel. Pursuant to the Stock Purchase Agreement, Counsel acquired 2,000,000
shares of the Company's common stock for net proceeds of approximately
$7,191,000. Counsel was also granted two three-year warrants, the first of which
grants Counsel the right to purchase up to 1,000,000 shares of the Company's
common stock at an exercise price of $4.50 per share, and the second of which
grants Counsel the right to acquire up to 800,000 shares of the Company's common
stock at an exercise price of $5.50 per share.
In May 1995, the Company completed a private placement of 1,600,000 units
(the "Units"). Each Unit consisted of one share of common stock, a three year
warrant to acquire 0.5 shares of common stock at the exercise price of $4.50 per
share, and a three year warrant to acquire 0.4 shares of common stock at the
exercise price of $5.50 per share. The offering of Units raised proceeds of
approximately $5,759,000, net of related costs, at a price of $3.65 per Unit.
The proceeds of the private placement were used to fund the acquisition of
Premier and to retire the debt to a major vendor in the amount of approximately
$1,776,000, resulting in a gain on the discount of debt of approximately
$283,000. The gain on the discount of debt is reflected in the accompanying
consolidated statement of operations for the ten months ended December 31, 1995,
as an extraordinary item.
In August 1995, the Company completed a second private placement of its
common stock. This offering consisted of 3,500,000 shares at a price of $4.38
per share. The net proceeds of this private placement were approximately
$15,061,000, net of related costs including placement commissions. There were no
warrants issued in connection with this second private placement. The proceeds
of this private placement were used to retire outstanding debt of $9,650,000 due
to CreditAnstalt and for general working capital purposes.
In April 1996, the Company completed a third private placement of its
common stock. This offering consisted of 1,035,000 shares at a price of $8.50
per share. The net proceeds of this private placement were $8,400,000, net of
related costs. The proceeds from this private placement were used to fund
acquisitions and provide general working capital for the Company.
In July 1996, the Company completed a private placement of its common
stock with Counsel. Counsel acquired 2,112,490 shares of common stock for
proceeds of $25,000,000. The proceeds from this private placement were used to
fund the acquisition of Symphony.
F-18
<PAGE> 45
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. RESTRUCTURING CHARGES
In February 1995, the Company adopted a formal plan of restructuring in
order to realign and consolidate businesses, concentrate resources, and better
position itself to achieve its strategic growth objectives. This plan included
the termination and sale of the medical/surgical supply operations of a wholly
owned subsidiary, B.T. Smith, Inc., and the closing of the Company's long-term
care pharmacy operation in Missouri, Choice Drug Systems of Missouri, Inc., on
June 30, 1995.
Prior to the closing and ultimate sale of its medical/surgical supply
operations, the Company consolidated the medical/surgical operation of B.T.
Smith, Inc. with the medical/surgical supply division of J & J Drug & Medical
Services, Inc. in its Baltimore, Maryland pharmacy location. Accounting and
administration functions previously based at the Inwood, New York and Teaneck,
New Jersey pharmacy locations were also consolidated and moved to the Baltimore
office location. The effect of this consolidation was to refocus the Inwood and
Teaneck pharmacies on the core long-term care business; to consolidate the
Company's medical/surgical supply business in one location in anticipation of
its sale; and to consolidate accounting functions at the Baltimore headquarters
location. The Company initiated these actions to streamline and reduce the cost
of operating its medical/surgical supply business and its accounting function
and to exit the unprofitable Missouri long-term care market.
The Company recorded restructuring charges of $2,069,432 for the year ended
February 28, 1995, which includes the write-down of accounts receivable,
inventories and fixed assets to net realizable value and the accrual for the
termination of leases, employee severance costs, and the estimated
administrative costs of terminating operations. Also included in the
restructuring costs are amounts due to former executives of the Company under
consulting agreements which expire in May 1997 and other long-term contractual
obligations related to the restructured business. During the ten months ended
December 31, 1995, the Company recorded, as a change in estimate, an additional
$100,000 write-down of accounts receivable for the medical/surgical supply
operations.
The net sales and loss from continuing operations of the medical/surgical
supply operations and the Missouri location are as follows:
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended
December 31, 1995 February 28, 1995
----------------- -----------------
<S> <C> <C>
Net Sales $ 854,018 $ 3,983,533
============= ==============
Loss from continuing operations $ (157,218) $ (2,406,438)
============= ==============
</TABLE>
F-19
<PAGE> 46
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1995, the Company adopted a formal plan of restructuring in
order to consolidate certain of its satellite locations. The Company recorded
restructuring costs of $140,000 for the ten months ended December 31, 1995,
which includes the write-down of fixed assets to net realizable value, the
accrual for employee severance costs and the termination of leases.
In connection with the February 1995 restructuring, the Company made
severance payments of approximately $459,000 and $335,000 and paid other exits
costs of approximately $154,000 and $227,000 during the year ended December 31,
1996 and the ten months ended December 31, 1995, respectively.
During July 1996, in connection with the Symphony acquisition, the Company
adopted a plan to restructure its long-term care pharmacy operations in Los
Angeles by consolidating two of its existing facilities into a new, more
centralized location. The Company has assumed liabilities, included in the
acquisition cost allocation, of approximately $1,600,000 for costs to
involuntarily terminate employees of Symphony and to close the pharmacy
location.
During August 1996, the Company adopted a plan of restructuring to
consolidate its Aston, Pennsylvania and Baltimore, Maryland long-term care
pharmacies into one of its existing Mid-Atlantic pharmacies. The Company has
recorded restructuring costs of $450,000 for the year ended December 31, 1996
which includes employee severance costs and the termination of leases.
Also, during September 1996, the Company adopted a formal plan of
restructuring to close its Baltimore, Maryland corporate offices and
correctional pharmacies. The corporate offices will be relocated to Irving,
Texas and the correctional pharmacy will be relocated to another location in the
Baltimore area. The Company has recorded restructuring costs of $2,375,000 for
the year ended December 31, 1996, which primarily includes employee severance
costs and lease termination costs. The Company made severance payments related
to the corporate office restructuring of approximately $107,000 during the year
ended December 31, 1996.
8. DISCONTINUED OPERATIONS
In February 1995, in connection with adoption of its formal restructuring
plan, the Company decided to discontinue the operations of its mail order and
computerized health care software businesses. The mail order business was closed
effective August 1, 1995 and the assets of the computerized health care software
business were sold to an unrelated party on June 30, 1995 for $700,000, which
resulted in a gain in the amount of $564,844, net of related income taxes of
$38,000.
The net gains or losses of these operations for the ten months ended
December 31, 1995 and the year ended February 28, 1995 are included in the
consolidated statements of operations under
F-20
<PAGE> 47
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
gain (loss) from operations of discontinued business segments. The loss on
disposal of $503,067 reflected in the consolidated statement of operations for
the year ended February 28, 1995, includes the write-down of the assets of the
mail order and computer software businesses to estimated net realizable value
and the estimated costs of disposing of these operations, including a pro-rata
share of the Company's expense for office space in Baltimore.
The Company had net sales from discontinued operations of approximately
$909,000 and $2,731,000 for the ten months ended December 31, 1995 and the year
ended February 28, 1995, respectively.
9. INCOME TAXES
The benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended Year Ended
December 31, 1996 December 31, 1995 February 28, 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Federal:
Current $ - $ (219) $ (466)
Deferred (5,510) ( 46) -
---------- ------- -------
(5,510) (265) (466)
State and local 389 40 -
---------- ------- -------
$ (5,121) $ (225) $ (466)
========== ======= =======
</TABLE>
F-21
<PAGE> 48
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 1996, the Federal benefit for income taxes
is primarily due to the reversal of the valuation allowance recorded on the
Company's deferred tax assets. Based on the current operating profitability of
the Company and budgeted taxable income for 1997, management believes that it
is now more likely than not that the Company's deferred tax assets will be
realized. As a result of this change in estimate, the valuation allowance of
$5,186,000 on deferred tax assets was reversed during the year ended December
31, 1996.
The actual income tax benefit for the year ended December 31, 1996, the ten
months ended December 31, 1995 and the year ended February 28, 1995 is different
from the amounts computed by applying the statutory Federal income tax rates to
losses from continuing operations before income taxes. The reconciliation of
these differences follow:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended Year Ended
December 31, 1996 December 31, 1995 February 28, 1995
----------------- ----------------- -----------------
(in thousands)
<S> <C> <C> <C>
Tax benefit at statutory rate $ (597) $ (296) $ (3,824)
Additional funds received - (219) -
Increase resulting from:
State income taxes, net 257 26 -
of federal income tax
effect
Current loss not
available for carryback - 172 3,206
Tax effect of
permanent differences 276 68 152
Reduction of valuation
allowance (5,186) - -
Other items, net 129 24 -
--------- --------- ---------
Benefit for income taxes $ (5,121) $ (225) $ (466)
========= ========= =========
</TABLE>
At December 31, 1996, the Company had a net operating loss carryforward of
approximately $16,663,000 for Federal income tax purposes, expiring in
increments through 2011. The utilization
F-22
<PAGE> 49
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of approximately $11,106,000 of such losses is restricted to offset only
future taxable income generated by Choice Maryland and Premier.
The tax effect of cumulative temporary differences at December 31, 1996 and
1995 follow:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(in thousands)
<S> <C> <C>
Current Deferred Tax Assets:
Tax carry forwards $ 5,665 $ 4,172
Accounts receivable allowances 85 413
Accrued litigation costs 657 1,255
Accrued restructuring charges 1,104 536
Accrued liabilities 440 280
Other 1,178 254
---------- ---------
9,129 6,910
Less: Valuation allowance (1,724) (6,910)
---------- ---------
Net deferred tax asset $ 7,405 $ -
========== =========
Deferred Tax Liabilities:
Puerto Rico withholding tax $ 425 $ 425
Goodwill Amortization 1,330 -
Depreciation and other 242 118
---------- ---------
Net deferred tax liability $ 1,997 $ 543
========== =========
</TABLE>
10. COMMITMENTS
Leases
The Company leases office and warehouse space, automobiles and equipment.
Rental expense under these leases aggregated approximately $1,664,000, $781,000,
and $719,000 for the year ended December 31, 1996, the ten months ended December
31, 1995, and the year ended February 28, 1995, respectively.
F-23
<PAGE> 50
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments, follow:
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
------------- -------- ----------
<S> <C> <C>
1997 $ 157,074 $1,741,995
1998 113,863 1,612,177
1999 74,538 1,411,448
2000 26,788 1,013,377
2001 6,571 933,803
2002 and Thereafter - 1,938,370
--------- ----------
Total minimum lease payments 378,834 $8,651,170
==========
Less: amount representing interest (62,742)
---------
Present value of net minimum
lease payments 316,092
Less: current portion (130,242)
---------
Long-term portion $ 185,850
=========
</TABLE>
11. CONTINGENCIES
A lawsuit has been filed against the Company by the former shareholders of
a subsidiary of Premier. The plaintiffs sold their business to Premier in 1993
and claim that the company owes them approximately $1,000,000 under promissory
notes delivered to them as part of the consideration for their stock. (See Note
4). The plaintiffs also claim that the Company owes them an additional
$1,100,000 under an earn-out agreement. Finally, the plaintiffs claim the
Company is liable for tortiously interfering with their rights under the
purchase agreement and under the promissory notes. The plaintiffs seek total
judgments of $7,100,000, plus interest and costs against the Company. The
Company has answered the complaint and is vigorously contesting the plaintiff's
claims. In addition, the Company has filed a counterclaim against the plaintiffs
for breaches of certain representations and warranties in the agreement.
Management of the Company does not believe that this litigation is likely to
have a material adverse effect on its financial position and results of
operations.
The Company is subject to various claims and litigation in the ordinary
course of its business. In the opinion of management and outside counsel,
settlement of these claims and litigation will not have a material adverse
effect on the financial position or future operating results of the Company.
F-24
<PAGE> 51
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDER'S EQUITY
Common Stock Authorized
On August 28, 1995, the Company's stockholders approved an increase in the
authorized common stock of the Company from 15,000,000 shares to 30,000,000
shares. On September 28, 1996 the Company's stockholders approved an increase in
the authorized common stock of the Company from 30,000,000 shares to 50,000,000
shares.
Stock Option Plans
The Company has eight stock option plans and an employee stock purchase
plan covering up to 3,029,168 shares of the Company's common stock, pursuant to
which officers, directors and employees of the Company are eligible to receive
either incentive or non-qualified options. Stock options generally expire five
or ten years from the date of grant. The exercise price of an incentive stock
option is equal to the fair market value of the Company's common shares on the
date such option was granted. The exercise price of non-qualified stock options
may be less than the fair market value on the date of grant.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its fixed stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net income:
As reported $ 3,125,420 $ 222,351
Pro forma (7,763,229) (3,155,567)
Primary Earnings per share:
As reported 0.14 0.02
Pro forma (0.34) (0.28)
</TABLE>
F-25
<PAGE> 52
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fully diluted Earnings Per Share:
<TABLE>
<S> <C> <C>
As reported 0.13 0.02
Pro forma (0.33) (0.25)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model.
A summary of option transactions during the year ended December 31, 1996,
the ten months ended December 31, 1995 and the year ended February 28, 1995
follow:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------------------------
Ten Months
Year Ended Ended Year Ended
December 31, 1996 December 31, 1995 February 28, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Shares under option at 1,564,000 1,094,500 918,500
beginning of period
Granted ($2.86-$11.25) 1,589,000 949,500 564,000
Canceled ($2.85-$6.00) (1,666) (125,000) (354,000)
Exercised ($1.88-$8.50) (122,166) (355,000) (34,000)
--------- --------- ---------
Options outstanding at end 3,029,168 1,564,000 1,094,500
of period ($2.85-$11.25) ========= ========= =========
Shares available for future 856,250 693,750 568,250
grant ========= ========= =========
Options exercisable at end 1,828,149 1,289,000 994,500
of period ========= ========= =========
Weighted average fair
value of options granted $6.85 $3.56
===== =====
</TABLE>
F-26
<PAGE> 53
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable at Exercise
Prices at December 31, 1996 Life Price December 31, 1996 Price
------ -------------------- ----------- -------- ----------------- ------
<S> <C> <C> <C> <C> <C>
$2.85-5.00 1,052,334 7.8 Years $ 4.10 968,998 $ 4.08
$5.00-$7.50 377,000 5.1 Years $ 5.65 350,332 $ 5.63
$7.50-$10.00 400,834 9.2 Years $ 8.45 134,158 $ 8.41
$10.00-$11.25 1,199,000 9.9 Years $10.48 374,661 $10.55
$2.85-$11.25 3,029,168 8.5 Years $ 7.39 1,828,149 $ 6.02
</TABLE>
F-27
<PAGE> 54
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants
During 1994, in exchange for consulting services, the Company issued
warrants exercisable for 40,000 shares of common stock with an exercise price of
$3.50.
In August 1995, the company's Board of Directors extended the expiration
date of certain outstanding redeemable warrants issued as part of the Company's
initial public offering (The "IPO Warrants") to March 31, 1996, and subsequently
extended the expiration date to August 23, 1996. During August 1996, the Company
registered the shares underlying its outstanding Series A and B warrants. Series
A warrants representing 643,344 of a total of 650,000 shares of common stock
were exercised before expiring, at an exercise price of $6.00 per share. The
expiration date of the 643,344 Series B Warrants (which are exercisable at
$10.00 per share) issued upon exercise of the IPO Warrants is August 16, 1997.
In connection with the private placements discussed in Note 5, the Company
issued warrants to purchase 3,240,000 shares of stock at prices ranging from
$4.50 to $5.50 per share. These warrants expire through May 1998.
In December 1995, as part of their debt agreement, the Company issued
warrants to CreditAnstalt which grants CreditAnstalt the right to purchase
15,000 shares of common stock at a price of $7.31 per share. These warrants
expire in December 2000.
In January 1996, as part of the acquisition of IMD Corporation, the Company
issued warrants to purchase 75,000 shares of common stock at a price of $7.50
per share. These warrants expire in January 1999.
Total warrants for 4,132,684 shares were outstanding at December 31, 1996,
including the IPO warrants, warrants issued in connection with private
placements and 100,000 warrants issued in connection with prior acquisitions, at
exercise prices ranging from $4.50 to $12.00 per share. 46,615 (excluding the
Series A warrants) warrants were exercised during the year, at exercise prices
ranging from $3.50 to $5.50 per share.
13. MAJOR VENDOR
The Company utilizes a primary supplier arrangement for its pharmaceutical
purchases. During both 1995 and 1996, the Company changed its primary supplier.
Purchases of inventory under primary supplier relationships during the year
ended December 31, 1996, the ten months ended December 31, 1995, and the year
ended February 28, 1995, were approximately 82%, 87% and 55% of total inventory
purchases, respectively.
F-28
<PAGE> 55
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Trade accounts payable $11,390,194 $4,671,435
Accrued salaries, payroll taxes and benefits 4,172,362 669,860
Miscellaneous accrued expenses 2,385,929 795,977
----------- ----------
$17,948,485 $6,137,272
=========== ==========
</TABLE>
15. RELATED PARTIES
As a result of the Company's acquisition of Symphony (See Note 2),
Symphony's former parent company, IHS, is a significant Company stockholder. The
Company provides institutional pharmacy services to several long-term care
facilities owned and managed by IHS. Since the Company's acquisition of Symphony
during 1996, net revenues of approximately $8,139,000 have been generated from
sales to IHS owned and managed long-term care facilities. Amounts due from IHS
owned and managed long-term care facilities of approximately $6,983,000 at
December 31, 1996 are included in accounts receivable, net in the accompanying
consolidated balance sheet.
To facilitate the timely purchase of MediDyne an interim purchase of
MediDyne was made by Counsel Corporation, a significant stockholder of the
Company. The terms of the agreement are described in Note 2.
The Company entered into arrangements with a company which owns long-term
care facilities in the state of Minnesota to provide pharmacy services and
certain administrative functions in exchange for a monthly management fee. These
management fees, totaling approximately $58,000, have been included in other
income in the accompanying consolidated statement of operations for the year
ended December 31, 1996. In addition, the Company has provided working capital
funding. At December 31, 1996, amounts due of approximately $661,000 are
included in the accompanying consolidated balance sheet.
F-29
<PAGE> 56
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for financial statements with fiscal years beginning after December 15, 1995.
The adoption of SFAS No. 121 as of January 1, 1996 had no impact on the
Company's financial position or results of operations.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share." SFAS No. 128 simplifies the standards for computing
earnings per share previously found in APB No. 15, "Earnings Per Share." It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires a reconciliation of the numerator and denominator of the basic EPS
calculation to the numerator and denominator of the diluted EPS calculation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant
to APB Opinion No. 15.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997,
and early adoption is not permitted. When adopted, it will require restatement
of prior years' EPS. When adopted for the year ended December 31, 1997, the
Company will report basic EPS instead of primary EPS. Basic EPS for the year
ended December 31, 1996 and the ten months ended December 31, 1995 is $0.16 and
$0.02, respectively.
17. SUBSEQUENT EVENTS
In January 1997, the Company entered into purchase agreements with
Clinical Care-SNF, Inc., Portaro Pharmacies, Inc. and Alger Health Services.
These three acquisitions expand the Company's presence in the State of
California and represent institutional pharmacy revenues of approximately
$15,000,000, $15,000,000 and $8,500,000, respectively.
The purchase price for Clinical Care-SNF, Inc. was $20,000,000, payable
$5,000,000 in cash and the remainder representing 1,354,402 shares of the
Company's common stock. The purchase price for Portaro Pharmacies, Inc. was
$20,000,000, payable $5,000,000 in cash and the remainder representing
1,354,402 shares of the Company's common stock. The purchase price for Alger
Health Services was $4,200,000.
In March 1997, the Company acquired Pennsylvania Prescriptions, Inc., a
Harrisburg, Pennsylvania institutional and retail pharmacy doing business as
Emerald Drugs. The purchase price was $6,200,000 and includes an earn-out
provision.
In March 1997, the Company acquired Pharmacare, Inc., a Virginia based
provider of institutional pharmacy services. The purchase price was
approximately $8,500,000.
F-30
<PAGE> 57
INDEX OF EXHIBITS
[UPDATE]
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Asset Purchase Agreement dated February 29, 1996, by and among IMD
Corporation, Dennis Ruben, the Trust, Illinois Pharmacy Acquisition Co.
and Capstone Pharmacy Services, Inc. (the "Company") (incorporated by
reference to Exhibit 2 to Form 8-K dated February 29, 1996).
2.2 Asset Purchase Agreement among Integrated Health Services, Inc. ("IHS"),
Symphony Pharmacy Services, Inc., various of its subsidiaries ("Symphony")
and the Company, dated June 20, 1996 (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated July 18, 1996).
2.3 Amendments No. 1 to the Asset Purchase Agreement by and between IHS,
Symphony and the Company, dated July 30, 1996.
2.4 Stock Purchase Agreement by and between DCAmerica and the Company
effective July 1, 1996 (incorporated by reference to Exhibit 2.3 to
Form 10-Q dated September 30, 1996).
2.5 Agreement and Plan of Merger dated January 3, 1997, by and among
Clinical Care-SNF, Inc., Ron Belville, the Company and Institutional
Pharmacy Services, Inc. ("IPS") (incorporated by reference to Exhibit
2.1 to Form 8-K dated January 31, 1997).
2.6 Agreement and Plan of Merger dated January 3, 1997, by and among Portaro
Pharmacies, Inc., Denis Portaro, Sandra Portaro, Denis A. and Sandra Lou
Portaro Revocable Trust of 1992, the Company and IPS (incorporated by
reference to Exhibit 2.2 to Form 8-K dated January 31, 1997).
2.7 Stock Purchase Agreement among Alger Health Services, Inc., IPS
and the Company, dated January 24, 1997.
2.8 Asset Purchase Agreement between Pennsylvania Prescriptions, Inc. d/b/a
Emerald Drug Store, dated March 6, 1997.
2.9 Asset Purchase Agreement by and between Pharmacare, Inc. and IPS,
dated March 24, 1997.
3.1 Certificate of Incorporation of Choice Drug Systems, Inc. (incorporated
by reference to Exhibit 3.1 to Form 10-Q for period ending August 30, 1995).
3.2 Certificate of Ownership and Merger Merging Choice Mergeco, Inc. into
Choice Drug Systems, Inc. (incorporated by reference to Exhibit 3.2 to
Form 10-Q for period ending August 30, 1995).
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
3.3 Certificate of Amendment (incorporated by reference to Exhibit A to the
Company's Proxy Statement for Special Meeting of Stockholders on August
15, 1996).
3.4 Bylaws of Choice Drug Systems, Inc. (incorporated by reference to
Exhibit 3.3 to Form 10-Q for period ending August 30, 1995).
4.1 Form of Series B Warrant Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-3
(Reg. No. 3643).
4.2 Form of Series B Warrant Agreement, dated as of August 7, 1996, between
the Registrant and First Union National Bank of North Carolina
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-3 (Reg. No. 3643)).
4.4 Form of Warrant ($4.50) for Purchase of Common Stock (incorporated by
reference to Exhibit 4.5 to the 1995 Annual Report on Form 10-K for
fiscal year ended February 29, 1995).
4.5 Form of Warrant ($5.50) for Purchase of Common Stock (incorporated by
reference to Exhibit 4.6 to the 1995 Annual Report on Form 10-K for
fiscal year ended February 29, 1995).
4.6 Stock Purchase Agreement, dated December 16, 1994, between Registrant
and Counsel Corporation (incorporated by reference to Exhibit 4.7 to
the 1995 Annual Report on Form 10-K for fiscal year ended February 29,
1995).
4.7 Warrant to Purchase Shares of Common Stock, dated December 16, 1994,
for the purchase of 800,000 shares (incorporated by reference to
Exhibit 4.8 to the 1995 Annual Report on Form 10-K for fiscal year
ended February 29, 1995).
4.8 Warrant to Purchase Shares of Common Stock, dated December 16, 1994,
for the purchase of 1,000,000 shares (incorporated by reference to
Exhibit 4.9 to the 1995 Annual Report on Form 10-K for fiscal year
ended February 29, 1995).
4.9 Warrant to purchase shares of Common Stock dated January 1, 1996, for
the purchase of 75,000 shares.
4.10 Warrant to purchase shares of Common Stock dated December 20, 1995 for
the purchase of 15,000 shares.
4.11 Form of ACA Investors Warrant ($12.00) for purchase of Common Stock.
10.1 1987 Stock Option Plan, adopted by the Board of Directors on March 11,
1987 and by the Shareholders on July 29, 1987 (incorporated by
reference to Exhibit 100 to the 1987 Annual Report*).
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
10.2 1988 Stock Option Plan, adopted by the Board of Directors on February
26, 1988 and by the shareholders on August 17, 1988 (incorporated by
reference to Exhibit 10CC to the 1988 Annual Report*).
10.3 1991 Stock Option Plan, adopted by the Board of Directors on May 22,
1991 and by the Shareholders on December 16, 1991 (incorporated by
reference to Exhibit 10KK to the 1991 Annual Report*).
10.4 1992 Stock Option Plan, adopted by the Board of Directors on July 14,
1992 and by the shareholders on September 2, 1992 (incorporated by
reference to Exhibit B to the Registrant's 1992 Proxy Statement*).
10.5 Agreement, dated December 23, 1993, between the Registrant and Mediquest,
Inc. (incorporated by reference to Exhibit NN to 1994 Form 10-K).
10.6 Credit Agreement Among Choice Drug Systems, Inc. and Creditanstalt Corporate
Finance, Inc., dated May 19, 1995 (incorporated by reference to Exhibit
10.19 to the 1995 Annual Report on Form 10-K for fiscal year ended
February 29, 1995).
10.7 Revolving Credit Note dated May 19, 1995, made in favor of
Creditanstalt Corporate Finance, Inc. (incorporated by reference to
Exhibit 10.20 to the 1995 Annual Report on Form 10-K for fiscal year
ended February 29, 1995).
10.8 Agreement and Plan of Merger, dated April 5, 1995, by and among the
Registrant, Choice Acquisition Corp. and Premier Pharmacy, Inc.
(incorporated by reference to Exhibit 2.1 to the 1995 Annual Report on
Form 10-K for fiscal year ended February 29, 1995).
10.9 1995 Nonqualified Stock Option Plan for Directors of the Company
(incorporated by reference to Exhibit A to Schedule 14A filed August 2,
1995).
10.10 1995 Incentive and Nonqualified Stock Option Plan for Key Personnel and
Directors of the Company (incorporated by reference to Exhibit B to
Schedule 14A filed August 2, 1995).
10.11 Amendment to Choice Drug Systems, Inc. 1992 Stock Option Plan
(incorporated by reference to Exhibit C to Schedule 14A filed
August 2, 1995).
10.12 1996 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit D to Schedule 14A filed August 2, 1995).
10.13 Form of Registration Rights Agreement dated May 22, 1995 (incorporated
by reference to Exhibit 4.4 on Form 8-K dated May 22, 1995).
10.14 Form of Amendment to Registration Rights Agreement dated August 30,
1995 (incorporated by reference to Exhibit 4.2 to Form 8-K dated August
31,1995).
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
10.15 Form of Second Amendment to Registration rights Agreement dated March
20, 1996 (incorporated by reference to Exhibit 10.1 to Form 10-Q dated
March 31, 1996).
10.16 Form of Third Amendment to Registration rights Agreement dated April
11, 1996 (incorporated by reference to Exhibit 10.2 to Form 10-Q dated
March 31, 1996).
10.17 Form of Registration Rights Agreement dated April 17, 1996 (incorporated
by reference to Exhibit 10.1 to Form 10-Q dated September 10, 1996).
10.18 Registration Rights Letter Agreement, dated December 19, 1996 regarding
Registration Rights in connection with the purchase by Counsel
Corporation of 2,112,490 shares of Common Stock of Capstone Pharmacy
Services, Inc. on July 29, 1996.
10.19 Registration Rights Amendment dated January 3, 1997 by and among Capstone
Pharmacy Services, Inc. and Ron Belville, Denis A. Portaro and Sandra
Lou Portaro and the Denis A. and Sandra Lou Revocable Trust of 1992.
10.20 Senior Subordinated Credit Agreement dated December 6, 1996 by and
between the Company and Bankers Trust Company as agent and lender.
10.21 Form of Revolving Credit Note by and between the Company and lender.
10.22 Agreement and Plan of Merger, dated September 30, 1995, by and among
Geri-Care Systems, Inc., Scripts and Things, Inc., Abraham Wieder, Raphael
Lieberman, Capstone Pharmacy Services, Inc., Geri Mergeco, Inc. and
Scripts Mergeco, Inc. (incorporated by reference to Exhibit 2 to
Form 8-K for December 31, 1995).
10.23 Adirondack Capital Advisors Consulting Agreement dated June 25, 1996.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule (for SEC use only).
</TABLE>
* Denotes a management contract or compensatory plan, contract or arrangement.
<PAGE> 1
Exhibit 2.3
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment No. 1 to the Asset Purchase Agreement by and between IHS,
Sellers and Buyer (each as defined therein), dated as of June 19, 1996 (the
"Purchase Agreement") is made this 30th day of July, 1996 by and between the
parties to the Purchase Agreement. All terms used but not defined herein shall
have the meaning given such terms in the Purchase Agreement.
WHEREAS, the parties hereto have previously entered into the Purchase
Agreement to sell Assets of the Sellers to Buyer;
WHEREAS, the parties desire to amend the Purchase Agreement to amend the
registration rights granted to IHS therein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound, agree as
follows:
1. Existing Registration Rights.
IHS has piggyback registration rights with respect to certain registrations
of Buyer common stock, which rights may apply to previously filed registration
statements ("Registrations") of Buyer. IHS and Buyer desire to reflect their
agreement that the piggyback registration rights of IHS, to the extent they
exist, are waived with respect to the Registrations, in exchange for the
amendments reflected herein.
2. Amendment to Section 2.5(a).
The parties hereby amend Section 2.5(a) of the Purchase Agreement by
deleting it in its entirety and replacing it with the following:
(a) Initial Registration. Unless all of the Buyer Stock has been registered
pursuant to the terms of Section 2.5(b), as soon as is reasonably
practicable but in any event by December 31, 1996, Buyer will cause to be
prepared and filed with the Securities and Exchange Commission (the
"Commission") (and will thereafter use its best efforts to have declared
effective as soon as possible) an underwritten registration statement of
all of the Buyer Stock on Form S-3 or its equivalent and such other
documents, including a prospectus, as may be necessary in the opinion of
both counsel for Buyer and counsel for the holders of the Buyer Stock in
order to comply with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), so as to permit an underwritten public
offering and sale by IHS of all or a portion of the Buyer Stock as elected
by IHS. Buyer shall give IHS at least
<PAGE> 2
30 days notice prior to filing a registration statement. Buyer shall be
entitled to select the underwriter or underwriters for such registration
statement. In the event that IHS elects, in its sole discretion, to delay
or defer the process, or to sell less than all shares of Buyer Stock owned
by IHS, IHS may at any time after December 31, 1996 notify Buyer that it
desires that the registration process commence or recommence (as the case
may be) as to all or any of said shares, and thereupon Buyer shall commence
or recommence (as the case may be) such process promptly and shall file
within 60 days of the IHS notification (or prosecute the effectiveness of a
registration statement if one is on file for IHS) the registration
statement and use its best efforts to cause it to become effective as soon
as possible. IHS may require Buyer to, and Buyer shall, file up to a total
of two such underwritten registration statements during the two year period
following Closing under the Purchase Agreement.
3. Amendment to Section 2.5(b).
The parties hereby amend Section 2.5(b) of the Purchase Agreement by
deleting from the third line of such paragraph the words "on behalf of the Buyer
or otherwise" and inserting in its place the following:
"(i) on behalf of the holders of securities sold by Buyer in a private
placement in April 1996 (the "April Holders") pursuant to a demand
registration by such April Holders or (ii) any other filing"
and by further amending such section by inserting at the end of such paragraph
the following:
"(except as otherwise set forth in this section). Notwithstanding the
foregoing, in the case of a registration statement filed under item (ii),
to the extent any underwriter or underwriters for such registration
statement shall determine that inclusion of all of the securities proposed
to be sold would jeopardize the successful sale of such securities, the
shares of Buyer Stock shall be excluded from such registration statement
prior to the exclusion of the securities of the April Holders." Buyer
represents and warrants that there are no holders of shares of its common
stock with registration rights not previously included in a registration
statement, other than the April Holders and Counsel Corporation. Counsel
Corporation has agreed to not exercise its registration rights in a manner
which would adversely affect the registration rights of IHS.
4. Amendment to Section 2.7(a).
The parties hereby amend Section 2.7(a) of the Purchase Agreement to
reflect that if the registration is an underwritten offering, Buyer shall be
required to maintain the effectiveness of an underwritten registration statement
only for a reasonable period of time.
<PAGE> 3
5. Carve back agreement.
In the event that the shares of Buyer Stock that IHS proposes to register
in a registration under Section 2.5 is carved back or reduced by an underwriter
or by the Buyer, IHS shall be entitled to a shelf registration on Form S-3 in
accordance with Section 2.5 (as if not amended) covering the number of shares
that were subject to the carve back.
Intending to be legally bound, the parties have executed this amendment as
of the date first above written.
For IHS and the Sellers:
INTEGRATED HEALTH SERVICES, INC.
By:_____________________________
For the Buyers:
CAPSTONE PHARMACY SERVICES, INC.
By:_____________________________
<PAGE> 1
Exhibit 2.7
STOCK PURCHASE AGREEMENT
AMONG
ALGER HEALTH SERVICES, INC.,
THE COMPANY,
THE SHAREHOLDERS NAMED HEREIN,
THE SHAREHOLDERS,
INSTITUTIONAL PHARMACY SERVICES, INC.,
THE BUYER,
AND
CAPSTONE PHARMACY SERVICES, INC.,
THE PARENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. PURCHASE AND SALE.........................................................1
1.1 Purchase and Sale..................................................1
1.2 Assets at Closing..................................................2
1.3 Excluded Items.....................................................3
1.4 Continuing Contracts, Leases and Liabilities.......................3
1.5 Delivery of Stock..................................................4
ARTICLE II. RECEIVABLES..............................................................5
2.1 Collection of Receivables..........................................5
ARTICLE III. PURCHASE PRICE..........................................................5
3.1 Purchase Price.....................................................5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS...................................................5
4.1 Organization, Qualification and Authority..........................6
4.2 Capitalization and Stock Ownership.................................6
4.3 Absence of Default.................................................7
4.4 Financial Statements...............................................7
4.5 Operations Since October, 31 1996 .................................8
4.6 Absence of Certain Liabilities.....................................9
4.7 Employment Discrimination..........................................9
4.8 Licenses and Permits..............................................10
4.9 Medicare, Medicaid and Other Third-Party Payors...................10
4.10 Compliance with Zoning, Land Use and Other Laws; Easements........11
4.11 Title to Assets...................................................11
4.12 Leases and Contracts..............................................12
4.13 Environmental Matters.............................................13
4.14 Miscellaneous Representations Relating to Real Estate.............15
4.15 Litigation........................................................15
4.16 Company Employees.................................................15
4.17 Labor Relations...................................................16
4.18 Insurance.........................................................16
4.19 Broker's or Finder's Fee..........................................17
4.20 Conflicts of Interest.............................................17
4.21 Intellectual Property.............................................17
4.22 Inventories.......................................................17
4.23 Motor Vehicles....................................................17
4.24 Employee Benefit Plans............................................17
4.25 Compliance with Healthcare and Other Laws.........................18
4.26 Condition of Assets...............................................19
4.27 WARN Act..........................................................19
4.28 Tax Returns; Taxes................................................19
4.29 Stock Value; Operating Targets....................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.30 Beds Under Contract...............................................20
4.31 No Omissions or Misstatements.....................................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER..................................20
5.1 Organization, Qualification and Authority.........................20
5.2 Absence of Default................................................21
5.3 Broker's or Finder's Fee..........................................21
ARTICLE VI. COVENANTS OF PARTIES....................................................21
6.1 Preservation of Business and Assets...............................21
6.2 Absence of Material Change........................................22
6.3 Access to Books and Records.......................................22
6.4 Medicare and Medicaid Reporting...................................23
6.5 Preserve Accuracy of Representations and Warranties...............23
6.6 Maintain Books and Accounting Practices...........................24
6.7 Indebtedness; Liens...............................................24
6.8 Compliance with Laws and Regulatory Consents......................24
6.9 Maintain Insurance Coverage.......................................24
6.10 No Sale, Merger or Consolidation..................................25
6.11 Guarantors and Sureties...........................................25
ARTICLE VII. CLOSING................................................................25
7.1 Closing...........................................................25
7.2 Shareholders' Representative......................................25
ARTICLE VIII. COMPANY'S AND SHAREHOLDERS'
CONDITIONS TO CLOSE........................................................26
8.1 Representations and Warranties True at Closing; Compliance
with Agreement....................................................26
8.2 No Action/Proceeding..............................................26
8.3 Order Prohibiting Transaction.....................................26
8.4 [Reserved]........................................................26
8.5 Employment Agreements.............................................26
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE.............................................26
9.1 Representations and Warranties True at Closing; Compliance with
Agreement.........................................................27
9.2 Regulatory Approvals..............................................27
9.3 No Action/Proceeding..............................................27
9.4 Inspection of Assets; U.C.C. Searches, etc........................27
9.5 Order Prohibiting Transaction.....................................27
9.6 [Reserved.........................................................27
9.7 Non-Competition Agreements........................................27
9.8 Employment Agreements.............................................28
9.9 Stock Value; Operating Targets....................................28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.10 Beds Under Contract...............................................28
9.11 Third Party Consents; Releases....................................28
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDERS
AT CLOSING..............................................................28
10.1 Documents Relating to Title.......................................28
10.2 Possession........................................................29
10.3 Opinion of Counsel................................................29
10.4 Corporate Good Standing and Corporate Resolution..................29
10.5 [Reserved]........................................................29
10.6 Third Party Consents..............................................29
10.7 Releases..........................................................29
10.8 Additionally Requested Documents; Post-Closing Assistance.........29
10.9 Confidentiality, Non-Competition and Employment Agreements........30
10.10 Assumption Agreement..............................................30
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING.........................................30
11.1 Purchase Price....................................................30
11.2 Corporate Good Standing and Certified Board Resolutions...........30
11.3 [Reserved]........................................................30
11.4 Opinion of Buyer's Counsel........................................30
11.5 Employment Agreements.............................................30
ARTICLE XII. OPINION OF BUYER'S COUNSEL.............................................30
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION............................31
13.1 Survival..........................................................31
13.2 Indemnification by Shareholders...................................31
13.3 Indemnification by Company, Buyer, and Parent.....................32
13.4 Rules Regarding Indemnification...................................32
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS................................................34
14.1 Covenant Not to Compete...........................................34
14.2 Enforceability....................................................35
ARTICLE XV. ARBITRATION............................................................35
15.1 Arbitration.......................................................35
15.2 Third Party Claims................................................35
15.3 Venue.............................................................35
15.4 Power of Arbitrator...............................................35
15.5 Costs and Expenses................................................36
ARTICLE XVI. MISCELLANEOUS.........................................................36
16.1 Assignment........................................................36
16.2 Other Expenses....................................................36
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
16.3 Notices...........................................................36
16.4 Confidentiality; Prohibition on Trading...........................37
16.5 Controlling Law...................................................37
16.6 Headings..........................................................37
16.7 Benefit...........................................................37
16.8 Partial Invalidity................................................37
16.9 Waiver............................................................38
16.10 Counterparts......................................................38
16.11 Interpretation; Knowledge.........................................38
16.12 Entire Agreement..................................................38
16.13 Further Assurance of Shareholders After Closing...................38
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
January 24, 1997, by and among ALGER HEALTH SERVICES, INC., a California
corporation (the "Company"), the parties executing this Agreement as Optionees
(as defined below) and as shareholders (Optionees and shareholders are
collectively referred to herein as the "Shareholders"), and INSTITUTIONAL
PHARMACY SERVICES, INC., a Maryland corporation (the "Buyer") and wholly-owned
indirect subsidiary of CAPSTONE PHARMACY SERVICES, INC., a Delaware corporation
(the "Parent" or "Capstone").
R E C I T A L S:
WHEREAS, Shareholders own and operate the Company, a corporation that
operates an institutional pharmacy service business in Hayward, California and
the surrounding areas, all as more particularly described on Exhibit A hereto,
which Exhibit sets forth the type of services and products provided by the
Company at each location (collectively, the "Business"); and
WHEREAS, Shareholders own all of the issued and outstanding capital stock
of the Company (the "Stock") and Joyce Alger, Gary A. Louie, Sharon Vandagriff,
Lorena Vigil, Mary Welch, Judith Cooper, Elisa Guevara, Cheryl Heinrichson,
Armando Martinez and Thomas Moran ("Optionees") are holders under certain
compensatory stock options of the Company (the "Options"); and
WHEREAS, Shareholders desire to sell and transfer the Stock to Buyer, and
Buyer desires to purchase the same from Shareholders, subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound hereby, agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Shareholders agree to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to pay the Purchase Price (as provided
below) to Shareholders for, and to purchase from Shareholders, all right, title
and interest in and to the Stock, which consists of all of the capital stock of
the Company issued and outstanding immediately prior to Closing (as such term is
defined herein). Further, Optionees agree to convert all Options into the right
to receive cash, to be paid in accordance with paragraph 3.1 herein, at Closing.
Shareholders shall deliver to Buyer at Closing all stock certificates
representing the Stock, duly endorsed for transfer or accompanied by duly
1
<PAGE> 7
executed stock powers. The Stock shall be delivered free and clear of all
claims, liens, restrictions, suits, proceedings, calls, proxies, charges,
options, security interests and encumbrances of any kind.
1.2 Assets at Closing. At Closing the Company's assets, tangible and
intangible, real and personal (collectively, the "Assets"), shall be owned free
and clear of all encumbrances, mortgages, pledges, liens, security interests,
obligations and liabilities other than the Continuing Liabilities (as defined in
paragraph 1.4), which Assets shall include, without limitation, the following:
(1) All right, title and interest in and to all of the land and real
estate leased by the Company and used in connection with the Business as listed
in Exhibit 1.2(1) attached hereto and in and to all structures, improvements,
fixed assets and fixtures including fixed machinery and fixed equipment situated
thereon or forming a part thereof and all appurtenances, easements and
rights-of-way related thereto (collectively, the "Real Estate") subject,
however, to any rights of lessors in and to the Real Estate and subject to the
rights of any mortgagees of such lessors;
(2) All tangible personal property, medical and other equipment,
machinery, data processing hardware and software, furniture, furnishings,
appliances, vehicles and other tangible personal property of every description
and kind and all replacement parts therefor used in connection with the Business
including, without limitation, the items listed on Exhibit 1.2(2) attached
hereto (collectively, the "Equipment and Furnishings");
(3) All inventory of goods and supplies used or maintained in
connection with the Business including, without limitation, those reflected on
the Financial Statements, except as disposed of in the ordinary course of
business prior to Closing (collectively, the "Inventory");
(4) All accounts and notes receivables (the "Receivables");
(5) All cash, bank accounts (as listed by name and address of banking
institution, account name and account and routing numbers on Exhibit 1.2(5)
attached hereto), money market accounts, other accounts, certificates of deposit
and other investments of the Company (the "Cash and Cash Equivalents");
(6) All patient, medical, personnel, corporate and other records
related to the Business (including both hard and microfiche copies, if any), and
all manuals, books and records used in operating the Business, including,
without limitation, personnel policies and files and manuals, accounting
records, and computer software;
(7) To the full extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises
necessary to operate and
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conduct the Business, together with assignments thereof, if required, and all
waivers whichthe Company currently has, if any, of any requirements pertaining
to such licenses, permits, registrations, certificates, consents,
accreditations, approvals and franchises;
(8) All goodwill, and, to the extent assignable by the Company, all
warranties (express or implied) and rights and claims related to the Assets or
the operation of the Business;
(9) All prepaid expenses including, without limitation, those reflected
on the Financial Statements, except as used in the ordinary course of business
prior to Closing;
(10) Contract and leasehold rights and interests pursuant to contracts
for purchase or lease of personal property, construction contracts, contracts
for purchase, sale or lease of equipment, goods or services currently furnished,
or to be furnished after Closing in connection with the Business and approved by
Buyer;
(11) All intangible or intellectual property owned, leased, licensed or
possessed by either the Company or the Shareholders and utilized in connection
with the Business, including without limitation, the names "Alger Health
Services" and derivatives thereof, to the extent the Company or the Shareholders
has rights in or to each such name;
(12) All corporate, fiscal and other records pertaining to Company or
the Business; and
(13) All of Company's right, title and interest in any partnerships,
joint ventures or similar arrangements.
1.3 Excluded Items. Immediately prior to conveyance of the Stock, Company
shall transfer to the Shareholders all debts, liabilities and other obligations
of any nature whatsoever, whether known or unknown, contingent or otherwise,
other than the Continuing Liabilities as specifically set forth in paragraph
1.4(1). The parties acknowledge and agree that Buyer is not assuming and the
Company is not retaining any of the Excluded Items and that, following Closing,
Buyer and Company will not have any right, title, interest or obligation with
respect to the Excluded Items.
1.4 Continuing Contracts, Leases and Liabilities.
(1) At Closing, Company will retain and agree to pay or perform, as the
case may be, only (a) those obligations constituting working capital liabilities
incurred in the ordinary course of business, other than long-term and interest
bearing debt, which Company expressly elects to retain as specifically set forth
on Exhibit 1.4 attached hereto, (b) those obligations constituting working
capital liabilities incurred in the ordinary course of business on and after the
Effective Date (as such term is defined in paragraph 7.1),
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other than long-term and interest bearing debt, (c) those obligations arising on
and after the Effective Date under those Leases and Contracts (as defined in
paragraph 4.12) whichCompany expressly elects to retain, and (d) any long-term
or interest bearing debt or continuing capitalized obligations, including Three
Hundred Thirty-Four Thousand Eighty and No/100 Dollars ($334,080.00) in
subordinated debentures (the "Debentures"), which the Company expressly elects
to retain as specifically set forth on Exhibit 1.4 (collectively, the
"Continuing Liabilities").
(2) Buyer is not assuming any debt, liability or obligation of the
Company or of the Shareholders and, except for the Continuing Liabilities, it is
expressly agreed and understood by each of the parties to this Agreement that
after the Closing Company shall not retain or be liable for, any debt, liability
or obligation of Company prior to the Closing or of the Shareholders of any type
or description whatsoever, whether related or unrelated to the Stock, the
Business or the transactions contemplated under this Agreement and that the
Shareholders shall be liable and responsible for the payment or performance, as
the case may be, of all debts, liabilities, obligations, contracts, leases,
notes payable, accounts payable, commitments, agreements, suits, claims,
indemnities, mortgages, taxes, contingent liabilities and other obligations of
Company arising prior to Closing and of the Shareholders including, without
limitation, any and all investment tax credit recapture, depreciation recapture,
recapture or prior period adjustments under Medicare, Medicaid and Blue Cross,
all impositions of income tax and other taxes, including, without limitation,
payroll related taxes; all employee wages, salaries and benefits including,
without limitation, COBRA and WARN obligations, sick pay, and other accrued
employee benefits including rights of Company's retirees to participate in
medical plans. Notwithstanding any statement contained in this Agreement or
otherwise seemingly to the contrary, Company shall not be obligated to retain
(nor shall Buyer be directly liable for) liabilities pursuant to clauses (a) and
(d) of paragraph 1.4(1) in excess of the amount of liabilities included in the
calculation of Shareholder's equity pursuant to Section 4.29 (the "Continuing
Liabilities Cap").
(3) For purposes of calculating the amount of the Continuing
Liabilities, the present value of payments to be made on and after the Effective
Date with respect to any Continuing Liability that is a capitalized obligation
under generally accepted accounting principles shall be considered part of the
amount of such Continuing Liabilities.
1.5 Delivery of Stock. Shareholders shall deliver to Buyer at Closing all
stock certificates representing the Stock, duly endorsed for transfer or
accompanied by duly executed stock powers. The Stock will be conveyed to Buyer
fully paid and nonassessable with good and valid title, free and clear of all
liens, charges, claims, liabilities, encumbrances, security interests,
restrictive agreements, options, rights of others and imperfections of title of
any nature whatsoever, including all amounts due and payable for federal, state
and local transfer taxes.
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ARTICLE II. RECEIVABLES
2.1 Collection of Receivables. After Closing, Company will proceed to
collect the Receivables. Shareholders shall provide such assistance in the
collection process as Company or Buyer may reasonably request. If, within 180
days following Closing, Buyer and Company have collected less than the amount of
the Receivables reflected in the Interim Financial Statements (as such term is
defined in paragraph 4.4(1)) in excess of the reserves also therein set forth,
which reserves the Buyer has analyzed after due diligence and, relying on
information provided by Seller or its representatives, agrees is commercially
reasonable in amount (such event being a "Receivables Shortfall"), (a) the
Purchase Price shall be reduced by the amount of such shortfall pursuant to
Article XIII; and (b) uncollected Receivables shall be assigned to Shareholders
provided that such Receivables relate to facilities that are not ongoing clients
of the Business or to private (non facility) payors. Company shall, and Buyer
shall cause Company to, diligently collect the Receivables with at least as much
effort and attention as Company has heretofore collected receivables. Company
and Buyer shall for the six month period following Closing furnish the
Shareholders' Representative with a written monthly report scheduling in detail
progress on collection of the Receivables for such month. Responsible officers
of Company and Buyer shall, if requested, meet on at least a monthly basis with
Shareholders' Representative to review progress on collection of the
Receivables. Any of the Receivables owed to the Company by Integrated Health
Services, Inc. shall be excluded from the Receivables Shortfall.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Shareholders for
the Stock and in consideration for the agreements contained herein, including
the agreements contained in Article XIV hereof, will be Three Million Six
Hundred Thousand Dollars ($3,600,000.00), payable in immediately available funds
to each Shareholder, or his or her respective authorized designee, by wire
transfer at Closing (the "Purchase Price"). The Purchase Price shall be
allocated among the Shareholders and Optionees as set forth in Exhibit 3.1
attached hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereunder, Shareholders, including
Optionees, hereby jointly and severally represent and warrant to Buyer, which
representations and warranties shall be true and correct on the date of Closing,
as follows:
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4.1 Organization, Qualification and Authority. Company is a corporation
duly organized, validly existing and in good standing in the State of California
and is not required and is not qualified to do business in any other
jurisdiction. Company has full corporate power and authority to own, lease and
operate its facilities and assets as presently owned, leased and operated, and
to carry on its business as it is now being conducted. Except for Shareholders
and Optionees, no other person or entity owns or holds, has any interest in,
whether legal, equitable or beneficial, or has the right to purchase, any
capital stock or other security of Company. Company owns no capital stock,
security, interest or other right, or any option or warrant convertible into the
same, of any corporation, partnership, joint venture or other business
enterprise. Company and Shareholders have the full right, power and authority to
execute, deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement, to
consummate the transactions contemplated on the part of each such party hereby,
and to take all actions necessary, in their respective capacities, to permit or
approve the actions of Company and Shareholders taken in connection with this
Agreement. The execution, delivery and consummation of this Agreement, and all
other agreements and documents executed in connection herewith by Company and
Shareholders, have been or will be on or before Closing duly authorized by all
necessary action on the part of such parties. This Agreement and all other
agreements and documents executed in connection herewith by Company and/or
Shareholders, upon due execution and delivery thereof, shall constitute the
valid and binding obligations of Company and/or Shareholders, as the case may
be, enforceable in accordance with their respective terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and by general principles of equity.
4.2 Capitalization and Stock Ownership. Except for Shareholders and
Optionees, no other person or entity owns or holds, has any interest in, whether
legal, equitable or beneficial, or has the right to purchase, any capital stock
or other security of Company. The Stock, being 97,732 shares, no par value, of
common stock, and options for 8,085 additional shares of common stock,
constitutes all issued and outstanding securities of Company, is duly
authorized, validly issued, fully paid and nonassessable, and is owned free and
clear of any liens, charges, encumbrances, security interests, pledges or any
other restrictions whatsoever. At Closing, Company shall have no outstanding
subscriptions, options, warrants, calls, contracts, convertible securities or
other instruments, agreements or arrangements of any nature whatsoever under
which Company is or may be obligated or compelled to issue any capital stock,
security or interest of any kind, or to transfer or modify any right with
respect to any capital stock, security or other interest, and no one has any
preemptive rights, right of first refusal or similar rights with respect to the
Stock or any equity interest in Company. Neither Company nor Shareholders are a
party to any, and there exist no, voting trusts, stockholder agreements, pledge
agreements or other agreements relating to or restricting the transferability of
any shares of the Stock or equity interests of Company. The Stock
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has been issued in accordance with all applicable federal and state securities
laws or pursuant to exemptions therefrom.
4.3 Absence of Default. The execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in connection
herewith by Company and Shareholders will not constitute a violation of, or be
in conflict with, will not, with or without the giving of notice or the passage
of time, or both, result in a breach of, constitute a default under, create (or
cause the acceleration of the maturity of) any debt, indenture, obligation or
liability affecting Company or its Business or rights in the Stock, result in
the creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Stock, or otherwise adversely affect Buyer, Company
or the Business under: (a) any term or provision of the Charter or Bylaws of
Company; (b) any contract, lease, purchase order, agreement, document,
instrument, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which Company and/or Shareholders are a party or by which
Company, Shareholders, Stock or the Assets are bound; (c) any judgment, decree,
order, regulation or rule of any court or regulatory authority; or (d) any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority or arbitration tribunal to which Company, any
Shareholders, Stock and/or the Assets are subject, except the obligation of
Buyer duly to procure at its expense the consent, where required, of various
relevant governmental bodies or other third parties, if any, to the continuation
in the right of the Company of the several licences and permits and other rights
of the Company referred to in paragraph 1.2(7) above.
4.4 Financial Statements.
(1) Attached hereto as Exhibit 4.4 are true and correct copies of
Company's reviewed balance sheets as of January 31, 1996, and its reviewed
income statements for the year then ending (the "Fiscal Year Financial
Statements"), and the interim unaudited balance sheet and income statement of
Company for the nine (9) month period ended October 31, 1996 (the "Interim
Financial Statements" which with the Fiscal Year Financial Statements shall be
the "Financial Statements"). The Financial Statements are based on the books and
records of Company and present fairly, in compliance with generally accepted and
consistently applied accounting principles, the financial position of Company as
of, and the results of its operations for, the periods specified subject to, in
the case of the Interim Financial Statements, normal recurring year-end
adjustments the effect of which will not be, individually or in the aggregate,
materially adverse.
(2) The books and records of Company are in such order and completeness
that an unqualified audit may be performed for any period prior to Closing not
already audited. Shareholders shall reasonably cooperate with Buyer in Buyer's
attempt to perform an audit of Company for any period after December 31,1991 and
prior to Closing not already audited.
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4.5 Operations Since October, 31 1996 . Since October 31, 1996, there has
been no:
(1) change in the condition, financial or otherwise, which has, or
could reasonably be expected to have, a materially adverse effect on any of the
Assets, the Business or future prospects of the Business, or in the results of
the operations of the Company taken as a whole;
(2) loss, damage or destruction of or to any of the Assets in any
material respect, whether or not covered by insurance;
(3) sale, lease, transfer or other disposition by Company of, or
mortgages or pledges of or the imposition of any lien, charge or encumbrance on,
any portion of the Assets, other than those made in the ordinary course of
business;
(4) with the exception of bonus payments as set forth in Exhibit
4.5(4) attached hereto, increase in the compensation payable by Company to
Shareholders, any of its employees, directors, independent contractors or
agents, or increase in, or institution of, any bonus, insurance, pension,
profit-sharing or other employee benefit plan or arrangements made to, for or
with the employees, directors, independent contractors or agents of Company;
(5) cumulative net operating loss incurred in the operation of the
Business;
(6) adjustment or write-off of Receivables or reduction in reserves for
Receivables outside of the ordinary course of business;
(7) change in the accounting methods or practices employed by Company
or change in adopted depreciation or amortization policies;
(8) issuance or sale by Company, or contract or other commitment
entered into by Company or Shareholders for the issuance or sale, of any shares
of capital stock or securities convertible into or exchangeable for capital
stock of Company;
(9) payment by Company of any dividend, distribution or extraordinary
or unusual disbursement or expenditure or intercompany payable;
(10) sale, transfer, pledge, mortgage or other disposition of any of
the Stock or the Assets (except inventory and equipment held for rent in the
ordinary course of business and consistent with Company's past practice);
merger, consolidation or similar transaction; or solicitation therefor;
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(11) security interest, guarantee or other encumbrance, or other than
in the ordinary course of business, obligation or liability, in each case
whether absolute, accrued, contingent or otherwise, or whether due or to become
due, incurred or paid by Company to any person or entity; or the making by
Company of any loan or advance to, or an investment in, any person or entity;
(12) federal, state or local statute, rule, regulation, order or case
adopted, promulgated or decided which, to the best knowledge of Company and
Shareholders, materially adversely affecting Company, Stock, Business or Assets;
(13) strike, work stoppage or other labor dispute materially adversely
affecting the Business; or
(14) termination, waiver or cancellation of any rights or claims of
Company, under contract or otherwise.
Further, prior to the Effective Date, with the exception of the bonus pay
set forth in Exhibit 4.5(4), neither the Shareholders nor any of their family
members or affiliates has received any compensation, benefits or distributions
from Company, whether as salary, bonus, fees, dividends or any other form of
compensation, other than amounts not greater than the amount of compensation and
benefits contemplated for each of Joyce Alger and Gary Louie (as applicable)
pursuant to the agreements referenced in paragraph 9.8 hereof.
4.6 Absence of Certain Liabilities. Except as set forth in the Interim
Financial Statements, Company has, and as of the Closing will have, no
contingent liabilities or obligations.
4.7 Employment Discrimination. Except as disclosed in Exhibit 4.7 attached
hereto, no person or party (including, without limitation, any governmental
agency) has asserted, or to the best knowledge of the Company or Shareholders,
has threatened to assert, any claim for any action or proceeding, against
Company (or any officer, director, employee, agent or Shareholders of Company)
arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, without limitation, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended,
the Occupational Safety and Health Act, the Age Discrimination in Employment Act
of 1967, or the Americans With Disabilities Act). The claims disclosed in
Exhibit 4.7 will not result in any liability to or obligation of Buyer, directly
or through the Company, and will not cause or lead to any lien or encumbrance
being placed, created or filed against or upon any of the Stock or Assets, and
Shareholders will hold Buyer and Company harmless with respect to the same.
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4.8 Licenses and Permits.
(1) Company has all local, state and federal licenses, permits,
registrations, certificates, contracts, consents, accreditations and approvals
(collectively, the "Licenses and Permits") necessary for Company to occupy,
operate and conduct the Business, and there does not exist any waivers or
exemptions relating thereto. There is no default on the part of Company or any
other party under any of the Licenses and Permits. Shareholders are not aware of
any circumstances that would constitute grounds for revocation, suspension or
limitation of any of the Licenses or Permits. Copies of each of the Licenses and
Permits are attached to and listed on Exhibit 4.8(1) attached hereto. The most
recent licensure surveys, deficiency reports and plans of correction related to
each of these items has also been included in Exhibit 4.8(1). Company is, and at
the time of Closing will be, licensed by the regulatory bodies listed on Exhibit
4.8(1). No notices have been received by Company or Shareholders with respect to
any threatened, pending, or possible revocation, termination, suspension or
limitation of the Licenses and Permits.
(2) Company is not required to have any certificates of need or similar
authorizations in order to operate the Business.
(3) Each employee of Company has all Licenses and Permits required for
each such employee to perform such employee's designated functions and duties
for Company in connection with conducting the Business, and there exists no
waivers or exemptions relating thereto. There is no default under, nor are
Shareholders aware of any circumstances that would constitute grounds for
revocation, suspension or limitation of, any such Licenses and Permits.
4.9 Medicare, Medicaid and Other Third-Party Payors.
(1) Company participates in the Medicare and Medicaid Programs
(collectively, the "Programs"). A list of and copies of its existing Medicare
and Medicaid contracts and other documentation evidencing such participation
(collectively, the "Program Agreements") are included in Exhibit 4.12 attached
hereto. Company is, and will be at the time of Closing, in compliance in all
material respects with all of the terms, conditions and provisions of the
Program Agreements.
(2) No notice of any offsets against future reimbursements under or
pursuant to the Programs has been received by either Company or Shareholders,
nor is there any basis therefor. There are no pending appeals, adjustments,
challenges, audits, litigation, notices of intent to recoup past or present
reimbursements with respect to the Programs. Company has not been subject to or
threatened with loss of waiver of liability for utilization review denials with
respect to the Programs during the past twelve (12) months, nor has either
Company or Shareholders received notice of any pending, threatened or possible
decertification or other loss of participation in, any of the Programs.
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(3) Company currently has contractual arrangements with Blue Cross and
other third-party Payors. A list of and copies of its existing Blue Cross
contract(s) and other third-party payor contract(s) are included in Exhibit 4.12
attached hereto. Company is, and will be at the time of Closing, in full
compliance with all of the material terms, conditions and provisions of such
contracts.
(4) All liabilities and contractual adjustments of Company under any
third-party payor or reimbursement programs have been properly reflected and
adequately reserved for in the Financial Statements. In the event that,
following Closing, Buyer or Company suffers any offsets against any
reimbursement under any third-party payor or reimbursement programs due to Buyer
or Company relating to the periods on or prior to the Closing that are in excess
of amounts reserved, then Shareholders shall immediately pay to Buyer the
amounts so offset (to the extent it is in excess of amounts reserved), with
interest at a rate equal to eight percent (8%) per annum.
4.10 Compliance with Zoning, Land Use and Other Laws; Easements. To the
knowledge of Shareholders, none of the Real Estate is in violation of any
zoning, public health, building code or other similar laws applicable thereto or
to the occupancy and/or operation thereof, nor do there exist any waivers or
exemptions relating to the Real Estate with respect to any non-conforming use or
other zoning or building code matters. The Company has such lease arrangements
as are necessary to continue operation of the Business, copies of which are set
forth in Exhibit 4.12 attached hereto.
4.11 Title to Assets.
(1) Company is the sole legal and beneficial owner of the personal
property included in the Assets, free and clear of all mortgages, security
interests, liens, leases, covenants, assessments, easements, options, rights of
refusal, restrictions, reservations, defects in the title, encroachments, and
other encumbrances, except as set forth in the Leases and Contracts and except
such as are not material in amount, arise in and are customarily discharged in
the ordinary course of business and do not interfere with the continued
possession and use of such personal property. The Assets are all the assets set
forth on the Interim Financial Statements or used in the operation of the
Business.
(2) The descriptions of the Real Estate contained in Exhibit 1.2 (1)
are accurate and sufficient for their intended purposes, and such descriptions
include all real property leased by Company and used in connection with the
Business or set forth on the Interim Financial Statements. Company owns no real
property. Company is in lawful possession of all of the Real Estate that is
leased rather than owned, including, without limitation, the buildings,
structures and improvements situated thereon and appurtenances thereto, in each
case free and clear of all mortgages, liens and other encumbrances or
restrictions that are related to or impair the Assets or the Business.
Additionally, the transfer and conveyance of the Stock to Buyer as contemplated
by the terms of this
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Agreement once effected as contemplated hereunder, will vest in the Buyer,
either directly or indirectly through Company, the lawful right to possess and
use the leased Real Estate, superior in right to all others subject, however, to
any rights of lessors in and to the Real Estate and subject to the rights of any
mortgagees of such lessors.
4.12 Leases and Contracts.
(1) Exhibit 4.12 attached hereto sets forth a complete and accurate
list of all contracts, including the Program Agreements, agreements, purchase
orders, leases, subleases, options and commitments, oral or written, and all
assignments, amendments, schedules, exhibits and appendices thereof, affecting
or relating to the Business, Stock or any Asset or any interest therein, to
which Company and/or Shareholders are a party or by which Company, the Assets or
the Business is bound or affected, including, without limitation, service
contracts, management agreements, equipment leases and building leases
pertaining to any part of the Real Estate (collectively, the "Leases and
Contracts"). Attached to Exhibit 4.12 are accurate and complete copies of all
written Leases and Contracts and written summaries of key terms of all oral
Leases and Contracts. Except for the Continuing Liabilities, all obligations
under the Leases and Contracts shall be assumed by the Shareholders.
(2) None of the Leases and Contracts has been modified, amended,
assigned or transferred and each is in full force and effect and is valid,
binding and enforceable in accordance with its respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
(3) No event or condition has happened or presently exists which
constitutes a default or breach or, after notice or lapse of time or both, would
constitute a default or breach by any party under any of the Leases and
Contracts. There are no counterclaims or offsets under any of the Leases and
Contracts.
(4) There does not exist any security interest, lien, encumbrance or
claim of others created or suffered to exist on any interest created under any
of the Leases and Contracts (except for those that result from or relate to
leased Assets).
(5) No purchase commitment by Company is in excess of Company's
ordinary business requirements.
(6) Conveyance to Buyer of the Stock will not default, alter or
terminate any of the Leases and Contracts, and Buyer, directly or through
Company, will be entitled to all rights thereunder.
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4.13 Environmental Matters.
(1) Hazardous Substances. As used in this Paragraph, the term
"Hazardous Substances" means any hazardous or toxic substances, materials or
wastes, including but not limited to those substances, materials, and wastes
defined in Paragraph 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed in the
United States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or which are regulated under any other Environmental Law (as such term is
defined herein), and any of the following: hydrocarbons, petroleum and petroleum
products, asbestos, polychlorinated biphenyls, formaldehyde, radioactive
substances (other than naturally occurring materials in place), flammables and
explosives.
(2) Compliance with Laws and Regulations. All operations or activities
upon, or any use or occupancy of the Real Estate, or any portion thereof, by
Company, any Affiliates of Company (wherein the term "Affiliates" shall mean any
person or entity controlling, controlled by or under common control at any time
with Company, and the term "control" shall mean the power, directly or
indirectly to direct the management or policies of such person or entity), and
any agent, contractor or employee of any agent or contractor of Company or its
Affiliates ("Agents"), or any tenant or subtenant of Company of any part of the
Real Estate is and has been in compliance with any and all laws, regulations,
orders, codes, judicial decisions, decrees, licenses, permits and other
applicable requirements of governmental authorities with respect to Hazardous
Substances, pollution or protection of human health and safety (collectively,
"Environmental Laws"), including but not limited to the release, emission,
discharge, storage and removal of Hazardous Substances. The Company, Affiliates
and Agents have kept the Real Estate free of any lien imposed pursuant to
Environmental Laws. To the best knowledge of Company and Shareholders, all prior
owners, operators and occupants of the Real Estate complied with Environmental
Law. Except for uses and storage or presence of Hazardous Substances reasonably
necessary or incidental to the customary operation of a business similar to the
Business, as appropriate which, if required, was duly licensed or authorized by
appropriate governmental authorities or otherwise permitted by Environmental
Law, and which complies with Environmental Law:
(a) Neither Company nor its Affiliates or Agents have allowed the
use, generation, treatment, handling, manufacture, voluntary transmission or
storage of any Hazardous Substances over, in or upon the Real Estate, nor, to
the best knowledge of Company or Shareholders, has the Real Estate ever been
used for any of the foregoing.
(b) Neither Company nor its Affiliates or Agents have installed or
permitted to be installed, in or on the Real Estate friable asbestos or any
substance containing asbestos in condition or amount deemed hazardous by
Environmental Law.
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(c) Company has not at any time engaged in or permitted any
dumping, discharge, disposal, spillage, or leakage (whether legal or illegal,
accidental or intentional) of such Hazardous Substances, at, on, in or about the
Real Estate, or any portion thereof that would subject the Real Estate or Buyer
to clean-up obligations imposed by governmental authorities.
(d) None of the Real Estate, nor any part thereof, nor Company, nor
any present operator of the Real Estate (i) has either received or been issued a
notice, demand, request for information, citations, summons or complaint
regarding an alleged failure to comply with Environmental Law, or (ii) is
subject to any existing, pending, or, to the best knowledge of Company or
Shareholders, threatened investigation or inquiry by any governmental authority
for noncompliance with, or any remedial obligations under Environmental Law, and
there are no circumstances known to Company or Shareholders which could serve as
a basis therefor. The Company has not assumed any liability of a third party for
clean-up under or noncompliance with Environmental Law.
(e) To the best knowledge of Company and Shareholders, neither the
Company nor its Affiliates or Agents have transported or arranged for the
transportation of any Hazardous Substances to any location which is listed or,
to the best knowledge of Company and Shareholders, proposed for listing under
Environmental Law or is the subject of any enforcement action, investigation or
other inquiry under Environmental Law.
(3) Other Environmental Matters. To the best knowledge of Company and
Shareholders, there are no underground storage tanks on any portion of the Real
Estate, and the Real Estate is free of dangerous levels of naturally-emitted
radon. To the best knowledge of Company and Shareholders, no portion of the Real
Estate has ever been used as a landfill. Company has furnished to Buyer a copy
of any environmental audit, study, report or other analysis on the Real Estate,
which Company or its Affiliates obtained or was furnished.
(4) Company and Shareholders shall promptly notify Buyer in writing of
any order, receipt of any notice of violation or noncompliance with any
Environmental Law, any threatened or pending action by any claims made by any
third party of which either is aware relating to Hazardous Substances on,
emanations on or from, releases on or from, any of the Real Estate which relate
to the period prior to Closing; and shall promptly furnish Buyer with copies of
any written correspondence, notices or legal pleadings and written summaries of
any oral communications or notices in connection therewith. If, and only if,
required by law or the failure to do so would impose liabilities on Buyer or the
Assets, Buyer shall have the right, but shall not be obligated, to notify any
governmental authority of any state of facts which may come to its attention
with respect to Hazardous Substances on, released from or emanating from any
part of the Real Estate. Buyer shall give Company prior or simultaneous notice
of such notification.
4.14 Miscellaneous Representations Relating to Real Estate.
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(1) No part of the Real Estate is currently subject to condemnation
proceedings, and, to the best knowledge of Company and Shareholders, no
condemnation or taking is threatened or contemplated. There are no public
improvements which may result in special assessments against or otherwise affect
the Real Estate. There are no facts known to either Company or Shareholders that
would adversely affect the possession, use or occupancy of the Real Estate.
(2) Attached as Exhibit 4.14 are complete copies of all appraisals,
mechanical and structural studies or reports or assessments, engineering plans,
architectural drawings, soil studies, surveys and other documents which have
been prepared by or at the direction of Company or Shareholders within the last
five (5) years relating to any of the Assets.
(3) To the best knowledge of Company and Shareholders, all utilities
serving the Real Estate are adequate to operate the Real Estate in the manner it
is currently operated.
(4) To the best knowledge of Shareholders and Optionees, all potable
and industrial water and all gas, electrical, steam, compressed air,
telecommunication, sanitary and storm sewage lines and systems and other similar
systems serving the Real Estate and the facilities of the Business are installed
and operating and are sufficient to enable the Real Estate and the facilities of
the Business to continue to be used and operated in the manner currently being
used and operated, and any so-called hook-up fees or other associated charges
accrued to date have been fully paid. Company has received no written
recommendation from any insurer to repair or replace any of the Assets with
which Company has not complied.
4.15 Litigation. Neither Company nor Shareholders have received notice of
any violation of any law, rule, regulation, ordinance or order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, legislation
and regulations applicable to the Medicare and Medicaid programs, Food and Drug
Administration, Drug Enforcement Administration, state controlled substance
agencies and boards of pharmacy, environmental protection, civil rights, public
health and safety and occupational health). Except as set forth in Exhibit 4.15
attached hereto (for which Buyer assumes no liability), there are no lawsuits,
proceedings, actions, arbitrations, governmental investigations, claims,
inquiries or proceedings pending or, to the best knowledge of Seller and
Shareholders, threatened involving Seller, Shareholders, any of the Assets or
the Business.
4.16 Company Employees. Exhibit 4.16 attached hereto sets forth: (a) a
complete list of all of the Company's employees, and rates of pay, (b) true and
correct copies of any and all fringe benefits and personnel policies, (c) the
employment dates and job titles of each such person, and (d) categorization of
each such person as a full-time or part-time
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employee of Company. For purposes of this paragraph, "part-time employee" means
an employee who is employed for an average of fewer than twenty hours per week
or who has been employed for fewer than six (6) of the twelve (12) months
preceding the date on which notice is required pursuant to the "Worker
Adjustment and Retraining Notification Act" ("WARN"), 29 U.S.C. ss.2102 et seq.
Except as provided in Exhibit 4.12, Company has no employment agreements with
its employees. Exhibit 4.16 lists all ex-employees of Company utilizing or
eligible to utilize COBRA (health insurance). Shareholders agree to indemnify
and hold Buyer and Company harmless from and against any and all claims of
employees, whenever made, relating to their employment by Company through
Closing, except to the extent such claims are based on acts or omissions of
Buyer after Closing. Company has adequately accrued all salaries and wages,
related payroll taxes, vacation benefits, retirement and other fringe benefits
that have accrued to Company employees through the Closing Date, including
related payroll taxes.
4.17 Labor Relations. Company is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding, or any other
arrangement, formal or informal, with any labor union or organization which
obligates Company to compensate Company's employees at prevailing rates or union
scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the best knowledge of Company and
Shareholders, threatened labor dispute, work stoppage, unfair labor practice
complaint, strike, administrative or court proceeding or order between Company
and any present or former employee(s) of Company. There is no pending or, to the
best knowledge of Company and Shareholders, threatened suit, action,
investigation or claim between Company and any present or former employee(s) of
Company, except as disclosed in Exhibit 4.15. There has not been any labor union
organizing activity at any location of Company, or elsewhere, with respect to
Company's employees within the last three years of which Company and
Shareholders are aware.
4.18 Insurance. Company has in effect and has continuously maintained
insurance coverage for all of its operations, personnel and assets, and for the
Assets and the Business. A complete and accurate list of all such insurance
policies is included in Exhibit 4.12. Exhibit 4.18 attached hereto sets forth a
summary of Company's current insurance coverage (listing type, carrier and
limits), and includes a list of any pending insurance claims relating to
Company. Shareholders agree to indemnify and hold Buyer and Company harmless
from and against such pending insurance claims to the extent such claims are not
satisfied by Company's insurance policies; provided, however, that Shareholders
have had reasonable advance notice of the settlement of such claims. Company is
not in default or breach with respect to any provision contained in any such
insurance policies, nor has Company failed to give any notice or to present any
claim thereunder in due and timely fashion.
4.19 Broker's or Finder's Fee. Except as to Whitestone Associates, Inc., to
which the Shareholders shall be solely responsible for payment of any and all
fees and expenses payable on or after Closing relating to the sale of the Stock
and the transactions
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contemplated herein, neither Company nor Shareholders have employed, or are
liable for the payment of any fee to, any finder, broker, consultant or similar
person in connection with the transactions contemplated under this Agreement.
4.20 Conflicts of Interest. Except for accounting services provided by
Independent Quality Care, Inc., none of the following is either a supplier of
goods or services to Company, or directly or indirectly controls or is a
director, officer, employee or agent of any corporation, firm, association,
partnership or other business entity that is a supplier of goods or services to
Company: (a) any Shareholders, (b) any director or officer of Company, or (c)
any entity under common control with Company or controlled by or related to any
Shareholders.
4.21 Intellectual Property. The Company neither owns nor uses any
intellectual property except such rights as it may have in its corporate name
and it has not licensed the use of such name to any party.
4.22 Inventories. The Inventory is and on Closing will be of a quality and
quantity previously used by Company in the ordinary course of business
determined and valued consistent with Company's past practice and will contain
no significant amount of excess, dated, or obsolete inventory. The Inventory is
properly valued at the lower of cost or market value on a first-in/first-out
basis in accordance with generally accepted accounting principles consistently
applied and is accounted for on the basis of semi-annual physical inventories
and estimated cost of goods factors revised semi-annually. Since the date of the
Interim Financial Statements, Company has not decreased or substituted its items
of Inventory other than in the ordinary course of business.
4.23 Motor Vehicles. All motor vehicles used in the Business, whether owned
or leased, are listed in Exhibit 1.2(2) attached hereto. All such vehicles are
properly licensed and registered in accordance with applicable law.
4.24 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.24(1) attached hereto contains a
true, accurate and complete list of each "employee welfare benefit plan" (as
defined in Paragraph 3(1) of the Employee Retirement Income Security Act of 1974
as amended ("ERISA")) maintained by Company or to which Company contributes or
is required to contribute (such employee welfare benefit plans being hereinafter
collectively referred to as the "Welfare Benefit Plans"). Copies of all Welfare
Benefit Plans have previously been provided to Buyer.
(2) Pension Benefit Plans. Exhibit 4.24(2) attached hereto contains a
true and complete list of each "employee pension benefit plan" (as defined in
Paragraph 3(2) of ERISA) maintained by Company, to which Company contributes or
is required to contribute, or which covered employees of Company during the
period of their employment
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with any predecessor of Company, including any multi-employer pension plan as
defined under Internal Revenue Code of 1986, Paragraph 414(f) (such employee
pension benefit plans being hereinafter collectively referred to as the "Pension
Benefit Plans"). Copies of all Pension Benefit Plans have previously been
provided to Buyer.
(3) Liabilities. There are no unfunded liabilities under any Welfare
Benefit Plan or Pension Benefit Plan. Neither Buyer nor Company shall be liable
or responsible for any debt, obligation, responsibility or liability under any
such plans. Shareholders hereby assume liability under such plans for all claims
due and unpaid at Closing and for all claims incurred before Closing, whether or
not paid or presented before Closing.
(4) Termination of Participation. Upon Closing, Company shall cease to
be a participating employer under all Pension Benefit Plans and Welfare Benefit
Plans maintained by Company, and any such action by Company shall in no way
diminish Shareholders' obligations to Buyer; provided, however, that Buyer and
Company, jointly and severally, shall indemnify and hold harmless Shareholders
of and from any liability and expense whatsoever due to any claim, proceeding,
investigation or audit arising directly or indirectly out of any plan
termination after Closing.
4.25 Compliance with Healthcare and Other Laws. Company has not made any
kickback, bribe or payment to any person or entity, directly or indirectly, for
referring, recommending or arranging business or patients with, to or for
Company which action could have a material adverse effect on the Business. The
parties to this Agreement hereby waive compliance with any bulk sales, or
similar statute, applicable to the transactions contemplated under this
Agreement; provided however that Shareholders shall be liable for any claims
against the Company, Buyer, or Parent under any such statute related to this
Agreement or the transactions contemplated herein. The transactions contemplated
under this Agreement comply with any applicable state antitrust or similar laws.
None of the Leases and Contracts and no activity of Company violates Section
1877 of the Social Security Act or any similar provision of applicable state law
in any material respect. None of the Leases and Contracts and no activity of
Company violates provisions of applicable state law relating to the corporate
practice of medicine in any material respect. The Company is in compliance
(without obtaining waivers, variances or extensions) with, all federal, state
and local laws, rules and regulations which relate to the operations of the
Business, except where the failure to be in compliance could not have a material
adverse effect on the Business. All healthcare, tax and other returns, reports,
plans and filings of any nature required to be filed by Company with any
federal, state or local governmental authorities and any third-party payors have
been properly completed, except where the failure to be so completed or filed
could not have a material adverse effect on the Business, and timely filed in
compliance with all applicable requirements or extensions thereof. Each return,
report, plan and filling contains no materially untrue or misleading statements
and does not omit anything which would cause it to be misleading or inaccurate
in any material respect. Company shall retain and be responsible, for any
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liability incurred, and Company shall be entitled to receive any refund or other
benefit which may result from the same in connection with any such return,
report, plan and filing.
4.26 Condition of Assets. To the best knowledge of Shareholders and
Optionees, the Equipment and Furnishings are all of the "Equipment" reflected on
the Interim Financial Statements, other than those items sold and replaced in
the ordinary course of business. The Assets comprise all of the following: all
assets owned by the Company and all assets used in connection with the Business
and any related businesses. The Equipment and Furnishings are structurally
sound, in good operating condition and repair and are adequate for the uses to
which they are being put. None of the Equipment and Furnishings is in need of
maintenance or repair except for ordinary and routine maintenance and repair not
material in nature or cost. The Company has received no written recommendation
from any insurer to repair or replace any of the Assets with which the Company
has not complied. Since October 31,1996, the Business has been operated in
conformity with the methods and procedures observed and utilized during the two
year period immediately preceding October 31, 1996, and, since October 31, 1996
and except as required in the ordinary and usual course of the Business, no
assets have been removed, distributed, assigned or paid by or from Company or
Shareholders.
4.27 WARN Act. Since ninety (90) days prior to Effective Date, Company has
not temporarily or permanently closed or shut down any single site of employment
or any facility or any operating unit, department or service within a single
site of employment, as such terms are used in WARN.
4.28 Tax Returns; Taxes. Company has filed all federal, state and local tax
returns and tax reports required by such authorities to be filed as of the time
of Closing. Company has paid all taxes, assessments, governmental charges,
penalties, interest and fines due or claimed to be due as of the time of Closing
(including, without limitation, taxes on properties, income, franchises,
licenses, sales and payrolls) by any federal, state or local authority.
Additionally, the reserves for taxes reflected in the Financial Statements are
adequate to cover all tax liabilities accrued as of the respective dates
thereof. There is no pending tax examination or audit of, nor any action, suit,
investigation or claim asserted or, to the best knowledge of Company and
Shareholders, threatened against Company or Shareholders by any federal, state
or local authority; and Company and/or Shareholders have not been granted any
extension of the limitation period applicable to any tax claims.
4.29 Stock Value; Operating Targets. As of the date of Closing and after
giving credit to the Company for Twenty Nine Thousand and No/100 Dollars
($29,000.00) of option exercise price as if paid by Optionees, Shareholders'
equity shall be no less than Nine Hundred Forty-Six Thousand Dollars
($946,000.00). For the nine (9) month period ended at October 31, 1996: (a) the
Company's earnings before interest, taxes and depreciation and the add back of
non-operating expenses shall have been no less than Two Hundred Sixty-One
Thousand Dollars ($261,000.00); (b) the Company's net revenues
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shall have been no less than Six Million Three Hundred Seventy-Five Thousand
Dollars ($6,375,000.00), including not more than One Million Six Hundred
Thousand Dollars ($1,600,000.00) in revenue from beds under contract with
Integrated Health Services, Inc. or any of its affiliates ("IHS"); and (c) the
Company incurred no less than Four Hundred Thousand ($400,000.00) in
non-operating or redundant expenses.
4.30 Beds Under Contract. As of the date of Closing, the Company shall
serve, pursuant to binding written contracts, a minimum of Three Thousand Five
Hundred (3,500) beds, including beds under contract with IHS not in excess of
Seven Hundred and Twenty-Five (725).
4.31 No Omissions or Misstatements. There is no fact material to the Stock,
Assets, liabilities, Business or prospects of Company which has not been set
forth or described in this Agreement or in the Exhibits hereto and which is
material to the conduct, prospects, operations or financial condition of
Company, Business or the Assets taken as a whole. None of the information
included in this Agreement and Exhibits hereto, or other documents furnished or
to be furnished by Shareholders or Company, or any of its representatives,
contains any untrue statement of a material fact or is misleading in any
material respect or omits to state any material fact necessary in order to make
any of the statements herein or therein not misleading in light of the
circumstances in which they were made. Copies of all documents referred to in
any Exhibit hereto have been delivered or made available to Buyer and constitute
true, correct and complete copies thereof and include all amendments, exhibits,
schedules, appendices, supplements or modifications thereto or waivers
thereunder.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Shareholders and Company to enter into this Agreement
and to consummate the transactions contemplated herein, Buyer and Parent hereby
represent and warrant to Shareholders and Company, which representations and
warranties shall be true and correct on the date of Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the full corporate power and authority to own, lease and
operate its properties and assets as presently owned, leased and operated and to
carry on its business as it is now being conducted. Buyer has the full right,
power and authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement and to consummate the transactions contemplated on
the part of Buyer hereby. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Buyer has been duly authorized by all necessary corporate action on the part
of Buyer. No other action on the part of Buyer or any other person or entity is
necessary to authorize
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the execution, delivery and consummation of this Agreement and all other
agreements and documents executed in connection herewith. This Agreement, and
all other agreements and documents executed in connection herewith by Buyer,
upon due execution and delivery thereof, shall constitute the valid binding
obligations of Buyer, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity.
5.2 Absence of Default. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Buyer will not constitute a violation of, be in conflict with, or, with or
without the giving of notice or the passage of time, or both, result in a breach
of, constitute a default under, or create (or cause the acceleration of the
maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreement) under: (a) any term or provision of the
Certificate of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Except as to Adirondack Capital Advisors,
LLC, to which Buyer shall be solely responsible for payment of any and all fees
and expenses, Buyer has not employed and is not liable for the payment of any
fee to any finder, broker, government official, consultant or similar person in
connection with the transactions contemplated by this Agreement.
5.4 Investment Intent. Buyer is acquiring the Stock for its own account and
not with a view to its distribution within the meaning of Section 2(11) of the
Securities Act of 1933, as amended.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the Effective Date until the
Closing, Company and Shareholders shall use their best efforts and shall do or
cause to be done all such acts and things as may be necessary to preserve,
protect and maintain intact the operation of the Business and Assets as a going
concern consistent with prior practice and not other than in the ordinary course
of business, to preserve, protect and maintain for Buyer the goodwill of the
suppliers, employees, clientele, patients and others having business relations
with Company or the Business. Company shall use its best efforts to retain its
employees in their current positions up to Closing. Buyer, Company and
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Shareholders shall use their best efforts to facilitate the consummation of the
transactions contemplated under this Agreement. Until termination of this
Agreement, Company and Shareholders will not sell or transfer, or negotiate the
sale or transfer of, either the Assets or Stock of Company. Except as set forth
on Exhibit 6.1(a) and except as to amounts paid to Independent Quality Care for
accounting services in the ordinary course of business (which is listed on
Exhibit 6.1(b)), from the Effective Date until the Closing, Company shall pay no
dividend, and shall make no distribution or extraordinary payment to
Shareholders or any third party or pay any intercompany payable and, other than
in the ordinary course of business, Company will not sell, discard or dispose of
any of the Assets. None of the Leases and Contracts shall be amended in any
material respect between the date hereof and Closing without the prior written
consent of Buyer. From the Effective Date until Closing, Company and any party
in possession of all or any part of the Real Estate will not perform any
material grading or excavation, construction or removal of any improvement, or
make any material other change or improvement upon or about the Real Estate.
From the Effective Date until Closing, Company and any party in possession of
all or any part of the Assets will maintain and keep the Assets in a sanitary,
well-maintained condition and in good order and repair.
6.2 Absence of Material Change. From the Effective Date until the Closing,
neither Company nor Shareholders shall make any change in the Business or and in
the utilization of the Assets and shall not enter jointly or separately into any
other material contract or commitment or any other transaction with respect to
the Business or the Assets without the prior written consent of Buyer.
6.3 Access to Books and Records.
(1) From the date hereof until the Closing, Company and Shareholders
shall give to Buyer and to Buyer's counsel, accountants and other
representatives, full access to all of Company's offices, properties, books,
contracts, commitments, records and affairs relating to the Stock, Assets or the
Business so that Buyer may inspect and audit them and shall furnish to Buyer a
copy of all documents and information concerning the properties and affairs of
Company, the Business, Stock or the Assets as Buyer may request. If any such
books, records and materials are in the custody of third parties, Company and
Shareholders shall direct such third parties to promptly provide them to Buyer.
Copies of documents furnished to Buyer by Company and Shareholders will be
returned by Buyer upon request if the transaction is not consummated. Company
and Shareholders shall provide Buyer promptly with interim financial statements
of Company and any other management reports, as and when they are available.
(2) Following the Closing, Shareholders shall permit Buyer and its
representatives (including, without limitation, its counsel and auditors), to
have access to, and examine and make copies of, any books and records relating
to the Business, Stock or Assets which Shareholders are required by law to
retain, if any, and which relate to transactions or events occurring prior to
the Closing. For a period of five years after the
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Closing, Shareholders agree that, prior to the destruction or disposition of any
such books or records, Shareholders shall provide not less than forty-five (45)
days', nor more than ninety (90) days', prior written notice to Buyer of such
proposed destruction or disposal. If Buyer desires to obtain any such documents
or records, it may do so by notifying Shareholders in writing at any time prior
to the date scheduled for such destruction or disposal. In such event,
Shareholders shall not destroy such documents or records and the parties shall
then promptly arrange for the delivery of such documents or records to Buyer,
its successors or assigns. All out-of-pocket costs associated with the delivery
of the requested documents or records shall be paid by Buyer.
(3) After Closing, Shareholders shall make the books and records of
Company retained by Shareholders, if any, available to Buyer (and, without
limitation, to Buyer's auditors and other agents) and shall otherwise cooperate
with Buyer in order to permit Buyer to conduct an audit of Company's financial
statements for any period prior to Closing not already audited. Shareholders
agree to cooperate with Buyer in Buyer's preparation of financial statements
relating to such periods and Buyer's filing in a timely manner of registration
statements, private placement memoranda and periodic reports, if any, pursuant
to any applicable federal or state securities law.
6.4 Medicare and Medicaid Reporting. Until the Closing, Company shall have
timely filed or caused to be filed all reports and claims of every kind, nature
or description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third-party payors, including, but not
limited to, Medicare, Medicaid and Blue Cross. Company has paid or will pay all
liabilities for contracted adjustments, discounts, refunds and other offsets in
connection with the filing of such reports and claims through the date of
Closing.
6.5 Preserve Accuracy of Representations and Warranties. Shareholders and
Company shall refrain from taking any action which would render any
representation and warranty contained in Article IV hereof untrue, inaccurate or
misleading as of Closing. Each of the Shareholders and Company will promptly
notify Buyer of any lawsuit, claim, audit, investigation, administrative action
or other proceeding asserted or commenced against Company or its directors,
officers, or Shareholders, that may involve or relate in any way to Company, the
Assets, Stock, Shareholders or the operation of the Business. Each of the
Shareholders and Company shall promptly notify Buyer of any facts or
circumstances that come to its attention and that cause, or through the passage
of time may cause, any of Shareholders' or Company's representations, warranties
or covenants to be untrue or misleading at any time from the date hereof to
Closing.
6.6 Maintain Books and Accounting Practices. From the date hereof until the
Closing, Company shall maintain its books of account in the usual, regular and
ordinary manner on a basis consistent with prior years and shall make no change
in its accounting methods or practices.
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6.7 Indebtedness; Liens. Other than in the ordinary course of business as
reflected in the Financial Statements, from the Effective Date until the
Closing, with respect to the Stock and Assets, including the Business and
operations conducted with the Assets, Company shall not create, incur, assume,
guarantee or otherwise become liable or obligated with respect to any
indebtedness for borrowed money, nor make any loan or advance to, or any
investment in, any person or entity, nor create any lien, security interest,
mortgage, right or other encumbrance in any of the Assets, without Buyer's prior
written approval. At Closing, the Assets will be free and clear of all
mortgages, security interests, liens, leases, covenants, assessments, easements,
options, rights of first refusal, restrictions, reservations, defects in title,
encroachments or other encumbrances, except as set forth in those Leases and
Contracts which are to be retained by Company, except such as are not material
in amount, arise in and are customarily discharged in the ordinary course of
business and do not interfere with the continued possession and use of the
Assets, and Company shall deliver to Buyer such releases, U.C.C. termination
statements and other documents as Buyer may, prior to Closing, specify and
reasonably request to evidence the same.
6.8 Compliance with Laws and Regulatory Consents. From the date hereof
until the Closing, (a) Company shall comply with all applicable statutes, laws,
ordinances and regulations, (b) Company shall keep, hold and maintain all
certificates, certificates of need, certificates of exemption, accreditations,
participation, licenses, and other permits necessary for the business and
operation of the Assets, (c) Shareholders and Company shall use their reasonable
efforts to cooperate fully with Buyer and to assist Buyer, at Buyer's expense,
to obtain all consents, approvals, exemptions and authorizations of third
parties, whether governmental or private, necessary to consummate the
transactions contemplated by this Agreement, and (d) Shareholders and Company
shall make and cause to be made all filings and give and cause to be given all
notices which may be necessary or desirable on their part under all applicable
laws and under their respective contracts, agreements and commitments in order
to consummate the transactions contemplated by this Agreement.
6.9 Maintain Insurance Coverage. From the date hereof until the Closing,
Company shall maintain and cause to be maintained in full force and effect the
existing insurance on the Assets and the operations of the Business and shall
provide at Closing written evidence satisfactory to Buyer that such insurance
continues to be in effect, that all premiums due have been paid, and that Buyer
has been named additional insured since the Effective Date.
6.10 No Sale, Merger or Consolidation. From the date hereof until the
Closing, Shareholders shall not sell, pledge or transfer any of the Stock, and
Company shall not sell all or substantially all of the Assets, or merge or
consolidate with any other entity; neither shall solicit any inquiries,
proposals or offers relating to any such transactions; and each such party shall
promptly notify the Buyer orally, and confirm in writing, of all relevant
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details relating to inquiries, proposals or offers which either may receive
relating to any of the matters referred to in this paragraph.
6.11 Guarantors and Sureties. Company and Buyer shall replace such of the
Shareholders, if any, who are guarantors or sureties with respect to any
obligation of the Company which is a Continuing Liability and, until such
replacement, shall jointly and severally indemnify and hold harmless such
guarantors and sureties from all liability, cost or expense arising out of such
status.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in Articles VIII
and IX hereof are satisfied, then the Closing shall occur on or by January
31,1997 at the offices of Berman, Berkley & Lasky, San Francisco, California, or
at such other time or place as the parties may mutually agree (the "Closing").
Upon consummation, the Closing shall be deemed to be effective and the transfer
of the Assets shall be deemed to have occurred, as of 12:01 a.m. local time on
January 1, 1997 (the "Effective Date"). In the event that Closing has not
occurred by January 31, 1997, then any party not in default hereunder may
terminate this Agreement without further obligation.
7.2 Shareholders' Representative. Each of the Shareholders and Optionees
hereby appoints Daniel W. Alger and A.J. Caffereta, III (the "Shareholder
Representatives"), or either of them severally, with full power of substitution,
as their attorneys in fact to represent them at the Closing, to execute and
deliver on their behalf the Assignment and Assumption Agreement and such other
instruments as may be necessary or proper to complete the sale contemplated by
this Agreement, to collect the proceeds of sale payable hereunder, to pay all
legal fees, brokerage commissions and other expenses of sale, to establish
reasonable reserves of not more than Fifty Thousand and No/100 Dollars
($50,000.00) for not more than One Hundred Eighty (180) days from Closing, to
disburse the net proceeds of sale hereunder to the various Shareholders and
Optionees and to negotiate and settle with the Company and Buyer all
post-Closing claims, disputes and controversies of any nature. Shareholders and
Optionees hereby agree to hold harmless Buyer and Parent for their reliance upon
this Section 7.2 and for any action or omission on the part of the Shareholder
Representatives.
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ARTICLE VIII. COMPANY'S AND SHAREHOLDERS' CONDITIONS TO CLOSE
The obligations of Company and Shareholders under this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived in writing by Company or Shareholders, in whole or in
part):
8.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer and Parent contained in
this Agreement and in any certificate or document delivered pursuant hereto
shall be deemed to have been made again at the Closing and shall then be true in
all respects. Buyer and Parent shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be complied
with or performed by them prior to or at Closing.
8.2 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body or other entity shall have taken any other action or made any
request of Company, Shareholders or Buyer as a result of which Company or
Shareholders reasonably and in good faith deem that to proceed with the
transactions hereunder may constitute a violation of law.
8.3 Order Prohibiting Transaction. No order shall have been entered in any
action or proceeding before any court or governmental agency, and no preliminary
or permanent injunction by any court shall have been issued which would have the
effect of (a) making the transactions contemplated by this Agreement illegal, or
(b) otherwise preventing consummation of such transactions. There shall have
been no United States federal or state statute, rule or regulations enacted or
promulgated after the date of this Agreement that would reasonably, directly or
indirectly, result in any of the consequences referred to in this paragraph.
8.4 [Reserved].
8.5 Employment Agreements. Buyer and each of Joyce Alger and Gary Louie
shall execute and deliver to Seller an Employment Agreement in the form attached
hereto as Exhibit 8.5.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer and Parent under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer, in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Shareholders and Company
contained
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in this Agreement (including the Exhibits hereto) and in any certificate or
document delivered pursuant hereto shall be deemed to have been made again at
the Closing and shall then be true in all material respects. Company and
Shareholders shall have performed and complied with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
them prior to or at Closing in all material respects.
9.2 Regulatory Approvals. Buyer shall have obtained (a) certification for
participation in the Medicaid Programs of the states where the Business is
conducted, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, and (c) all other
consents, licenses, permits, approvals, provider contracts or determinations
necessary in the judgment of Buyer to acquire the Stock and operate the Assets
and Business as contemplated hereunder.
9.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body or other entity shall have taken any other action or made any
request of Company, Shareholders or Buyer as a result of which Buyer reasonably
and in good faith deems that to proceed with the transactions hereunder may
constitute a violation of law.
9.4 Inspection of Assets; U.C.C. Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Business in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to it.
9.5 Order Prohibiting Transaction. No order shall have been entered in any
action or proceeding before any court or governmental agency, and no preliminary
or permanent injunction by any court shall have been issued which would have the
effect of (a) making the transactions contemplated by this Agreement illegal,
(b) otherwise preventing consummation of such transactions, or (c) imposing
material limitations on the ability of Buyer effectively to acquire and hold the
Stock or Assets, to operate the Business, or, in any case, to exercise rights of
ownership pursuant thereto. There shall have been no federal or state statute,
rule or regulations enacted or promulgated after the date of this Agreement that
would reasonably result, directly or indirectly, in any of the consequences
referred to in this paragraph.
9.6 [Reserved.]
9.7 Non-Competition Agreement. Dan Alger shall execute and deliver to Buyer
a Non-Competition Agreement in the form attached hereto as Exhibit 8.5.
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9.8 Employment Agreements. Buyer and each of Joyce Alger and Gary Louie
shall have entered into an employment agreement in the form attached hereto as
Exhibit 8.6.
9.9 Stock Value; Operating Targets. As of the date of Closing and after
giving credit to the Company for Twenty Nine Thousand and No/100 Dollars
($29,000.00) of option exercise price as if paid by Optionees, Shareholders'
equity shall be no less than Nine Hundred Forty-Six Thousand Dollars
($946,000.00). For the nine (9) month period ended at October 31, 1996: (a) the
Company's earnings before interest, taxes and depreciation and the add back of
non-operating expenses shall have been no less than Two Hundred Sixty-One
Thousand Dollars ($261,000.00); (b) the Company's net revenues shall have been
no less than Six Million Three Hundred Seventy-Five Thousand Dollars
($6,375,000.00) including revenue not in excess of One Million Six Hundred
Thousand Dollars ($1,600,000.00) from beds under contract with Integrated Health
Services, Inc. or any of its affiliates ("IHS"); and (c) the Company incurred no
less than Four Hundred Thousand ($400,000.00) in non-operating or redundant
expenses.
9.10 Beds Under Contract. As of the date of Closing, the Company shall
serve, pursuant to binding written contracts, a minimum of Three Thousand Five
Hundred (3,500) beds, including beds under contract with IHS not in excess of
Seven Hundred and Twenty-Five (725).
9.11 Third Party Consents; Releases. Shareholders and Company shall provide
to the Buyer all third party consents, releases and authorizations believed by
Buyer to be necessary or advisable for the legal and proper consummation of all
agreements and transactions contemplated within this Agreement, each in form and
substance acceptable to Buyer other than consents referred to in Section 6.8
above.
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDERS AT CLOSING
At Closing, Company and Shareholders shall deliver or cause to be delivered
to Buyer the following in form and substance reasonably satisfactory to Buyer:
10.1 Documents Relating to Title. Shareholders shall execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer:
(1) Stock certificates, registered in the name of the Shareholders,
duly endorsed by Shareholders or with stock powers attached, representing all of
the Stock.
(2) The resignation of each member of the Board of Directors and each
officer of Company effective as of the Closing.
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10.2 Possession. Company shall deliver to Buyer full possession and control
of the Stock, Business and Assets.
10.3 Opinion of Counsel. Shareholders shall deliver to Buyer the favorable
opinion of counsel for Shareholders and Company, dated as of Closing, in the
form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolution. Shareholders shall
deliver to Buyer certificates of good standing from the Secretary of State of
Company's state of organization, and from each jurisdiction in which Company is
qualified to do business, certified copies of the Bylaws and charter of Company,
and a certified copy of the resolutions of the Board of Directors and
Shareholders of Company authorizing the execution, delivery and consummation of
this Agreement and the execution, delivery and consummation of all other
agreements and documents executed in connection herewith by them, including all
assumption agreements and other instruments required hereunder, sufficient in
form and content to meet the requirements of the law of the State of Company's
incorporation relevant to such transactions and certified by officers of Company
to be validly adopted and in full force and effect and unamended as of Closing.
10.5 [Reserved].
10.6 Third Party Consents. Shareholders shall deliver to Buyer all
consents, estoppels, approvals, releases, filings and authorizations of third
parties that Buyer believes are necessary or advisable for the legal and proper
sale and delivery of the Stock.
10.7 Releases. Shareholders shall deliver to Buyer executed releases of all
mortgages, security interests, liens, pledges, restrictions or other
encumbrances on or applicable to the Stock or Assets.
10.8 Additionally Requested Documents; Post-Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Shareholders shall cooperate with Buyer to put Buyer in actual
possession and operating control of the Stock, Company, Business and Assets,
execute and deliver such further instruments of sale, conveyance, transfer and
assignment, as Buyer may reasonably request in order to effectively sell,
convey, transfer and assign the same to Buyer, to execute and deliver such
further instruments and to take such other actions as Buyer may reasonably
request to release Buyer and Company from all obligation and liability with
regard to any obligation or liability retained or assumed by Shareholders, and
to execute and deliver such further instruments and to cooperate with Buyer as
Buyer may reasonably request or to enable Buyer and Company to obtain all
necessary health care or regulatory certifications, approvals, consents and
licenses, accreditation or permits.
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10.9 Confidentiality, Non-Competition and Employment Agreements.
Shareholders shall deliver to Buyer executed copies of each of the agreements
described in paragraphs 9.6, 9.7 and 9.8.
10.10 Assumption Agreement. Shareholders shall deliver to Buyer and the
Company an Assumption Agreement evidencing that Shareholders shall be
responsible for all obligations pertaining to past operations of the Business
other than the Continuing Liabilities.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer and Parent shall deliver or cause to be delivered to
Shareholders the following in a form and substance reasonably satisfactory to
Shareholders:
11.1 Purchase Price. Buyer shall pay to Shareholders the Purchase Price
upon the terms specified in this Agreement.
11.2 Corporate Good Standing and Certified Board Resolutions. Buyer shall
deliver to Shareholders a certificate of good standing from the Secretary of
State of Delaware, dated the most recent practical date prior to Closing,
together with a certified copy of the resolutions of the Board of Directors of
Buyer authorizing the execution, delivery and consummation of this Agreement and
all other documents executed in connection herewith.
11.3 [Reserved].
11.4 Opinion of Buyer's Counsel. Buyer shall deliver to Shareholders a
favorable opinion of counsel for Buyer, dated as of Closing, in the form
specified in Article XII hereof.
11.5 Employment Agreements. Buyer and each of Joyce Alger and Gary Louie
shall have entered into an Employment Agreement, as described in Section 8.6.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Shareholders an opinion of Harwell
Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant to
the Legal Opinion Accord of the ABA Section of Business Law (1991), in form and
substance reasonably satisfactory to Shareholders and their counsel to the
effect that:
(1) Buyer and Parent are corporations duly organized, validly existing
and in good standing under the laws of the State of Delaware and have all
requisite corporate
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power and corporate authority to own, operate and lease their properties and
assets and to carry on their businesses as now conducted.
(2) Buyer and Parent have the corporate power and corporate authority
to execute, deliver and carry out the terms of this Agreement and all documents
and agreements delivered by Buyer and Parent at Closing and to consummate the
transactions contemplated on the part of Buyer and Parent hereby and thereby;
Buyer and Parent have taken all action required by law, and their Certificate of
Incorporation and Bylaws, to authorize such execution, delivery and consummation
of this Agreement, and all other agreements delivered by Buyer and Parent at
Closing constitute the valid and binding obligations of Buyer and Parent
enforceable in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and warranties
of Buyer, Parent, Company and Shareholders contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, shall be
deemed to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to the Closing, shall not be merged into
any documents delivered in connection with the Closing, and shall survive the
date of Closing for a period of two (2) years; provided, however, that the
aforementioned two-year limitation will not apply to the representations,
warranties and covenants set forth in paragraphs 4.6 (as it relates to tax,
environmental or healthcare matters), 4.8, 4.9, 4.13, 4.25, 4.28 and 6.4 hereof
(collectively, the "Unrestricted Items"), each of which will survive the date of
Closing for the applicable statute of limitations but, except for criminal
matters, in no event for a period of not more than five (5) years.
13.2 Indemnification by Shareholders. Subject to the provisions of
paragraph 13.4, Shareholders, including Optionees, shall jointly and severally
promptly indemnify, defend, and hold harmless Buyer, Parent, Company and the
directors, officers, stockholders, employees and agents of each against any and
all losses, costs, and expenses (including reasonable cost of investigation,
court costs and legal fees actually incurred) and other damages resulting from
(i) any breach by either Company or Shareholders of any of the covenants,
obligations, representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this Agreement or any
certificate or document of Company and/or Shareholders delivered pursuant to
this Agreement, (ii) any liability of Company not expressly retained by Company
pursuant to Paragraph 1.4 hereof, and (iii) any claim (whether or not disclosed
herein) that is brought or asserted by any third party(s) against Buyer, Parent,
or Company arising out of the ownership, licensing, operation or conduct of the
Business or Assets or the conduct of any of
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Company's employees, agents or independent contractors, relating to all periods
of time prior to Effective Date, subject to the limitations of Section 13.1
above.
13.3 Indemnification by Company, Buyer, and Parent. Subject to the
provisions of paragraph 13.4, Company, Buyer, and Parent shall promptly jointly
and severally indemnify, defend, and hold Shareholders harmless against any and
all losses, costs, and expenses (including reasonable cost of investigation,
court costs and legal fees) and other damages resulting from (i) any breach by
Buyer or Parent of any of their covenants, obligations, representations or
warranties or breach or untruth of any representation, warranty, fact or
conclusion contained in this Agreement or any certificate or document of Buyer
or Parent delivered pursuant to this Agreement, (ii) any claim which is brought
or asserted by any third party(s) against Shareholders for failure to pay or
perform any of the Continuing Liabilities, and (iii) subject to the other
provisions of this Agreement, any claim that is brought or asserted by any third
party(s) against Shareholders arising out of the ownership, licensing, operation
or conduct of the Business or the conduct of any of Company's employees, agents
or independent contractors, relating to periods of time subsequent to Effective
Date.
13.4 Rules Regarding Indemnification. The obligations and liabilities of
each party which may be subject to indemnification liability hereunder (the
"indemnifying party") to the other party (the "indemnified party") shall be
subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall give written
notice within a reasonably prompt period of time to the indemnifying party of
any written claim by a third party which is likely to give rise to a claim by
the indemnified party against the indemnifying party based on the indemnity
agreements contained in this Article, stating the nature of said claim and the
amount thereof, to the extent known. The indemnified party shall give notice to
the indemnifying party that pursuant to the indemnity, the indemnified party is
asserting against the indemnifying party a claim with respect to a potential
loss from the third party claim, and such notice shall constitute the assertion
of a claim for indemnity by the indemnified party. If, within thirty (30) days
after receiving such notice, the indemnifying party advises the indemnified
party that it will provide indemnification and assume the defense at its
expense, then so long as such defense is being conducted, the indemnified party
shall not settle or admit liability with respect to the claim and shall afford
to the indemnifying party and defending counsel reasonable assistance in
defending against the claim. If the indemnifying party assumes the defense,
counsel shall be selected by such party and if the indemnified party then
retains its own counsel, it shall do so at its own expense. In no circumstances
shall an indemnifying party be liable for the fees and expenses of more than one
firm of lawyers, notwithstanding multiple indemnified parties and conflicts of
interest. If the indemnified party does not receive a written objection to the
notice from the indemnifying party within thirty (30) days after the
indemnifying party's receipt of such notice, the claim for indemnity shall be
conclusively presumed to have been assented to and approved, and in such case
the indemnified party may control the defense of the matter or case and, at its
sole discretion, settle or admit liability. If within the
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aforesaid thirty (30) day period the indemnified party shall have received
written objection to a claim (which written objection shall briefly describe the
basis of the objection to the claim or the amount thereof, all in good faith),
then for a period of ten (10) days after receipt of such objection the parties
shall attempt to settle the dispute as between the indemnified and indemnifying
parties.
(2) Claims by a Party. The determination of a claim asserted by a
party hereunder (other than as set forth in subparagraph (1) above) pursuant to
this Article shall be made as follows: The indemnified party shall give written
notice within a reasonably prompt period of time to the indemnifying party of
any claim by the indemnified party which has not been made pursuant to
subparagraph (1) above, stating the nature and basis of such claim and the
amount thereof, to the extent known. The claim shall be deemed to have resulted
in a determination in favor of the indemnified party and to have resulted in a
liability of the indemnifying party in an amount equal to the amount of such
claim estimated pursuant to this paragraph if within forty-five (45) days after
the indemnifying party's receipt of the claim the indemnified party shall not
have received written objection to the claim. In such event, the claim shall be
conclusively presumed to have been assented to and approved. If within the
aforesaid forty-five (45) day period the indemnified party shall have received
written objection to a claim (which written objection shall briefly describe the
basis of the objection to the claim or the amount thereof, all in good faith),
then for a period of sixty (60) days after receipt of such objection the parties
shall attempt to settle the disputed claim as between the indemnified and
indemnifying parties.
(3) Claims by a Straddle Patient. Any claim by a patient relating to
professional negligence or similar matters involving a patient served both prior
to the Effective Date and subsequent to the Effective Date will be the
responsibility of either Buyer or Shareholders in accordance with the following
guidelines: (i) if it is a claim in which the incident giving rise to liability
clearly arose prior to the Effective Date, Shareholders shall jointly and
severally respond to the loss and defense expenses; (ii) subject to the other
provisions of this Agreement, if it is a claim in which the incident giving rise
to liability clearly arose on or after the Effective Date, Buyer shall respond
to the loss and defense expenses; and (iii) in the event that the incident
giving rise to liability as to time is not clear, Shareholders and Buyer will
jointly defend the case and each will fully cooperate with the other in such
defense. Once the case is closed, Buyer and Shareholders shall agree to the
allocation of both indemnity and expenses.
(4) Limitation on Claims. The obligations of each of the Shareholders
under this Agreement shall not exceed the amounts received by such Shareholder
as Purchase Price and, if applicable, as consideration for those certain
Non-Competition Agreements referenced in paragraph 8.5 and 9.7 hereof. As to a
claim by the Buyer or Company against Shareholders, all claims by the Buyer and
Company against Shareholders will be first satisfied by offsetting the principal
amount and any interest due thereunder of those of the Debentures which are held
by Shareholders, the signatures of the Shareholders on this Agreement serving as
evidence of the consent to such offsets,
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provided however that the Shareholders shall in no event be liable for any loss,
cost or expense arising from the occurrence or allocable to a time period prior
to the Closing, which loss, cost or expense would be barred by an applicable
statute of limitations but for a waiver by the Company after the Closing of such
statute of limitations. The restrictions of this section shall not, however,
restrict or limit in any manner the claims the Company may have against a
Shareholder outside this agreement, including, but not limited to, claims for
payment for services and goods provided by the Company to the Shareholder or the
Shareholder's business.
(5) Contribution among Shareholders. The several Shareholders,
including Optionees, agree to contribute or reimburse one another, as the case
may be, pro-rata according to their respective shareholdings (or in the case of
the Optionees their respective percentages of the gross proceeds paid by the
Buyer under Section 3.1 above) immediately prior to Closing, all amounts for
which any one or more of them may be liable hereunder in excess of his or their
pro-rata share, for any claim asserted hereunder by the Company, Buyer or,
directly or indirectly, any third party, against them or any one or more of
them, except for any such claim directly or entirely attributable to a
particular Shareholder arising out of an act or omission of such Shareholder
after Closing or arising out of the failure of a Shareholder or any business
enterprise controlled by the Shareholder to pay any receivable owing to the
Company. All disputes concerning the obligations of the several Shareholders to
contribute or reimburse hereunder shall be determined in arbitration in San
Francisco, California but as otherwise provided herein.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Shareholders hereby covenant and agree with
Buyer that, during the NON-COMPETE PERIOD (as such term is defined herein),
within the NON-COMPETE AREA (as such term is defined herein), and with respect
to the NON-COMPETE BUSINESS (as such term is defined herein), no Shareholders
shall directly or indirectly, (a) acquire, lease, manage, consult for, serve as
agent or subcontractor for, finance, invest in, own any part of or exercise
management control over any Non-Compete Business as of the Closing, or (b)
solicit for employment or employ any person who at Closing or thereafter became
an employee of Buyer, Company or an affiliate unless such person is not so
employed for at least six (6) months, or (c) with respect to any customer,
patient, physician, physician group, or healthcare provider with whom Buyer,
Company and/or an Affiliate contracts with in connection with the Non-Compete
Business, either solicit the same in a manner which could adversely affect
Buyer, Company or an Affiliate, or make statements to the same which disparage
Buyer, Company, an Affiliate or their respective operations in any way. The
"Non-Compete Period" shall commence at the Closing and terminate on the second
anniversary thereof. The "Non-Compete Area" shall mean the counties of Northern
California in which, for the one calendar year period prior to Closing, Company
has had repeat Non-Compete Business. The term "Non-Compete
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Business" shall mean institutional sales of pharmaceutical products by the
Company. Ownership of less than five percent (5%) of the stock of a publicly
held company shall not be deemed a breach of this covenant.
14.2 Enforceability. Notwithstanding the provisions herein for the
determination of disputes in arbitration, in the event of a breach of paragraph
14.1, Shareholders recognize that monetary damages shall be inadequate to
compensate Buyer and Company, and Buyer and Company shall be entitled, without
the posting of a bond or similar security and notwithstanding the arbitration
provisions contained in Article XIII, to an injunction restraining such breach,
with the costs (including attorney's fees) of securing such injunction to be
borne by the breaching Shareholder(s). Nothing contained herein shall be
construed as prohibiting Buyer or Company from pursuing any other remedy
available to either for such breach or threatened breach. All parties hereby
acknowledge the necessity of protection against the competition of Shareholders
and that the nature and scope of such protection has been carefully considered
by the parties. The period provided and the area covered are expressly
represented and agreed to be fair, reasonable and necessary. The consideration
provided for herein is deemed to be sufficient and adequate to compensate
Shareholders for agreeing to the restrictions contained in paragraph 14.1. If,
however, any court determines that the forgoing restrictions are not reasonable,
such restrictions shall be modified, rewritten or interpreted to include as much
of their nature and scope as will render them enforceable. In addition,
Shareholders receiving less than $50,000 for selling their shares to the Company
cshall not be barred by provisions of this Article XIV from working for a
competing business in a non-managerial position.
ARTICLE XV. ARBITRATION
15.1 Arbitration. Any and all disputes hereunder or concerning the judicial
interpretation hereof or with respect to the transactions contemplated herein,
shall be finally determined in binding Arbitration before a single arbitrator
under the then rules of the American Arbitration Association and any award in
such arbitration may be entered in and enforced by any court having
jurisdiction. It is the intention of the parties to arbitrate and the Federal
Arbitration Act shall pre-empt any local law with respect to the obligation to
arbitrate.
15.2 Third Party Claims. Notwithstanding the terms of the foregoing
paragraph 15.1, where any disputed matter concerns the liability of a party
hereto to indemnify or to be indemnified on account of a claim initiated by a
third party not a party to this Agreement and pending in any court, then such
matter shall be determined judicially.
15.3 Venue. Any Arbitration hereunder shall be conducted in San Francisco,
California, if initiated by Company or Buyer against the Shareholders or any of
them; and, in Dallas, Texas, if initiated by the Shareholders or any of them
against Company or Buyer.
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15.4 Power of Arbitrator. The Arbitrator shall have no power or authority
to award consequential, statutory or punitive damages, or to assess interest on
any award.
15.5 Costs and Expenses. In the event any party hereto incurs reasonable
legal expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and disbursements, in addition to any
other relief to which such party shall be entitled.
ARTICLE XVI. MISCELLANEOUS
16.1 Assignment. Following Closing, Buyer and Company may freely assign any
or all of their respective rights or delegate any or all of their respective
obligations under this Agreement without the express written consent of
Shareholders. Shareholders may not assign any rights or delegate any obligations
under this Agreement without the prior written consent of Buyer, and any
prohibited assignment or delegation will be null and void.
16.2 Other Expenses. Except as otherwise provided in this Agreement,
Shareholders shall pay all of their and Company's expenses in connection with
the negotiation, execution, and implementation of the transactions contemplated
under this Agreement and Buyer shall pay all of its expenses in connection with
the negotiation, execution, and implementation of the transactions contemplated
under this Agreement. All sales and use taxes, recording fees and transfer taxes
incurred in connection under the transactions contemplated within this Agreement
shall be prorated as of the Effective Date between the Shareholders and Buyer
respectively, such that the Shareholders pay all such taxes with respect to the
Business up to the Effective Date, and the Buyer pays all such amounts
thereafter. Shareholders represent that, with respect to the laws of the State
of California, ad valorem or similar taxes are not applicable to the
transactions contemplated hereunder, and that Shareholders shall indemnify
Company and Buyer for any costs incurred from circumstances to the contrary.
16.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days after
mailing with postage prepaid. Any such notice shall be sent as follows:
To Shareholders following Closing:
Daniel Alger
3 Crow Canyon Court
San Ramon, California 94583
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with a copy to:
A.J. Caffereta, III
36341 Shelly Court
Fremont, California 94560
To the Buyer, Parent, and after Closing to the Company:
Capstone Pharmacy Services, Inc.
9901 East Valley Ranch Parkway, Suite 3001
Irving, Texas 75063
Attn: R. Dirk Allison, Chief Executive Officer
with a copy to:
Mark Manner, Esq.
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238-1800
16.4 Confidentiality; Prohibition on Trading. Buyer and Shareholders or
their authorized representatives shall agree in advance to any press release or
other disclosure of the details of the transactions contemplated by this
Agreement, and, otherwise all parties to this Agreement agree to maintain the
confidentiality of such transactions unless disclosure is required by law.
Shareholders, Company and their affiliates agree not to trade in the securities
of Buyer or its affiliates based upon any nonpublic information.
16.5 Controlling Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Delaware, without giving
effect to provisions thereof regarding conflict of laws, and all questions
concerning its validity, construction and administration shall be determined in
accordance thereby.
16.6 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
16.7 Benefit. Subject to paragraph 15.1, this Agreement shall be binding
upon and shall inure to the exclusive benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. This Agreement
is not intended to, nor shall it, create any rights in any other party.
16.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
37
<PAGE> 43
Further, there shall be automatically substituted for such invalid or
unenforceable provision a provision as similar as possible which is valid and
enforceable.
16.9 Waiver. Neither the failure nor any delay on the part of any party
hereto in exercising any rights, power or remedy hereunder shall operate as a
waiver thereof, or of any other right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy. No waiver
of any of the provisions of this Agreement shall be void unless it is in writing
and signed by the party against which it is sought to be enforced.
16.10 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
16.11 Interpretation; Knowledge. All pronouns and any variation thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the person or entity, or the context, may require. Further,
it is acknowledged by the parties that this Agreement has undergone several
drafts with the negotiated suggestions of both; and, therefore, no presumptions
shall arise favoring either party by virtue of the authorship of any of its
provisions or the changes made through revisions. Whenever in this Agreement the
term "to the best knowledge of Company or Shareholders" or the like is used,
Company and Shareholders shall each be deemed to have the knowledge of Company's
officers, directors, Shareholders and employees, and of its Affiliates; and
Company and Shareholders shall each be under a duty of due inquiry.
16.12 Entire Agreement. This Agreement, including the Exhibits and
Attachments hereto, constitutes the entire agreement between the parties hereto
with regard to the matters contained herein and it is understood and agreed that
all previous undertakings, negotiations, letter of intent and agreements between
the parties are merged herein. This Agreement may not be modified orally, but
only by an agreement in writing signed by Buyer, Company and Shareholders.
16.13 Further Assurance of Shareholders After Closing. Subsequent to the
Closing, Shareholders shall from time to time, at Buyer's request, execute and
deliver such other instruments of conveyance and transfer, and take such other
action as Buyer may request, in order to more effectively sell, transfer, assign
and deliver and vest in Buyer and Company, as the case may be, the benefits of,
title to and possession of the Stock and Assets.
16.14 NON-APPLICABILITY OF ARTICLE XIV. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS AGREEMENT, STEVE STANGE ("STANGE") SHALL NOT BE SUBJECT TO ANY
OF THE RESTRICTIONS OF ARTICLE XIV (PRESERVATION OF BUSINESS AND NONCOMPETE
RESTRICTIONS) OF THIS AGREEMENT OR ANY OTHER RESTRICTION OR LIMITATION OF ANY
KIND WITH RESPECT TO COMPETITION WITH, OR SOLICITATION OF THE CUSTOMERS OF, THE
COMPANY, BUYER OR CAPSTONE, OR THE PRESERVATION OF CONFIDENTIAL OR PROPRIETARY
INFORMATION.
38
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY":
ALGER HEALTH SERVICES, INC.
By:_____________________________________
Title:__________________________________
"BUYER":
INSTITUTIONAL PHARMACY SERVICES, INC.
By:_____________________________________
Title:__________________________________
"PARENT":
CAPSTONE PHARMACY SERVICES, INC.
By:_____________________________________
Title:__________________________________
"SHAREHOLDERS":
[see subsequent signature pages with
acknowledgments]
<PAGE> 45
______________________________________
Joyce Alger
STATE OF CALIFORNIA )
COUNTY OF ________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 46
______________________________________
Richard Azevedo
STATE OF CALIFORNIA )
COUNTY OF _________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 47
______________________________________
D.V. Callaway
STATE OF CALIFORNIA )
COUNTY OF __________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 48
______________________________________
Lowell E. Callaway
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 49
_______________________________________
Don Huhn, Inc.
By:____________________________________
Title:_________________________________
STATE OF CALIFORNIA )
COUNTY OF __________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 50
_______________________________________
Sandra Grimes
STATE OF CALIFORNIA )
COUNTY OF _________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 51
_______________________________________
Health Accounting Services
By:____________________________________
Title:_________________________________
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 52
_______________________________________
Independent Quality Care
By:____________________________________
Title:_________________________________
STATE OF CALIFORNIA )
COUNTY OF _____________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 53
_______________________________________
Ben Jakobovits
STATE OF CALIFORNIA )
COUNTY OF _________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 54
_______________________________________
Betty Jakobovits
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 55
_______________________________________
Gary A. Louie
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 56
_______________________________________
Steven A. Louie
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 57
_______________________________________
Harold Mathis
STATE OF CALIFORNIA )
COUNTY OF _____________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 58
_______________________________________
Gregory Nazareno
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 59
_______________________________________
Mary F. Ross
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 60
_______________________________________
Steve Stange
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 61
_______________________________________
Ralph N. Tisdial
STATE OF CALIFORNIA )
COUNTY OF _____________________)
On and before me, _____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 62
_______________________________________
Sharon Vandagriff
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 63
_______________________________________
Lorena Vigil
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, ______________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 64
_______________________________________
Mary Welch
STATE OF CALIFORNIA )
COUNTY OF __________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 65
_______________________________________
Mira J. Zeffren
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 66
_______________________________________
Judith Cooper
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 67
_______________________________________
Elisa Guevara
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 68
_______________________________________
Cheryl Heinrichson
STATE OF CALIFORNIA )
COUNTY OF ___________________)
On and before me, _____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 69
_______________________________________
Armando Martinez
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, ____________________, personally appeared ____________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 70
_______________________________________
Thomas Moran
STATE OF CALIFORNIA )
COUNTY OF ____________________)
On and before me, ____________________, personally appeared ___________
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument. Witness
my hand and official seal, this ____ day of _____________, 199_.
_______________________________________
Notary Public
My Commission Expires:
_____________________________
<PAGE> 71
EXHIBIT INDEX
ALGER HEALTH SERVICES, INC.
[Copies of Schedules and Exhibits to be Furnished Upon Request]
<TABLE>
<S> <C>
A Type of services and products provided by the Company at each location
1.2(1) Real Estate
1.2(2) Equipment and Furnishings, including vehicles
1.2(5) Bank Accounts
1.4 Continuing Liabilities
3.1 Allocation of Purchase Price
4.4 Financial Statements
4.5(4) Bonus Payments
4.7 Employment Discrimination
4.8(1) Licenses and Permits; Licensure Surveys; Deficiency Reports; List of Regulatory
Bodies
4.12 List and Copies/Summaries of Leases, Agreements and Contracts [ss.4.9(1), 4.9(3),
4.10, 4.16, 4.18]
4.14 Copies of all appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies and surveys prepared within last
5 years.
4.15 Litigation
4.16 Employee Information
4.18 Insurance; Summary of Coverage; Pending Claims
4.24(1) Welfare Benefit Plans
4.24(2) Pension Benefit Plans
6.1(a) Dividend, Distribution and payment to Shareholders and third parties
6.1(b) Amounts paid to Independent Quality Care
8.5 Form of Non-Compete Agreement with:
(a) Dan Alger
8.6 Form of Employment Agreements with:
(a) Joyce Alger
(b) Gary Louie
10.3 Form of Opinion of Counsel for the Company and Shareholders
</TABLE>
<PAGE> 1
Exhibit 2.8
ASSET PURCHASE AGREEMENT
between
PENNSYLVANIA PRESCRIPTIONS, INC.
d/b/a EMERALD DRUG STORE
the Seller
GARY W. CROFT,
MARSHALL P. BURNSIDE and
RICHARD R. DELUCA
the Shareholders
and
CAPSTONE PHARMACY SERVICES, INC.
and
INSTITUTIONAL PHARMACY SERVICES, INC.
the Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. PURCHASE AND SALE.....................................................1
1.1 Purchase and Sale...............................................1
1.2 Excluded Assets.................................................3
1.3 Assumed Contracts, Leases and Liabilities.......................3
ARTICLE II. RECEIVABLES..........................................................4
2.1 Collection of Receivables.......................................4
ARTICLE III. PURCHASE PRICE......................................................4
3.1 Purchase Price..................................................4
3.2 Allocation of Purchase Price....................................5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS.........................................................5
4.1 Organization, Qualification and Authority.......................5
4.2 Absence of Default..............................................6
4.3 Financial Statements............................................6
4.4 Operations Since December 31, 1996 .............................7
4.5 Absence of Certain Liabilities..................................8
4.6 Employment Discrimination.......................................8
4.7 Licenses and Permits............................................8
4.8 Medicare, Medicaid and Other Third-Party Payors.................9
4.9 Compliance with Zoning, Land Use and Other Laws; Easements......9
4.10 Title to Assets................................................10
4.11 Leases and Contracts...........................................10
4.12 Environmental Matters..........................................11
4.13 Miscellaneous Representations Relating to Real Estate..........13
4.14 Litigation.....................................................14
4.15 Seller's Employees.............................................14
4.16 Labor Relations................................................14
4.17 Insurance......................................................15
4.18 Broker's or Finder's Fee.......................................15
4.19 Conflicts of Interest..........................................15
4.20 Intellectual Property..........................................15
4.21 Inventories....................................................15
4.22 Motor Vehicles.................................................16
4.23 Employee Benefit Plans.........................................16
4.24 Compliance with Healthcare Laws and Other Laws.................16
4.25 Condition of Assets............................................17
4.26 Tax Returns; Taxes.............................................17
4.27 Operating Targets..............................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.28 Value of Assets................................................18
4.29 Beds...........................................................18
4.30 No Omissions or Misstatements..................................18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER..............................18
5.1 Organization, Qualification and Authority......................19
5.2 Absence of Default.............................................19
5.3 Broker's or Finder's Fee.......................................19
ARTICLE VI. COVENANTS OF PARTIES.................................................19
6.1 Preservation of Business and Assets............................19
6.2 Absence of Material Change.....................................20
6.3 Ownership of Intellectual Property.............................20
6.4 Access to Books and Records....................................20
6.5 Preserve Accuracy of Representations and Warranties............21
6.6 Maintain Books and Accounting Practices........................22
6.7 Indebtedness; Liens............................................22
6.8 Compliance with Laws and Regulatory Consents...................22
6.9 Maintain Insurance Coverage....................................22
6.10 Medicare and Medicaid Reporting................................22
6.11 Current Return Filing..........................................22
6.12 WARN Act.......................................................23
6.13 No Sale, Merger or Consolidation...............................23
6.14 Risk of Loss...................................................23
6.15 Condemnation...................................................23
ARTICLE VII. CLOSING............................................................23
7.1 Closing........................................................23
ARTICLE VIII. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE....................23
8.1 Representations and Warranties True at Closing;
Compliance with Agreement......................................24
8.2 No Action/Proceeding...........................................24
8.3 Order Prohibiting Transaction..................................24
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE.........................................24
9.1 Representations and Warranties True at Closing;
Compliance with Agreement......................................24
9.2 Regulatory Approvals...........................................24
9.3 No Action/Proceeding...........................................25
9.4 Inspection of Assets; UCC Searches, etc........................25
9.5 Order Prohibiting Transaction..................................25
9.6 No Loss, Damage or Destruction.................................25
9.7 Employment Agreement...........................................25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.8 Operating Targets..............................................25
9.9 Value of Assets................................................25
9.10 Beds...........................................................26
9.11 Third Party Consents...........................................26
9.12 Approval of Board of Directors.................................26
ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING.....................26
10.1 Documents Relating to Title....................................26
10.2 Possession.....................................................27
10.3 Opinion of Counsel.............................................27
10.4 Corporate Good Standing and Corporate Resolutions..............27
10.5 Closing Certificate............................................27
10.6 Third-Party Consents...........................................27
10.7 Taxes and Other Payments.......................................28
10.8 Insurance......................................................28
10.9 Employment Agreements..........................................28
10.10 Additionally Requested Documents; Post Closing Assistance......28
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING.....................................28
11.1 Purchase Price.................................................28
11.2 Assumption of Liabilities......................................28
11.3 Opinion of Counsel.............................................29
11.4 Corporate Good Standing and Board Resolutions..................29
11.5 Closing Certificate............................................29
ARTICLE XII. OPINION OF BUYER'S COUNSEL.........................................29
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION........................29
13.1 Survival.......................................................29
13.2 Indemnification by Seller and Shareholders.....................30
13.3 Indemnification by Buyer.......................................30
13.4 Rules Regarding Indemnification................................30
ARTICLE XIV. PRESERVATION OF BUSINESS AND
NONCOMPETE RESTRICTIONS.................................................32
14.1 Covenant Not to Compete........................................32
14.2 Enforceability.................................................32
ARTICLE XV. MISCELLANEOUS.......................................................33
15.1 Assignment.....................................................33
15.2 Other Expenses.................................................33
15.3 Notices........................................................33
15.4 Confidentiality; Prohibition on Trading........................35
15.5 Controlling Law................................................35
</TABLE>
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<TABLE>
<S> <C> <C>
15.6 Headings.......................................................35
15.7 Benefit........................................................35
15.8 Partial Invalidity.............................................35
15.9 Waiver.........................................................35
15.10 Counterparts...................................................35
15.11 Interpretation; Knowledge......................................35
15.12 Entire Agreement...............................................36
15.13 Legal Fees and Costs...........................................36
</TABLE>
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<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made on March ___,
1997, by and among PENNSYLVANIA PRESCRIPTIONS, INC., d/b/a EMERALD DRUG STORE, a
Pennsylvania corporation (the "Seller"), GARY W. CROFT, MARSHALL P. BURNSIDE,
and RICHARD R. DELUCA, residents of the State of Pennsylvania (the
"Shareholders"), CAPSTONE PHARMACY SERVICES, INC., a Delaware corporation
("Capstone") and INSTITUTIONAL PHARMACY SERVICES, INC., a Maryland corporation
and wholly-owned subsidiary of Capstone ("Capstone Sub" and, together with
Capstone, "Buyer").
R E C I T A L S:
WHEREAS, Seller owns and operates a pharmacy business in the Harrisburg,
Pennsylvania area providing institutional and retail pharmacy services, all as
more particularly described on Exhibit A hereto, which Exhibit sets forth the
type of services and products provided by Seller at each of its locations (the
"Business"); and
WHEREAS, Shareholders own all of the issued and outstanding securities of
Seller; and
WHEREAS, except for the Excluded Assets (as such term is defined herein),
Seller and Shareholders desire to sell and transfer all of the Assets (as such
term is defined herein) of the Business to Buyer, and Buyer desires to purchase
the same from Seller, subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained in this Agreement, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound hereby, agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Effective as of March 1, 1997, Seller agrees to
sell, transfer, assign, convey and deliver to Buyer, and Buyer agrees to
purchase from Seller, all right, title and interest in all assets (except the
Excluded Assets) of Seller of every kind and type, tangible or intangible, real
and personal, that are necessary or reasonably desirable to operate the Business
(collectively, the "Assets"), free and clear of all encumbrances, mortgages,
pledges, liens, security interests, obligations and liabilities other than the
Assumed Liabilities (as defined in Section 1.3), which Assets include, without
limitation, the following:
<PAGE> 7
(1) All right, title and interest of Seller in and to all of the land
and real estate owned or leased by Seller and used in connection with the
Business as listed in Exhibit 1.1(1) attached hereto and in and to all
structures, improvements, fixed assets and fixtures including fixed machinery
and fixed equipment situated thereon or forming a part thereof and all
appurtenances, easements and rights-of-way related thereto (collectively, the
"Real Estate");
(2) All tangible personal property, pharmaceutical and other equipment,
machinery, data processing hardware and software, furniture, furnishings,
appliances, vehicles and other tangible personal property of every description
and kind and all replacement parts therefor used in connection with the Business
including, without limitation, the items listed on Exhibit 1.1(2) attached
hereto (collectively, the "Equipment and Furnishings");
(3) All inventory of goods and supplies used or maintained in
connection with the Business (collectively, the "Inventory");
(4) All accounts and notes receivable (the "Receivables");
(5) All patient, medical, personnel and other records related to the
Business (including both hard and microfiche copies), and all manuals, books and
records used in operating the Business, including, without limitation, personnel
policies and files and manuals, accounting records, and computer software;
(6) To the full extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises
necessary to operate and conduct the Business, together with assignments
thereof, if required, and all waivers which Seller currently has, if any, of any
requirements pertaining to such licenses, permits, registrations, certificates,
consents, accreditations, approvals and franchises;
(7) All goodwill, and, to the extent assignable by Seller, all
warranties (express or implied) and rights and claims related to the Assets or
the operation of the Business;
(8) All prepaid expenses;
(9) All contract and leasehold rights and interests pursuant to
contracts for purchase or lease of personal property, contracts for purchase,
sale or lease of pharmaceuticals, supplies, equipment, goods or services,
including those relating to long term care facilities, currently furnished or to
be furnished in connection with the Business and that are Assumed Liabilities
(as such term is defined in paragraph 1.3(1));
(10) All intangible or intellectual property owned, leased, licensed or
possessed by either Seller or Shareholders and utilized in connection with the
Business,
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<PAGE> 8
including without limitation, the names "Emerald Drug Store," "Pennsylvania
Prescriptions," "Uptown Professional Pharmacy," "Saylor's Pharmacy," "Emerald
Infusion Therapy Services," "Emerald Long-Term Care Pharmaceutical Services,"
"Emerald Educational In- Services and Continuing Education" and derivatives
thereof; and
(11) All Seller's right, title and interest in any partnerships, joint
ventures or similar arrangements, subject to Buyer's approval.
1.2 Excluded Assets. Seller is not selling and Buyer is not purchasing or
assuming obligations with respect to the following (collectively, the "Excluded
Assets"):
(1) Seller's corporate and fiscal records and other records that Seller
is required by law to retain in its possession, as described on the attached
Exhibit 1.2; and
(2) The Excluded Assets set forth on the attached Exhibit 1.2.
The parties acknowledge and agree that Seller is not conveying to Buyer any of
the Excluded Assets and that, following Closing (as such term is defined
herein), Buyer will not have any right, title, interest or obligation with
respect to the Excluded Assets.
1.3 Assumed Contracts, Leases and Liabilities.
(1) At Closing, Buyer will assume and agree to pay or perform, as the
case may be, only (a) those obligations consisting of current trade accounts
payable up to One Million Dollars ($1,000,000.00) that constitute current
working capital liabilities incurred in the ordinary course of business,
exclusive of long-term and interest bearing debt, which Buyer expressly elects
to assume as specifically set forth on Exhibit 1.3 attached hereto, and (b)
those obligations arising after Closing under those Leases and Contracts (as
such term is defined in paragraph 4.11) that Buyer expressly elects to assume
(collectively, the "Assumed Liabilities").
(2) Except for the Assumed Liabilities, it is expressly agreed and
understood by each of the parties to this Agreement that Buyer does not assume,
and shall not be liable for, any debt, liability or obligation of Seller or
Shareholders, of any type or description whatsoever, whether related or
unrelated to the Assets, the Business or the transactions contemplated within
this Agreement and that Seller and/or Shareholders shall remain liable and
responsible for the payment or performance, as the case may be, of all debts,
liabilities, obligations, contracts, leases, notes payable, accounts payable,
commitments, agreements, suits, claims, indemnities, mortgages, taxes,
contingent liabilities and other obligations of Seller and/or Shareholders
including, without limitation, any and all investment tax credit recapture,
depreciation recapture, recapture or prior period adjustments under Medicare,
Medicaid and Blue Cross, all impositions of income tax and other taxes
including, without limitation, payroll-related taxes; all employee wages,
salaries and benefits including, without limitation, COBRA and WARN obligations
and other
3
<PAGE> 9
accrued employee benefits including rights of Seller's retirees to participate
in Seller's medical plans. Notwithstanding any statement contained in this
Agreement or otherwise seemingly to the contrary, Buyer shall not be obligated
to assume liabilities pursuant to paragraph 1.3(1)(a) in excess of, in the
aggregate, an amount equal to One Million Dollars ($1,000,000.00) (the "Assumed
Liabilities Cap").
ARTICLE II. RECEIVABLES
2.1 Collection of Receivables. At Closing, Seller and Shareholder will take
all appropriate action necessary to vest in Buyer all right, title and interest
in the Receivables, and Buyer will proceed to collect the Receivables following
Closing. In the event that any Receivable cannot be transferred to Buyer, then
Seller and Shareholders shall collect the Receivable in compliance with all
applicable laws, as Buyer's agents for the limited purpose of such collection,
and shall immediately deliver to Buyer the gross proceeds of such collection.
Seller and Shareholders shall each also provide such additional assistance in
the collection process as Buyer may reasonably request. If, within 180 days
following Closing, Buyer has collected less than the amount of the Receivables
as reflected on the Financial Statements (as such term is defined in paragraph
4.3(2)) in excess of the reserves also therein set forth, (a) Seller and/or
Shareholders shall pay to Buyer the amount of the shortfall, and (b)
Shareholders agree to prepare, at their cost, revised historical financial
statements for the Seller reflecting the impact of the less-than-anticipated
collections.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Seller for the
Assets and in consideration for the agreements contained herein, including the
agreements contained in Article XIV hereof, shall be:
(a) Six Million Four Hundred Twenty Four Thousand Five Hundred Dollars
($6,424,500.00), subject to certain adjustments pursuant to Section 15.2 of this
Agreement, payable in immediately available funds at Closing; and
(b) such additional sums measured by the earn-out (the "Earn-Out")
based upon certain operating targets, structured as follows: Buyer shall pay
Seller an amount equal to six (6) multiplied by the amount by which the
Seller-derived earnings before interest, taxes, depreciation and amortization
("EBITDA") for the Business exceed One Million Seventy Thousand Seven Hundred
Fifty Five Dollars ($1,070,755.00) (the "EBITDA Target") for the twelve (12)
month period (the "Earn-Out Period") subsequent to the opening of a non-retail
pharmacy outlet for the Business (the "Closed-Door Pharmacy"). Buyer will
contribute resources for and Shareholders will use their best efforts with
regard to opening the Closed-Door Pharmacy expeditiously following Closing.
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<PAGE> 10
The Buyer agrees that it will not sell any or all or the retail operations of
the Business during the Earnout Period. In addition, Buyer agrees that it will
not terminate Gary Croft or Marshall Burnside without cause (as is defined in
their Employment Agreements) during the Earn-Out Period.
Seller-Derived EBITDA shall be included, and Buyer-Derived EBITDA shall be
excluded (and the related expenses shall not be deducted), from the EBITDA
calculation used to determine the extent to which the EBITDA Target has been
exceeded. "Seller-Derived EBITDA" shall mean any EBITDA resulting from current
customers of the Business as of Closing or from new business generated by the
Shareholders or their agents or employees following Closing that is not
Buyer-Derived EBITDA. "Buyer-Derived EBITDA" shall mean any EBITDA of the
Business reasonably attributable to any goods/services provided by the Business
to any customers or residents for which the right to provide such goods/services
is obtained pursuant to an acquisition, consolidation, merger, joint venture or
similar transaction by Buyer, execution of a preferred or participating provider
agreement or similar arrangement by Buyer not achieved as a result of the
efforts of Shareholders or their agents or employees, or an existing contract of
Buyer to provide such goods/services.
Any additional purchase price due under the Earn-Out shall be payable in
full no later than sixty (60) days from the conclusion of the Earn-Out Period.
The Earn-Out shall be evidenced by the Contingent Promissory Note in the form
attached hereto as Exhibit 3.1.
The purchase price detailed in Sections 3.1(a) and (b) hereof shall be
collectively referred to herein as the "Purchase Price."
3.2 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth in Exhibit 3.2 attached hereto (the
"Allocation"). The parties to this Agreement expressly agree that the Allocation
shall be used by them for tax, reimbursement and all other purposes. Each party
to this Agreement agrees that it will report the transaction completed pursuant
to this Agreement in accordance with the Allocation, including any report made
under Section 1060 of the Internal Revenue Code of 1986, as amended (the
"Code"), and that no such party will take a position inconsistent with the
Allocation except with the prior written consent of the other parties hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and Shareholders hereby
jointly and severally represent and warrant to Buyer, which representations and
warranties shall be true and correct on the date hereof and as of the date of
Closing, as follows:
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<PAGE> 11
4.1 Organization, Qualification and Authority. Seller is a corporation duly
organized and validly existing in the State of Pennsylvania and is not doing
business in any other jurisdiction. Since the date of its organization and
incorporation, Seller has consistently observed and operated within the
corporate formalities of the jurisdictions in which it is incorporated and/or
conducts the Business, and has consistently observed and complied with the
general corporation law of such jurisdictions. Seller has full power and
authority to own, lease and operate its facilities and assets as presently
owned, leased and operated; to carry on its business as it is now being
conducted; and is duly qualified to do business and is in good standing in each
of the jurisdictions where the Business is conducted. Except for Shareholders,
no other person or entity owns or holds, has any interest in, whether legal,
equitable or beneficial, or has the right to purchase, any capital stock or
other security of Seller. Seller owns no capital stock, security, interest or
other right, or any option or warrant convertible into the same, of any
corporation, partnership, joint venture or other business enterprise. Seller has
the full right, power and authority to execute, deliver and carry out the terms
of this Agreement and all documents and agreements necessary to give effect to
the provisions of this Agreement and to consummate the transactions contemplated
on the part of Seller hereby. Shareholders have the full right, power and
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give effect to the provisions of this
Agreement, to consummate the transactions contemplated on the part of
Shareholders hereby, and to take all actions necessary, in their capacity as the
sole stockholders of Seller, to permit or approve the actions of Seller taken in
connection with this Agreement. The execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in connection
herewith by Seller, have been duly authorized by all necessary action on the
part of Seller. No other action, consent or approval on the part of Seller,
Shareholders or any other person or entity, is necessary to authorize Seller's
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection hereto. This Agreement and
all other agreements and documents executed in connection herewith by Seller
and/or Shareholders, upon due execution and delivery thereof, shall constitute
the valid and binding obligations of each of Seller and Shareholders,
enforceable in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
4.2 Absence of Default. The execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in connection
herewith by Seller and/or Shareholders will not constitute a violation of, or be
in conflict with, will not, with or without the giving of notice or the passage
of time, or both, result in a breach of, constitute a default under, create (or
cause the acceleration of the maturity of) any debt, indenture, obligation or
liability affecting the Assets or the Business pursuant to, result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets, or otherwise adversely affect Buyer, Seller
or Business under: (a) any term or provision of the Charter or Bylaws of Seller;
(b) any contract, lease, purchase order, agreement, document, instrument,
indenture, mortgage, pledge, assignment, permit,
6
<PAGE> 12
license, approval or other commitment to which Seller and/or Shareholders are a
party or by which Seller and/or Shareholders or the Assets are bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority; or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Seller and/or Shareholders and/or the Assets are subject.
4.3 Financial Statements.
(1) Attached hereto as Exhibit 4.3 are true and correct copies of
Seller's unaudited balance sheets as of December 31, 1996 and its unaudited
income statements for the year then ending (the "Financial Statements"). The
Financial Statements are based on the books and records of Seller and present
fairly, in accordance with the income tax basis of accounting, the financial
position of Seller as of, and the results of its operations for, the periods
specified.
(2) Seller and Shareholders shall fully and readily cooperate with
Buyer in Buyer's attempt, if any, to perform an audit of Seller for any period
prior to Closing not already audited.
4.4 Operations Since December 31, 1996. Since December 31, 1996, there has
been no:
(a) material change, financial or otherwise, which has, or could
reasonably be expected to have, an adverse effect on any of the Assets, the
Business or future prospects of the Business, or in the results of the
operations of Seller;
(b) loss, damage or destruction of or to any of the Assets, whether or
not covered by insurance;
(c) sale, lease, transfer or other disposition by Seller of, or
mortgages or pledges of or the imposition of any lien, charge or encumbrance on,
any portion of the Assets, other than those made in the ordinary course of
business;
(d) increase in the compensation payable by Seller to Shareholders,
any of Seller's employees, directors, independent contractors or agents, or any
increase in, or institution of, any bonus, insurance, pension, profit-sharing or
other employee benefit plan or arrangements made to, for or with the employees,
directors, Shareholders, independent contractors or agents of Seller;
(e) cumulative net operating loss incurred in the operation of the
Business;
(f) adjustment or write-off of Receivables or reduction in reserves for
Receivables outside of the ordinary course of business;
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<PAGE> 13
(g) change in the accounting methods or practices employed by Seller or
change in depreciation or amortization policies;
(h) issuance or sale by Seller or Shareholders, or contract or other
commitment entered into by Seller or Shareholders, for the issuance or sale of
any shares of capital stock or securities convertible into or exchangeable for
capital stock of Seller;
(i) payment by Seller of any dividend, distribution or extraordinary or
unusual disbursement or expenditure or intercompany payable;
(j) sale, transfer, pledge, mortgage or other disposition of any of the
Assets (except inventory and equipment held for rent in the ordinary course of
business);
(k) merger, consolidation or similar transaction; or solicitations
therefor;
(l) federal, state or local statutes, rule, regulation, order or case
adopted, promulgated or decided which, to the best knowledge of Seller and
Shareholders, adversely affects the Business or Assets;
(m) strike, work stoppage or other labor dispute adversely affecting
the Business; or
(n) termination, waiver or cancellation of any rights or claims of
Seller, under contract or otherwise.
4.5 Absence of Certain Liabilities. Except as set forth in Exhibit 4.14 or
in the Financial Statements, Seller has, and as of the Closing will have, no
contingent liabilities or obligations.
4.6 Employment Discrimination. Except as disclosed in Exhibit 4.6 attached
hereto, no person or party (including, without limitation, any governmental
agency) has asserted, or to the best knowledge of Seller or Shareholders, has
threatened to assert, any claim for any action or proceeding, against Seller (or
any officer, director, employee, agent or Shareholders of Seller) arising out of
any statute, ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety and
health standards (including, without limitation, the Fair Labor Standards Act,
Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety
and Health Act, the Age Discrimination in Employment Act of 1967, the Americans
With Disabilities Act or the Family and Medical Leave Act). The claims disclosed
in Exhibit 4.6 will not result in any liability to or obligation of Buyer, and
will not cause or lead to any lien or encumbrance being placed, created or filed
against or upon any of the Assets.
8
<PAGE> 14
4.7 Licenses and Permits.
(1) Seller has all local, state and federal licenses, permits,
registrations, certificates, contracts, consents, accreditations and approvals
(collectively, the "Licenses and Permits") necessary for Seller to occupy,
operate and conduct the Business, and there do not exist any waivers or
exemptions relating thereto. To the best knowledge of Seller and Shareholders,
there is no default on the part of Seller or any other party under any of the
Licenses and Permits. To the best knowledge of Seller and Shareholders, there
exist no grounds for revocation, suspension or limitation of any of the Licenses
or Permits. Copies of each of the Licenses and Permits are attached to and
listed on Exhibit 4.7(1) attached hereto. The most recent licensure surveys and
deficiency reports related to each of these items has also been included in
Exhibit 4.7(1). Seller is, and at the time of Closing will be, licensed by the
regulatory bodies listed on Exhibit 4.7(1). No notices have been received by
Seller or Shareholders with respect to any threatened, pending, or possible
revocation, termination, suspension or limitation of the Licenses and Permits.
(2) Each employee of Seller has all Licenses and Permits required for
each such employee to perform such employees' designated functions and duties
for Seller in connection with conducting the Business, and there exists no
waivers or exemptions relating thereto. To the best knowledge of Seller and
Shareholders, there is no default under, nor does there exist any grounds for
revocation, suspension or limitation of, any such Licenses and Permits.
4.8 Medicare, Medicaid and Other Third-Party Payors.
(1) Seller participates in the Medicare and Medicaid Programs (the
"Programs"). A list of and copies of its existing Medicare and Medicaid
contracts or, if such contracts do not exist, other documentation evidencing
such participation (collectively, the "Program Agreements") are included in
Exhibit 4.11 attached hereto. Seller is, and will be at the time of Closing, in
full compliance with all of the terms, conditions and provisions of the Program
Agreements.
(2) No notice of any offsets against future reimbursements under or
pursuant to the Programs has been received by either Seller or Shareholders,
nor, to the best knowledge of Seller and Shareholders, is there any basis
therefor. There are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to recoup past or present reimbursements with
respect to the Programs. Seller has not been subject to or threatened with loss
of waiver of liability for utilization review denials with respect to the
Programs during the past twelve (12) months, nor have either Seller or
Shareholders received notice of any pending, threatened or possible
decertification or other loss of participation in, any of the Programs.
(3) Seller currently has contractual arrangements with Blue Cross and
other third party payors. A list of and copies of its existing Blue Cross
contracts and other third party payor contract(s) are included in Exhibit 4.11
attached hereto. Seller is, and will
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<PAGE> 15
be at the time of Closing, in full compliance with all of the material terms,
conditions and provisions of such contracts.
(4) All liabilities and contractual adjustments of Seller under any
third party payor or reimbursement programs have been properly reflected and
adequately reserved for in the Financial Statements. In the event that,
following Closing, Buyer suffers any offsets against any reimbursement under any
third-party payor or reimbursement programs due to Buyer relating to the periods
on or prior to the Closing, then to the extent not reserved for in the Financial
Statements, Seller and/or Shareholders shall immediately pay to Buyer the
amounts so offset, with interest at a rate equal to eight percent (8%) per
annum.
4.9 Compliance with Zoning, Land Use and Other Laws; Easements. To the best
knowledge of Seller and Shareholder, none of the Real Estate is in violation of
any zoning, public health, building code or other similar laws applicable
thereto or to the ownership, occupancy and/or operation thereof, nor does there
exist any waivers or exemptions relating to the Real Estate with respect to any
non-conforming use or other zoning or building codes matters. Seller has all
easements and rights necessary to continue operation of the Business, copies of
which are set forth in Exhibit 4.9 attached hereto.
4.10 Title to Assets.
(1) Seller is the sole legal and beneficial owner of, or has the
exclusive, unrestricted right and authority to use and transfer to Buyer, the
personal property included in the Assets, free and clear of all mortgages,
security interests, liens, leases, covenants, assessments, easements, options,
rights of refusal, restrictions, reservations, defects in the title,
encroachments, and other encumbrances, except as set forth in the Leases and
Contracts attached hereto. The Assets are all the assets set forth on the
Financial Statements or used in the operation of the Business.
(2) The descriptions of the Real Estate contained in Exhibit 1.1(1)
hereto and in each of the Assignment and Assumption of Lease Agreements and/or
Lease Agreements required to be delivered by Seller or Shareholders' partnership
(as applicable) to Buyer pursuant to paragraph 10.1(a) of this Agreement are
accurate and sufficient for their intended purposes, and such descriptions
include all real property leased or owned by Seller and used in connection with
the Business or set forth on the Financial Statements. Seller owns no real
estate. Seller is in lawful possession of all of the Real Estate, including,
without limitation, the buildings, structures and improvements situated thereon
and appurtenances thereto, in each case free and clear of all mortgages, liens
and other encumbrances or restrictions that are related to or impair the Assets
or the Business. Additionally, Seller, as tenant, has the right and authority to
transfer and convey the Real Estate to Buyer as contemplated by the terms of
this Agreement, and such transfer and conveyance, once effected as contemplated
hereunder, will vest in Buyer the lawful right to possess and use the leased
Real Estate, superior in right to all others, other than
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<PAGE> 16
mortgagees or lenders who may have possessory rights in cases of landlord's
monetary default.
4.11 Leases and Contracts.
(1) Exhibit 4.11 attached hereto sets forth a complete and accurate
list of all contracts, including the Program Contracts, agreements, purchase
orders, leases, subleases, options and commitments, oral or written, and all
assignments, amendments, schedules, exhibits and appendices thereof, affecting
or relating to the Business or any Asset or any interest therein, to which
either Seller and/or Shareholders are a party or by which Seller, the Assets or
the Business are bound or affected, including, without limitation, service
contracts, management agreements, equipment leases and building leases
pertaining to any part of the Real Estate (collectively, the "Leases and
Contracts"). For each contract listed on Exhibit 4.11, oral or written, the key
terms of such contract are briefly summarized. Except for the Assumed
Liabilities, all Leases and Contracts and all other obligations and liabilities
relating to the Assets and the Business shall be retained by Seller.
(2) None of the Leases and Contracts has been modified, amended, or,
to the best knowledge of Shareholders and Seller, assigned or transferred, and
each is in full force and effect and is valid, binding and enforceable in
accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
(3) To the best knowledge of Seller and Shareholders, no event or
condition has happened or presently exists which constitutes a default or breach
or, after notice or lapse of time or both, would constitute a default or breach
by any party under any of the Leases and Contracts. There are no counterclaims
or offsets under any of the Leases and Contracts.
(4) There does not exist any security interest, lien, encumbrance or
claim of others created or suffered to exist on any interest created under any
of the Leases and Contracts (except for those that result from or relate to
leased Assets or to landlord's mortgagees or lenders).
(5) No purchase commitment by Seller is in excess of Seller's ordinary
business requirements.
(6) Assignment to Buyer of those Leases and Contracts constituting part
of the Assumed Liabilities will not default, alter or terminate any such Leases
and Contracts, and such assignment will confer and convey all of Seller's rights
thereunder to Buyer.
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<PAGE> 17
4.12 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the term "Hazardous
Substances" means any hazardous or toxic substances, materials or wastes,
including but not limited to those substances, materials, and wastes defined in
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") listed in the United States
Department of Transportation Table (49 CFR 172.101) or by the Environmental
Protection Agency as hazardous substances pursuant to 40 CFR Part 302, or which
are regulated under any other Environmental Law (as such term is defined below),
or any of the following: hydrocarbons, petroleum and petroleum products,
asbestos, polychlorinated biphenyls, formaldehyde, radioactive substances (other
than naturally occurring materials in place), flammables and explosives.
(2) Compliance with Laws and Regulations. To the best knowledge of
Seller and Shareholders, all operations or activities upon, or any use of
occupancy of the Real Estate, or any portion thereof, by Seller, any Affiliates
of Seller (wherein the term "Affiliates" shall mean any person or entity
controlling, controlled by or under common control at any time with Seller, and
the term "control" shall mean the power, directly or indirectly to direct the
management or policies of such person or entity), and any agent, contractor or
employee of any agent or contractor of Seller or its Affiliates ("Agents"), or
any tenant or subtenant of Seller of any part of the Real Estate is and has been
in compliance with any and all laws, regulations, orders, codes, judicial
decisions, decrees, licenses, permits and other applicable requirements of
governmental authorities with respect to Hazardous Substances, pollution or
protection of human health and safety (collectively, "Environmental Law"),
including but not limited to the release, emission, discharge, storage and
removal of Hazardous Substances. Seller, Affiliates and Agents have kept the
Real Estate free of any lien imposed pursuant to Environmental Law. To the best
knowledge of Seller and Shareholders, all prior owners, operators and occupants
of the Real Estate complied with Environmental Law. Except for uses and storage
or presence of Hazardous Substances reasonably necessary or incidental to the
customary operation of a business similar to the Business, as appropriate, which
if required, was duly licensed or authorized by appropriate governmental
authorities or otherwise permitted by and complies with Environmental Law:
(a) Neither Seller nor Affiliates or, to the best knowledge of
Seller and Shareholders, the Agents have allowed the use, generation, treatment,
handling, manufacture, voluntary transmission or storage of any Hazardous
Substances over, in or upon the Real Estate, nor, to the best knowledge of
Seller and Shareholders, has the Real Estate ever been used for any of the
foregoing.
(b) Neither Seller, Affiliates nor, to the best knowledge of Seller
and Shareholders, the Agents have installed or permitted to be installed, in or
on the Real Estate friable asbestos or any substance containing asbestos in
condition or amount deemed hazardous by Environmental Law respecting such
material.
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(c) Seller has not at any time engaged in or permitted, nor to the
best knowledge of Seller and Shareholders, has any tenant of Seller, Agent,
Affiliate or any other occupant of the Real Estate, or any portion thereof,
engaged in or permitted any dumping, discharge, disposal, spillage, or leakage
(whether legal or illegal, accidental or intentional) of such Hazardous
Substances, at, on, in or about the Real Estate, or any portion thereof that
would subject the Real Estate or Buyer to clean-up obligations imposed by
governmental authorities.
(d) None of the Real Estate, nor any part thereof, nor Seller nor,
to the best knowledge of Seller and Shareholders, any present owner or operator
of the Real Estate (i) has either received or been issued a notice, demand,
request for information, citation, summons or complaint regarding an alleged
failure to comply with Environmental Law, or (ii) is subject to any existing,
pending, or threatened investigation or inquiry by any governmental authority
for failure to comply with, or any remedial obligations under, Environmental
Law, and there are no circumstances known to Seller or Shareholders which could
serve as a basis therefor. Seller has not assumed any liability of a third party
for clean up under, or noncompliance with, Environmental Law.
(e) Neither Seller, its Affiliates nor, to the best knowledge of
Seller and Shareholders, its Agents have transported or arranged for the
transportation of any Hazardous Substances to any location which is listed or,
to the best knowledge of Seller and Shareholders, proposed for listing under
Environmental Law, or is the subject of any enforcement action, investigation or
other inquiry under Environmental Law.
Seller and Shareholders shall promptly notify Buyer in writing of any order
of which either is aware, receipt of any notice of violation or noncompliance
with any Environmental Law, any threatened or pending action of which either is
aware by any regulatory agency or governmental authority, or any claims made by
any third party of which it is aware relating to Hazardous Substances on,
emanations on or from, releases on or from, any of the Real Estate which relate
to the period prior to Closing; and shall promptly furnish Buyer with copies of
any written correspondence, notices or legal pleadings and written summaries of
any oral communications or notices in connection therewith. If, and only if,
required by law or the failure to do so would impose liabilities on Buyer or the
Assets, Buyer shall have the right, but shall not be obligated, to notify any
governmental authority of any state of facts which may come to its attention
with respect to Hazardous Substances on, released from or emanating from any
part of the Real Estate. Buyer shall give Seller prior or simultaneous notice of
such notification.
(3) Other Environmental Matters. To the best knowledge of Seller and
Shareholders, there are no underground storage tanks on any portion of the Real
Estate, and, to the best knowledge of Seller and Shareholders, the Real Estate
is free of dangerous levels of naturally-emitted radon. To the best knowledge of
Seller and Shareholders, no portion of the Real Estate has ever been used as a
landfill. Seller has furnished to Buyer a copy of any environmental audit,
study, report or other analysis on the Real Estate, which Seller or its
Affiliates obtained or was furnished.
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4.13 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to condemnation
proceedings, and, to the best knowledge of Seller and Shareholders, no
condemnation or taking is threatened or contemplated. There are no public
improvements which may result in special assessments against or otherwise affect
the Real Estate. There are no facts known to either Seller or Shareholders that
would adversely affect the possession, use or occupancy of the Real Estate.
(2) Attached as Exhibit 4.13 are complete copies of all appraisals,
mechanical and structural studies or reports or assessments, engineering plans,
architectural drawings, soil studies, surveys and other documents which have
been prepared by or at the direction of Seller or Shareholders within the last
five years relating to any of the Assets.
(3) All utilities serving the Real Estate are adequate to operate the
Real Estate in the manner it is currently operated and, to the best knowledge of
Seller and Shareholders, all utility lines, pipes, hook-ups and wires serving
the Real Estate are located within recorded easements for the benefit of the
Real Estate. To the best knowledge of Seller and Shareholders, there are no
encroachments upon the Real Estate and no encroachment of any improvements to
the Real Estate onto adjacent property. To the best knowledge of Seller and
Shareholders, none of the improvements to the Real Estate violate set-back,
building or side lines, nor do they encroach on any easements located on the
Real Estate.
(4) All potable and industrial water and all gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems serving the Real Estate and the facilities of the
Business are installed and operating and are sufficient to enable the Real
Estate and the facilities of the Business to continue to be used and operated in
the manner currently being used and operated, and any so-called hook-up fees or
other associated charges accrued to date have been fully paid. Seller has
received no written recommendation from any insurer to repair or replace any of
the Assets with which Seller has not complied.
4.14 Litigation. Neither Seller nor Shareholders have received notice of
any violation of any law, rule, regulation, ordinance or order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, legislation
and regulations applicable to the Medicare and Medicaid programs, Food and Drug
Administration, Drug Enforcement Administration, state controlled substance
agencies and boards of pharmacy, environmental protection, civil rights, public
health and safety and occupational health). Except as set forth in Exhibit 4.14
attached hereto (for which Buyer assumes no liability), there are no lawsuits,
proceedings, actions, arbitrations, governmental investigations, claims,
inquiries or proceedings pending or, to the best knowledge of Seller and
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Shareholders, threatened involving Seller, Shareholders, any of the Assets or
the Business.
4.15 Seller's Employees. Exhibit 4.15 attached hereto sets forth: (a) a
complete list of all of Seller's employees, and rates of pay, (b) true and
correct copies of any and all fringe benefits and personnel policies, (c) the
employment dates and job titles of each such person, and (d) categorization of
each such person as a full-time or part-time employee of Seller. For purposes of
this paragraph, "part-time employee" means an employee who is employed for an
average of fewer than thirty five (35) hours per week or who has been employed
for fewer than six of the twelve (12) months preceding the date on which notice
is required pursuant to the "Worker Adjustment and Retraining Notification Act"
("WARN"), 29 U.S.C. ss.2102 et seq. Except as provided in Exhibit 4.11, Seller
has no employment agreements with its employees and all such employees are
employed on an at "at will" basis. Exhibit 4.15 lists all ex-employees of Seller
utilizing or eligible to utilize COBRA (health insurance). Seller will terminate
all of its employees at Closing, and each of Seller and Shareholders agree,
jointly and severally, to indemnify and hold Buyer harmless, from and against
any and all claims of Seller's employees relating to their employment by Seller
through Closing and such termination, whenever made. Following the Closing,
Buyer intends to hire all current employees of Seller, subject to exercise of
Buyer's general policies (e.g., anti-nepotism) and Buyer's business judgment.
Other than Assumed Liabilities, and other than accrued vacation and sick leave
(for which Buyer shall be responsible as detailed below), the parties expressly
agree that Seller shall retain responsibility for and fully and timely pay all
salaries and wages, related payroll taxes and all holiday, retirement and other
fringe benefits that have accrued to its employees through the date of Closing,
including related payroll taxes. For each of Seller's employees hired by Buyer
following Closing, Buyer shall honor each such employee's accrued vacation time
(up to the maximum each such employee could accrue for a twelve (12) month
period under Seller's consistent policies relating thereto) and sick leave (up
to a maximum of eighteen (18) days accrued). Seller shall use its best efforts
to retain its employees in their current positions up to Closing.
4.16 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding, or any other
arrangement, formal or informal, with any labor union or organization which
obligates Seller to compensate Seller's employees at prevailing rates or union
scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the best knowledge of Seller and
Shareholders, threatened labor dispute, work stoppage, unfair labor practice
complaint, strike, administrative or court proceeding or order between Seller
and any present or former employee(s) of Seller. There is no pending or, to the
best knowledge of Seller and Shareholders, threatened suit, action,
investigation or claim between Seller and any present or former employee(s) of
Seller. There has not been any labor union organizing activity at any location
of Seller, or elsewhere, with respect to Seller's employees within the last
three years.
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4.17 Insurance. Seller has in effect and has continuously maintained
insurance coverage for all of its operations, personnel and assets, and for the
Assets and the Business. A complete and accurate list of all such insurance
policies is set forth in Exhibit 4.17 attached hereto, which policies have
previously been provided to Buyer. Exhibit 4.17 also sets forth a summary of
Seller's current insurance coverage (listing type, carrier and limits), and
includes a list of any pending insurance claims relating to Seller. Seller and
Shareholders agree, jointly and severally, to indemnify and hold harmless Buyer
from and against such pending insurance claims. To the best knowledge of Sellers
and Shareholders, Seller is not in default or breach with respect to any
provision contained in any such insurance policies, nor has Seller failed to
give any notice or to present any claim thereunder in due and timely fashion.
4.18 Broker's or Finder's Fee. Neither Seller nor Shareholders have
employed, or is liable for the payment of any fee to, any finder, broker,
consultant or similar person in connection with the transactions contemplated by
this Agreement.
4.19 Conflicts of Interest. Except with regard to the certain real property
leases between Shareholders' partnership and Seller, none of the following is
either a supplier of goods or services to Seller, or directly or indirectly
controls or is a director, officer, employee or agent of any corporation, firm,
association, partnership or other business entity that is a supplier of goods or
services to Seller: (a) Shareholders, (b) any director or officer of Seller, or
(c) any entity under common control with Seller or controlled by or related to
Shareholders.
4.20 Intellectual Property. All trademarks, service marks, trade names,
patents, inventions, processes, copyrights and applications therefor, whether
registered or at common law (collectively, the "Intellectual Property"), owned
by Seller are listed and described in Exhibit 4.20 attached hereto. No
proceedings have been instituted or are pending or, to the best knowledge of
Seller and Shareholders, threatened which challenge the validity of the
ownership by Seller of any such Intellectual Property. Seller has not licensed
anyone to use any such Intellectual Property, and neither Seller nor
Shareholders have any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. Seller owns or possesses adequate and
enforceable licenses or other rights to use all Intellectual Property now used
in the conduct of its Business.
4.21 Inventories. The Inventory is and on Closing will be of a quality and
quantity previously used by Seller in the ordinary course of business determined
and valued consistent with Seller's past practice and containing no significant
amount of excess, dated or obsolete inventory. The Inventory is properly valued
at the lower of third party acquisition cost or market value on a
first-in/first-out basis in accordance with the income tax basis of accounting
consistently applied. Since the date of the Financial Statements, Seller has not
decreased or substituted its items of Inventory other than in the ordinary
course of business. Seller has fairly represented the nature and extent of the
Inventory to its outside accountants on a consistent basis and in the exercise
of good faith.
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4.22 Motor Vehicles. All motor vehicles (except those listed on Exhibit 1.2
hereof) used in the Business, whether owned or leased, are listed in Exhibit
1.1(2) attached hereto. All such vehicles are properly licensed and registered
in accordance with applicable law.
4.23 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.23(1) attached hereto contains a
true, accurate and complete list of each "employee welfare benefit plan" (as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974
as amended ("ERISA")) maintained by Seller or to which Seller contributes or is
required to contribute (such employee welfare benefit plans being hereinafter
collectively referred to as the "Welfare Benefit Plans"). Copies to all Welfare
Benefit Plans have previously been provided to Buyer.
(2) Pension Benefit Plans. Exhibit 4.23(2) attached hereto contains a
true and complete list of each "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) maintained by Seller, to which Seller contributes or is
required to contribute, or which covered employee of Seller during the period of
their employment with any predecessor of Seller, including any multi-employer
pension plan as defined under Internal Revenue Code of 1986, Section 414(f)
(such employee pension benefit plans being hereinafter collectively referred to
as the "Pension Benefit Plans"). Copies of all Pension Benefit Plans have
previously been provided to Buyer.
(3) Liabilities. Unfunded liabilities under any Welfare Benefits Plans
or Pension Benefit Plans are described on Exhibit 4.23(3) attached hereto. Buyer
shall not be liable and not be responsible for any debt, obligation,
responsibility or liability of Seller under any such plans. Seller shall be
liable under its Welfare Benefit Plans and Pension Benefit Plans for all claims
due and unpaid at Closing and for all claims incurred before Closing, whether or
not paid or presented before Closing.
(4) Termination of Participation. Upon Closing, Seller shall cease to
be a participating employer under all Pension Benefit Plans and Welfare Benefit
Plans maintained by Seller, and any such action by Seller shall in no way
diminish its obligations to Buyer.
4.24 Compliance with Healthcare Laws and Other Laws. Seller has not made
any kickback, bribe or payment to any person or entity, directly or indirectly,
for referring, recommending or arranging business or patients with, to or for
Seller which action could have a material adverse effect on the Business. No
bulk sales or similar statute will have any adverse effect on the transactions
contemplated under this Agreement. The transactions contemplated under this
Agreement comply with any applicable state antitrust or similar laws. None of
the Leases and Contracts and no activity of Seller violates Section 1877 of the
Social Security Act or any similar provision of applicable state law in any
material respect. None of the Leases and Contracts and no activity of Seller
violates provisions of applicable state law relating to the corporate practice
of medicine in any
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material respect. Seller is in substantial compliance (without obtaining
waivers, variances or extensions) with, all federal, state and local laws, rules
and regulations which relate to the operations of the Business, except where the
failure to be in compliance could not have a material adverse effect on the
Business. All healthcare, tax and other returns, reports, plans and filings of
any nature required to be filed prior to Closing by Seller with any federal,
state or local governmental authorities and any third party payors have been
properly completed, except where the failure to be so completed or filed could
not have a material adverse effect on the Business, and timely filed in
compliance with all applicable requirements. Each return, report, plan and
filling contains no materially untrue or misleading statements and does not omit
anything which would cause it to be misleading or inaccurate in any material
respect. Seller shall retain and be responsible, for any liability incurred, and
Seller shall be entitled to receive any refund or other benefit which may result
from the same in connection with any such return, report, plan and filing.
4.25 Condition of Assets. The Equipment and Furnishings are all of the
"Equipment" reflected on the Financial Statements, other than those items sold
and replaced in the ordinary course of business. The Assets together with the
Excluded Assets comprise all of the following: all assets owned by Seller and
all assets used in connection with the Business and any related businesses. To
the best knowledge of Seller and Shareholders, all components of all of the
Equipment and Furnishings (a) operate in accordance with their respective
specifications, (b) perform the functions they are supposed to perform, (c) are
free of structural, installation, engineering, or mechanical defects or
problems, and (d) are otherwise in good working order, except for general wear
and tear and/or functional obsolescence, as applicable. Seller has received no
written recommendation from any insurer to repair or replace any of the Assets
with which Seller has not complied. Since December 31, 1996, the Business has
been operated in conformity with the methods and procedures observed and
utilized during the two year period immediately preceding December 31, 1996, and
that since December 31, 1996 and except as required in the ordinary and usual
course of the Business, no assets have been removed, distributed, assigned or
paid by or from Seller.
4.26 Tax Returns; Taxes. Seller has filed all federal, state and local tax
returns and tax reports required by such authorities to be filed. Seller has
paid all taxes, assessments, governmental charges, penalties, interest and fines
due or claimed to be due (including, without limitation, taxes on properties,
income, franchises, licenses, sales and payrolls) by any federal, state or local
authority. Additionally, the reserves for taxes reflected in the Financial
Statements are adequate to cover all tax liabilities accrued as of the
respective dates thereof. There has never been and is not now pending a tax
examination or audit of, nor any action, suit, investigation or claim asserted
or, to the best knowledge of Seller and Shareholders, threatened against Seller
by any federal, state or local authority; and Seller has not been granted any
extension of the limitation period applicable to any tax claims.
4.27 Operating Targets. For the six (6) month period ended at January 31,
1997, Seller achieved net revenues actual receipts of approximately Six Million
Six Hundred
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Fifteen Thousand Dollars ($6,615,000.00), of which no less than Three Million
Four Hundred Ten Thousand ($3,410,000.00) shall have been derived from combined
long-term care pharmacy and IV therapy Net Revenues.
4.28 Value of Assets. As of the date of Closing, the Assets have a net
value (being the aggregate book value of the Assets, less the amount of Assumed
Liabilities listed on Exhibit 1.3 hereto) of at least Two Million Five Hundred
Twenty Seven Thousand Six Hundred Twenty Seven Dollars ($2,527,627.00). From
December 31, 1996 through Closing and except as required in the ordinary and
usual course of the Business, no assets were removed, distributed, assigned or
paid by or from Seller. At Closing the Assets are free from liabilities,
mortgages, security interests, liens, leases, covenants, assessments, easements,
options, rights of first refusal, restrictions, reservations, defects in title,
encroachments or other encumbrances except those acceptable to Buyer which are
associated with the Assumed Liabilities.
4.29 Beds. As of the date of Closing, there are a minimum of 2,794 beds
being actively serviced by Seller under binding agreements in form and substance
acceptable to Buyer.
4.30 No Omissions or Misstatements. To the best knowledge of Seller and
Shareholders, there is no fact material to the Assets, liabilities, Business or
prospects of Seller or the Business which has not been set forth or described in
this Agreement or in the Exhibits hereto and that is material to the conduct,
prospects, operations or financial condition of Seller, the Business or the
Assets. To the best knowledge of Seller and Shareholders, none of the
information included in this Agreement and Exhibits hereto, or other documents
furnished or to be furnished by Shareholders or Seller, or any of its
representatives, contains any untrue statement of a material fact or is
misleading in any material respect or omits to state any material fact necessary
in order to make any of the statements herein or therein not misleading in light
of the circumstances in which they were made. Copies of all documents referred
to in any Exhibit hereto have been delivered or made available to Buyer and
constitute true, correct and complete copies thereof and include all amendments,
exhibits, schedules, appendices, supplements or modifications thereto or waivers
thereunder.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholders to enter into this Agreement
and to consummate the transactions contemplated herein, Buyer hereby represents
and warrants to Seller and Shareholders, which representations and warranties
shall be true and correct on the date hereof and on the date of Closing, as
follows:
5.1 Organization, Qualification and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the full corporate power and corporate authority to own,
lease and operate its
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properties and assets as presently owned, leased and operated and to carry on
its business as it is now being conducted. Buyer has the full right, power and
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give effect to the provisions of this
Agreement and to consummate the transactions contemplated on the part of Buyer
hereby. The execution, delivery and consummation of this Agreement and all other
agreements and documents executed in connection herewith by Buyer has been duly
authorized by all necessary corporate action on the part of Buyer. No other
action on the part of Buyer or any other person or entity is necessary to
authorize the execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This Agreement,
and all other agreements and documents executed in connection herewith by Buyer,
upon due execution and delivery thereof, shall constitute the valid binding
obligations of Buyer, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity.
5.2 Absence of Default. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Buyer will not constitute a violation of, be in conflict with, or, with or
without the giving of notice or the passage of time, or both, result in a breach
of, constitute a default under, or create (or cause the acceleration of the
maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreement) under: (a) any term or provision of the
Certificate of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Except with regard to Adirondack Capital
Advisors, LLC (the fees related to which shall be solely the responsibility of
Buyer), Buyer has not employed and is not liable for the payment of any fee to
any finder, broker, government official, consultant or similar person in
connection with the transactions contemplated by this Agreement.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. Until the Closing, each of Seller
and Shareholders shall use their best efforts and shall do or cause to be done
all such acts and things as may be necessary to preserve, protect and maintain
intact the operation of the Business and Assets as a going concern consistent
with prior practice and not other than in the ordinary course of business, and
to preserve, protect and maintain for Buyer the
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goodwill of the suppliers, employees, clientele, patients and others having
business relations with Seller or the Business. Each of Seller and Shareholders
shall use their best efforts to obtain all documents called for by this
Agreement. Buyer, Seller and Shareholders shall use their best efforts to
facilitate the consummation of the transactions contemplated under this
Agreement. Until termination of this Agreement, Seller and Shareholders agree
that they will not sell or transfer, or negotiate the sale or transfer of,
either the Assets or any stock of Seller. Until the Closing, Seller shall pay no
dividend, and shall make no distribution or extraordinary payment to
Shareholders or any third party or pay any intercompany payable and, other than
in the ordinary course of business, Seller will not sell, discard or dispose of
any of the Assets. None of the Leases and Contracts shall be amended between the
date hereof and Closing without the prior written consent of Buyer. Until
Closing, the Seller and any party in possession of all or any part of the Real
Estate will not perform any material grading or excavation, construction or
removal of any improvement, or make any material other change or improvement
upon or about the Real Estate. Until the Closing, Seller and any party in
possession of all or any part of the Assets will maintain and keep the Assets in
a sanitary, well-maintained condition and in good order and repair.
6.2 Absence of Material Change. Until Closing, neither Seller nor
Shareholders shall make any change in the Business or in the utilization of the
Assets and shall not enter into any other material contract or commitment or any
other transaction with respect to the Business or the Assets without the prior
written consent of Buyer.
6.3 Ownership of Intellectual Property. Seller will provide any and all
assistance and cooperation required by Buyer (including, but not limited to the
execution of all necessary documents and agreements) in order for Buyer to
create, perfect or renew rights in any Intellectual Property (including but not
limited to rights which are created, perfected or renewed subsequent to the
Closing).
6.4 Access to Books and Records.
(a) From the date hereof until the Closing, Seller shall give to Buyer
and to Buyer's counsel, accountants and other representatives, full access to
all of Seller's offices, properties, books, contracts, commitments, records and
affairs relating to the Assets or the Business so that Buyer may inspect and
audit them and shall furnish to Buyer a copy of all documents and information
concerning the properties and affairs of Seller, the Business or the Assets as
Buyer may request. If any such books, records and materials are in the custody
of third parties, Seller shall direct such third parties to promptly provide
them to Buyer. Copies of documents furnished to Buyer by Seller will be returned
by Buyer upon request if the transactions contemplated hereunder are not
consummated. Seller shall provide Buyer promptly with interim financial
statements of Seller and any other management reports, as and when they are
available.
(b) Following the Closing, Buyer shall permit Seller's representatives
(including, without limitation, their counsel and auditors), during normal
business hours, to
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have reasonable access to, and examine and make copies of, all books and records
of the Business which relate to transactions or events occurring prior to the
Closing. All out-of-pocket costs associated with the delivery of the requested
documents shall be paid by Seller.
(c) Following the Closing, Seller shall permit Buyer and its
representatives (including, without limitation, their counsel and auditors), to
have access to, and examine and make copies of, all books and records of Seller
and its affiliates relating to the Business or Assets, which books and records
are retained by Seller and which relate to transactions or events occurring
prior to the Closing. For a period of five years after the Closing, Seller
agrees that, prior to the destruction or disposition of any such books or
records, Seller shall provide not less than forty-five (45) days', nor more than
ninety (90) days', prior written notice to Buyer of such proposed destruction or
disposal. If Buyer desires to obtain any such documents or records, it may do so
by notifying Seller in writing at any time prior to the date scheduled for such
destruction or disposal. In such event, Seller shall not destroy such documents
or records and the parties shall then promptly arrange for the delivery of such
documents or records to Buyer, its successors or assigns. All out-of-pocket
costs associated with the delivery of the requested documents or records shall
be paid by Buyer.
(d) Seller shall cause its accounting firm to consent to, and provide
the necessary written consents for, the inclusion of the Financial Statements
and any interim financial statements as currently prepared in any registration
statements, private placement memoranda, and periodic reports, if any, necessary
or appropriate in order to enable Buyer or its affiliates to comply with any
applicable registration or reporting requirements of federal or state securities
laws.
(e) After Closing, Seller and Shareholder shall make the books and
records of Seller available to Buyer (and, without limitation, to Buyer's
auditors and other agents) and shall otherwise cooperate with Buyer in order to
permit Buyer to conduct an audit of Seller's financial statements for any period
prior to Closing not already audited. Seller agrees to cooperate, with Buyer in
Buyer's preparation of financial statements relating to such periods and Buyer's
filing in a timely manner of registration statements, private placement
memoranda and periodic reports, if any, pursuant to any applicable federal or
state securities law.
6.5 Preserve Accuracy of Representations and Warranties. Each of Seller and
Shareholders shall refrain from taking any action which would render any
representation and warranty contained in Article IV hereof untrue, inaccurate or
misleading as of Closing. Seller and Shareholders will each promptly notify
Buyer of any lawsuit, claim, administrative action or other proceeding asserted
or commenced against Seller, its directors, officers or Shareholders, that may
involve or relate in any way to Seller, the Assets, Shareholders or the
operation of the Business. Seller and Shareholders each shall promptly notify
Buyer of any facts or circumstances that come to either's attention and that
cause, or through the passage of time may cause, any of Seller's and
Shareholders'
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representations and warranties to be untrue or misleading at any time from the
date hereof to Closing.
6.6 Maintain Books and Accounting Practices. Until the Closing, Seller
shall maintain its books of account in the usual, regular and ordinary manner on
a basis consistent with prior years and shall make no change in its accounting
methods or practices.
6.7 Indebtedness; Liens. Until the Closing, with respect to the Assets,
including the Business and operations conducted with the Assets, Seller shall
not create, incur, assume, guarantee or otherwise become liable or obligated
with respect to any indebtedness for borrowed money, nor make any loan or
advance to, or any investment in, any person or entity, nor create any lien,
security interest, mortgage, right or other encumbrance in any of the Assets,
without Buyer's prior written approval. At Closing the Assets will be free and
clear of all mortgages, security interests, liens, leases, covenants,
assessments, easements, options, rights of first refusal, restrictions,
reservations, defects in title, encroachments or other encumbrances, except as
specifically set forth in those Leases and Contracts or Assumed Liabilities
which Buyer expressly elects to assume, except with respect to Cardinal
Syracuse, Inc., and except with respect to certain liens/encumbrances (securing
liabilities which Seller and/or Shareholders shall retain) which shall be
discharged at or post-Closing.
6.8 Compliance with Laws and Regulatory Consents. Until the Closing, (a)
Seller shall comply with all applicable statutes, laws, ordinances and
regulations, (b) Seller shall keep, hold and maintain all certificates,
registrations, accreditations, participations, licenses, and other permits
necessary for the business and operation of the Assets, (c) Seller and
Shareholders shall use their best efforts and shall cooperate fully with Buyer
to obtain all consents, approvals, exemptions and authorizations of third
parties, whether governmental or private, necessary to consummate the
transactions contemplated under this Agreement, and (d) Seller and Shareholders
shall make and cause to be made all filings and give and cause to be given all
notices which may be necessary or desirable under all applicable laws and under
applicable contracts, agreements and commitments in order to consummate the
transactions contemplated under this Agreement.
6.9 Maintain Insurance Coverage. Until the Closing, Seller shall maintain
and cause to be maintained in full force and effect the existing insurance on
the Assets and the operations of the Business and shall provide at Closing
evidence satisfactory to Buyer that such insurance continues to be in effect and
that all premiums due have been paid. Seller will maintain its existing product
and professional liability insurance on an "occurrence" basis, and covering at
least five years after Closing.
6.10 Medicare and Medicaid Reporting. Until the Closing, Seller shall
timely file or cause to be filed all reports and claims of every kind, nature or
description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third party payors, including, but not
limited to, Medicare, Medicaid and Blue Cross. Seller has
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paid or will pay all liabilities for contracted adjustments, discounts, refunds
and other offsets in connection with the filing of such reports and claims
through the date of Closing.
6.11 Current Return Filing. Seller shall be responsible for (a) the
preparation and filing of the federal, state and local income tax and gross
receipts and use tax returns for all the tax periods of Seller ending on or
before the Closing; and (b) the payment of all such taxes when due.
6.12 WARN Act. Within the period ninety (90) days prior to Closing, Seller
will not temporarily or permanently close or shut down any "single site of
employment" or any "facility" or any "operating unit," department or service
within a single site of employment, as such terms are used in WARN.
6.13 No Sale, Merger or Consolidation. Until the Closing, Shareholders
shall not sell, pledge or transfer any of their capital stock in Seller, and
Seller shall not sell all or substantially all of its assets, or merge or
consolidate with any other entity; neither party shall solicit any inquiries,
proposals or offers relating to any such transactions; and both parties shall
promptly notify Buyer orally, and confirm in writing, of all relevant details
relating to inquiries, proposals or offers which either may receive relating to
any of the matters referred to in this paragraph.
6.14 Risk of Loss. In the event there is any material damage to or loss of
any of the Assets (whether by fire, theft, vandalism, or other cause or
casualty), between the date hereof and the Closing, Buyer at its sole option,
may elect either (a) to terminate this Agreement in its entirety, or (b) to
terminate this Agreement with respect to the damaged Assets only, with a
reduction in the cash portion of the Purchase Price to be paid at Closing equal
to the appraised value of the Assets damaged or lost plus the cost of such
appraisal. Seller, Shareholders and Buyer shall mutually select an appraiser for
such purpose.
6.15 Condemnation. Until the Closing, in the event that any portion of the
Assets become subject to or is threatened with any condemnation or eminent
domain proceedings, then Buyer, at its sole option, may elect either (a) to
terminate this Agreement in its entirety, or (b) to terminate this Agreement
with respect only to that portion of the Assets which is condemned or threatened
to be condemned, with a reduction in the cash portion of the Purchase Price
determined as provided in paragraph 6.14.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in Articles VIII
and IX hereof are satisfied, then the Closing shall occur on or by March 5,
1997, at the offices of Johnson, Duffie, Stewart and Weidner, 301 Market Street,
Lemoyne, Pennsylvania 17043-0109, or at such other time or place as the parties
may mutually agree (the "Closing"). In
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the event that Closing has not occurred by April 1, 1997, then any party not in
default hereunder may terminate this Agreement without further obligation.
ARTICLE VIII. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE
The obligations of Seller and Shareholders under this Agreement are subject
to the satisfaction on or prior to Closing, of the following conditions (which
may be waived in writing by Seller or Shareholders in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits and attachments hereto) or in any certificate
or document delivered to Seller pursuant hereto, shall be deemed to have been
made again at the Closing and shall then be true in all respects; and Buyer
shall have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
Closing.
8.2 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions hereunder contemplated, and no
governmental agency or body or other entity shall have taken any other action or
made any request of Seller or Buyer as a result of which Seller reasonably and
in good faith deems that to proceed with the transactions hereunder may
constitute a violation of law.
8.3 Order Prohibiting Transaction. No order shall have been entered in any
action or proceeding before any court or governmental agency, and no preliminary
or permanent injunction by any court shall have been issued which would have the
effect of (a) making the transactions contemplated under this Agreement illegal,
or (b) otherwise preventing consummation of such transactions. There shall have
been no United States federal or state statute, rule or regulations enacted or
promulgated after the date of this Agreement that would reasonably, directly or
indirectly, result in any of the consequences referred to in this paragraph.
8.4 Employment Agreement. Buyer and each of Gary Croft and Marshall
Burnside shall have entered into an employment agreement in the form attached
hereto as Exhibit 9.7(a) and (b).
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
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9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Seller and Shareholders
contained in this Agreement (including the Exhibits and attachments hereto) or
in any certificate or document delivered to Buyer in connection herewith, shall
be deemed to have been made again at the Closing and shall then be true in all
respects; and Seller and Shareholders shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by them prior to or at Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (a) certification for
participation in the Medicaid Programs of the states where the Business is
conducted, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, and (c) all other
consents, licenses, registrations, permits, approvals, provider contracts,
necessary in the judgment of Buyer to acquire and operate the Assets and
Business as contemplated hereunder.
9.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction hereunder contemplated, and no governmental
agency or body or other entity shall have taken any other action or made any
request of Seller or Buyer as a result of which Buyer reasonably and in good
faith deems that to proceed with the transactions hereunder may constitute a
violation of law.
9.4 Inspection of Assets; UCC Searches, etc. Buyer and its representatives
shall have had and continue to have reasonable rights of inspection of the
Assets in connection with Buyer's due diligence review, and the results of
Buyer's inspection and due diligence review shall be acceptable to it. Seller
shall have delivered to Buyer, at Seller's expense, all UCC financing statements
and title searches, local and central, including fixtures, and federal and state
pending litigation, tax lien and judgment searches, with respect to Seller, the
Assets and the Business, including all "DBA's," tradenames and fictitious names
of Seller, dated no more than ten (10) days prior to Closing, with results
satisfactory to Buyer.
9.5 Order Prohibiting Transaction. No order shall have been entered in any
action or proceeding before any court or governmental agency, and no preliminary
or permanent injunction by any court shall have been issued which would have the
effect of (a) making the transactions contemplated under this Agreement illegal,
(b) otherwise preventing consummation of such transactions, or (c) imposing
material limitations on the ability of Buyer effectively to acquire and hold
Assets, to operate the Business, or, in any case, to exercise rights of
ownership pursuant thereto. There shall have been no federal or state statute,
rule or regulations enacted or promulgated after the date of this Agreement that
would reasonably result, directly or indirectly, in any of the consequences
referred to in this paragraph.
9.6 No Loss, Damage or Destruction. In the event there is any damage to or
loss of any of the Assets, the terms of paragraphs 6.14 and/or 6.15, as
applicable, shall have been complied with to the satisfaction of Buyer.
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9.7 Employment Agreement. Buyer and each of Gary Croft and Marshall
Burnside shall have entered into an employment agreement in the form attached
hereto as Exhibit 9.7(a) and (b).
9.8 Operating Targets. As of the date of Closing, Seller and the Business
shall meet the following minimum operating thresholds: for the six (6) month
period ended at January 31, 1997, Seller achieved net revenues actual receipts
of approximately Six Million Six Hundred Fifteen Thousand Dollars
($6,615,000.00), of which no less than Three Million Four Hundred Ten Thousand
($3,410,000.00) shall be derived from combined long-term care pharmacy and IV
therapy Net Revenues.
9.9 Value of Assets. As of the date of Closing, the Assets shall have a net
value (being the aggregate book value of the Assets, less the amount of Assumed
Liabilities listed on Exhibit 1.3 hereto) of at least Two Million Five Hundred
Twenty Seven Thousand Six Hundred Twenty Seven Dollars ($2,527,627.00). From
December 31, 1996 through Closing and except as required in the ordinary and
usual course of the Business, no assets shall have been removed, distributed,
assigned or paid by or from Seller. Further, upon Buyer's request, just prior to
the time of Closing, Seller shall provide to Buyer interim, unaudited financial
statements evidencing that no material change has occurred in connection with
the Business or the Assets since the date of the Financial Statements. At
Closing the Assets shall be subject to no liabilities, mortgages, security
interests, liens, leases, covenants, assessments, easements, options, rights of
first refusal, restrictions, reservations, defects in title, encroachments or
other encumbrances except those acceptable to Buyer which are associated with
the Assumed Liabilities.
9.10 Beds. As of the date of Closing, there shall be a minimum of 2,794
beds being actively serviced by Seller under binding agreements in form and
substance acceptable to Buyer.
9.11 Third Party Consents. Other than any consents or authorizations to be
delivered post-Closing pursuant to the terms of the Assignment and Assumption
Agreement and/or Assignment and Assumption of Leases and/or any side letter
agreement relating to same, Seller shall provide to Buyer at Closing all
consents and authorizations of governmental agencies and other third parties
believed by Buyer to be necessary or advisable for the legal and proper
consummation of all agreements and transactions contemplated within this
Agreement, each in form and substance acceptable to Buyer. Buyer hereby waives
the requirement for the delivery by Seller and Shareholders of third party
consents relating to provider agreements to which Seller is a party for the
rendering of goods/services to long-term care facilities.
9.12 Approval of Board of Directors. This Agreement and consummation of the
transactions contemplated hereunder shall have been approved by the Board of
Directors of Buyer.
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ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING
At Closing, Seller and Shareholder shall deliver or cause to be delivered
to Buyer the following in form and substance reasonably satisfactory to Buyer:
10.1 Documents Relating to Title. Seller shall execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer:
(a) An Assignment and Assumption of Lease for each location of the
leased Real Estate, each in form and substance satisfactory to Buyer, with all
recording, stamp tax or other transfer fees paid by Seller, and conveying to
Buyer the legal right to possess and use the leased Real Estate free and clear
of all liens, mortgages, superior rights of possession or use, except for those
expressly acceptable to Buyer as set forth in the Assignment and Assumption of
Leases.
(b) A Bill of Sale, in form and substance satisfactory to Buyer,
warranting and conveying to Buyer good, valid and marketable title to all
Assets, free and clear of all liens, mortgages, pledges, encumbrances, security
interests, covenants, easements, rights of way, equities, options, rights of
first refusal restrictions, special tax or governmental assessments, defects in
title, encroachments and other burdens, except for the Assumed Liabilities.
(c) Certificates of title to all vehicles that constitute Assets
endorsed by Seller together with completed originals of any forms required by
all applicable states to transfer the same, free and clear of all liens, except
for the Assumed Liabilities.
(d) An effective and enforceable assignment to Buyer of each Lease and
Contract which Buyer has agreed to assume, unless otherwise expressly waived in
this Agreement.
10.2 Possession. Seller shall deliver to Buyer full possession and control
of the Business and Assets.
10.3 Opinion of Counsel. Seller and Shareholders shall deliver to Buyer the
favorable opinion of counsel for Seller and Shareholders, dated as of Closing,
in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolutions. Seller and
Shareholders shall deliver to Buyer certificates of good standing from the
Secretary of State of its state of organization, and from each jurisdiction in
which Seller is qualified to do business, certified copies of the Bylaws and
Charter of Seller (all dated the most recent practical date prior to Closing),
certified copies of the resolutions of the Board of Directors and Shareholders
of Seller authorizing the execution, delivery and consummation of this Agreement
and the execution, delivery and consummation of all other agreements and
documents executed in connection herewith by them, including all deeds, bills of
sale and
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other instruments required hereunder, sufficient in form and content to meet the
requirements of the law of the state of Seller's incorporation relevant to such
transactions and certified by officers of Seller to be validly adopted and in
full force and effect and unamended as of Closing.
10.5 Closing Certificate. Seller and Shareholders shall deliver to Buyer a
certificate of an officer of Seller and of Shareholders, dated as of Closing,
certifying that (a) each covenant and obligation of Seller and Shareholders has
been complied with by such parties, and (b) each representation and warranty of
Seller and Shareholders is true and correct at the Closing as if made on and as
of the Closing.
10.6 Third-Party Consents. Except for those consents/authorizations the
delivery of which is waived by Buyer pursuant to the terms of this Agreement,
Seller shall deliver to Buyer, all consents, estoppels, approvals and
authorizations of governmental agencies and other third-parties that Buyer
believes are necessary or advisable for the legal and proper execution, delivery
and consummation of this Agreement, and the transactions contemplated hereby,
including, without limitation, those consents necessary for the assignment of
Leases and Contracts pursuant to paragraph 10.1(d).
10.7 Taxes and Other Payments. Seller shall deliver to Buyer:
(a) A certificate of non-foreign status signed by the appropriate
party and sufficient in form and substance to relieve Buyer of all withholding
obligations under Section 1445 of the Code.
(b) Executed releases of all mortgages, security interests, liens,
pledges, restrictions or other encumbrances on or applicable to the Assets,
except those encumbrances permitted under paragraph 9.9 and except as otherwise
waived by Buyer in this Agreement.
10.8 Insurance. Seller shall deliver evidence of its insurance coverage
required by paragraph 6.9.
10.9 Employment Agreements. Marshall Burnside and Gary Croft shall deliver
to Buyer the agreements described in paragraphs 9.7(a) and (b).
10.10 Additionally Requested Documents; Post Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller and Shareholders shall cooperate with Buyer to put Buyer in
actual possession and operating control of the Assets and Business, execute and
deliver such further instruments of sale, conveyance, transfer and assignment,
as Buyer may reasonably request in order to effectively sell, convey, transfer
and assign the Assets and Business to Buyer, to execute and deliver such further
instruments and to take such other actions as Buyer may reasonably request to
release Buyer from all obligation and liability with regard to any obligation or
liability retained by Seller and/or Shareholders and to execute and deliver
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such further instruments and to cooperate with Buyer as Buyer may reasonably
request or to enable Buyer to obtain all necessary health care or regulatory
certifications, approvals, registrations, consents and licenses, accreditations
or permits.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller:
11.1 Purchase Price. Buyer shall make available to Seller the Purchase
Price upon the terms specified in paragraph 3.1(a) and shall deliver the
Contingent Promissory Note specified in paragraph 3.1(b).
11.2 Assumption of Liabilities. Buyer shall covenant to fully perform and
comply with all of the Assumed Liabilities, subject to the provisions of this
Agreement, from and after Closing.
11.3 Opinion of Counsel. Buyer shall deliver to Seller a favorable opinion
of counsel for Buyer, dated as of Closing, in the form specified in Article XII
hereof.
11.4 Corporate Good Standing and Board Resolutions. Buyer shall deliver to
Seller a certificate of good standing from the Secretary of State of Delaware,
dated the most recent practical date prior to Closing, together with a certified
copy of the resolutions of the Board of Directors of Buyer approving this
Agreement and the consummation of the transactions hereunder contemplated.
11.5 Closing Certificate. Buyer shall deliver to Seller a certificate of an
officer of Buyer, dated as of Closing, certifying that (a) each covenant and
obligation of Buyer has been complied with by Buyer, and (b) each representation
and warranty of Buyer is true and correct on the Closing as if made on and as of
the Closing.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Seller an opinion of Harwell Howard
Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant to the
Legal Opinion Accord of the ABA Section of Business Law (1991), in form and
substance reasonably satisfactory to Seller and its counsel to the effect that:
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and corporate authority to own, operate and lease its properties and
assets and to carry on its business as now conducted.
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(b) Buyer has the corporate power and corporate authority to execute,
deliver and carry out the terms of this Agreement and all documents and
agreements delivered by Buyer at Closing and to consummate the transactions
contemplated on the part of Buyer hereby and thereby; Buyer has taken all action
required by law, and its Certificate of Incorporation and Bylaws, to authorize
such execution, delivery and consummation of this Agreement, and this Agreement,
and all other agreements delivered by Buyer at Closing constitute the valid and
binding obligations of Buyer enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general principles of equity.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and warranties
of Buyer, Seller and Shareholder contained in this Agreement, or in any
certificate or document delivered pursuant to this Agreement, shall be deemed to
be material and to have been relied upon by the parties hereto notwithstanding
any investigation prior to the Closing, and shall survive the date of Closing
and shall not be merged into any documents delivered in connection with the
Closing.
13.2 Indemnification by Seller and Shareholders. Subject to provisions of
paragraph 13.4, Seller and Shareholders, jointly and severally, shall promptly
indemnify, defend, and hold harmless Buyer, the directors, officers,
shareholders, employees and agents of Buyer, and the Assets against any and all
losses, costs, and expenses (including reasonable cost of investigation, court
costs and legal fees actually incurred) and other damages resulting from (i) any
breach by either Seller or Shareholders of any of the covenants, obligations,
representations or warranties or breach or untruth of any representation,
warranty, fact or conclusion contained in this Agreement or any certificate or
document of Seller and/or Shareholders delivered pursuant to this Agreement,
(ii) any liability of Seller not expressly assumed by Buyer pursuant to
paragraph 1.3, and (iii) any claim (whether or not disclosed herein) that is
brought or asserted by any third party(ies) against Buyer arising out of the
ownership, licensing, operation or conduct of the Business or Assets or the
conduct of any of Seller's employees, agents or independent contractors,
relating to all periods of time through the date of Closing. Any indemnification
payment made pursuant to this Article shall include interest at a floating rate
equal to two points over the prime rate of Bankers Trust Company established
from time to time (the "Rate"), payable for the period measured from the date
that the loss, cost, expense or damage was incurred until the date of payment.
The liability created under this paragraph shall be joint and several between
Seller and Shareholders.
13.3 Indemnification by Buyer. Subject to the provisions of paragraph 13.4,
Buyer shall promptly indemnify, defend, and hold Seller and Shareholders
harmless against any and all losses, costs, and expenses (including reasonable
cost of investigation, court costs and legal fees actually incurred) and other
damages resulting from (i) any breach by Buyer
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of any of its covenants, obligations, representations or warranties or breach or
untruth of any representation, warranty, fact or conclusion contained in this
Agreement or any certificate or document of Buyer delivered pursuant to this
Agreement,(ii) any claim which is brought or asserted by any third party(ies)
against Seller or Shareholders for failure to pay or perform any of the Assumed
Liabilities, and (iii) any claim that is brought or asserted by any third
party(s) against Seller or Shareholders arising out of the ownership, licensing,
operation or conduct of the Business or Assets or the conduct of any of Buyer's
employees, agents or independent contractors, relating to all periods of time
subsequent to the date of Closing. Any indemnification payment pursuant to the
foregoing shall include interest at the Rate from the date that the loss, cost,
expense or damage was incurred until the date of payment.
13.4 Rules Regarding Indemnification. The obligations and liabilities of
each party which may be subject to indemnification liability hereunder (the
"indemnifying party") to the other party (the "indemnified party") shall be
subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall give written
notice within a reasonably prompt period of time to the indemnifying party of
any written claim by a third party which is likely to give rise to a claim by
the indemnified party against the indemnifying party based on the indemnity
agreements contained in this Article, stating the nature of said claim and the
amount thereof, to the extent known. The indemnified party shall give notice to
the indemnifying party that pursuant to the indemnity, the indemnified party is
asserting against the indemnifying party a claim with respect to a potential
loss from the third party claim, and such notice shall constitute the assertion
of a claim for indemnity by the indemnified party. If, within thirty (30) days
after receiving such notice, the indemnifying party advises the indemnified
party that it will provide indemnification and assume the defense at its
expense, then so long as such defense is being conducted, the indemnified party
shall not settle or admit liability with respect to the claim and shall afford
to the indemnifying party and defending counsel reasonable assistance in
defending against the claim. If the indemnifying party assumes the defense,
counsel shall be selected by such party and if the indemnified party then
retains its own counsel, it shall do so at its own expense. If the indemnified
party does not receive a written objection to the notice from the indemnifying
party within thirty (30) days after the indemnifying party's receipt of such
notice, the claim for indemnity shall be conclusively presumed to have been
assented to and approved, and in such case the indemnified party may control the
defense of the matter or case and, at its sole discretion, settle or admit
liability. If within the aforesaid thirty (30) day period the indemnified party
shall have received written objection to a claim (which written objection shall
briefly describe the basis of the objection to the claim or the amount thereof,
all in good faith), then for a period of ten (10) days after receipt of such
objection the parties shall attempt to settle the dispute as between the
indemnified and indemnifying parties. If they are unable to settle the dispute,
the unresolved issue or issues shall be settled by arbitration in Dallas, Texas
in accordance with the rules and procedures of the American Arbitration
Association.
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(2) Claims by a Party. The determination of a claim asserted by a party
hereunder (other than as set forth in subparagraph (1) above) pursuant to this
Article shall be made as follows: The indemnified party shall give written
notice within a reasonably prompt period of time to the indemnifying party of
any claim by the indemnified party which has not been made pursuant to
subparagraph (1) above, stating the nature of such claim and the amount thereof,
to the extent known. The claim shall be deemed to have resulted in a
determination in favor of the indemnified party and to have resulted in a
liability of the indemnifying party in an amount equal to the amount of such
claim estimated pursuant to this paragraph if within forty-five (45) days after
the indemnifying party's receipt of the claim the indemnified party shall not
have received written objection to the claim. In such event, the claim shall be
conclusively presumed to have been assented to and approved. If within the
aforesaid forty-five (45) day period the indemnified party shall have received
written objection to a claim (which written objection shall briefly describe the
basis of the objection to the claim or the amount thereof, all in good faith),
then for a period of sixty (60) days after receipt of such objection the parties
shall attempt to settle the disputed claim as between the indemnified and
indemnifying parties. If they are unable to settle the disputed claim, the
unresolved issue or issues shall be settled by arbitration in Dallas, Texas in
accordance with the rules and procedures of the American Arbitration
Association.
(3) Claims by a Straddle Customer or Patient. Any claim by a customer
or patient relating to professional negligence or similar matters involving a
customer or patient served both prior to and subsequent to Closing will be the
responsibility of either Seller and Shareholders, jointly and severally on the
one hand, or Buyer, on the other hand, in accordance with the following
guidelines: (i) if it is a claim in which the incident giving rise to liability
clearly arose on or before the date of Closing, Seller and Shareholders shall
respond to the loss and defense expenses; (ii) if it is a claim in which the
incident giving rise to liability clearly arose subsequent to the date of
Closing, Buyer shall respond to the loss and defense expenses; and (iii) in the
event that the incident giving rise to liability as to time is not clear,
Seller, Shareholders and Buyer will jointly defend the case and each will fully
cooperate with the others in such defense. Once the case is closed, if Buyer and
Seller and Shareholders cannot agree to the allocation of both indemnity and
expenses, then the matter shall be submitted to binding arbitration in Dallas,
Texas in accordance with the rules and procedures of the American Arbitration
Association.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller and Shareholders hereby, jointly and
severally, covenant and agree with Buyer that, during the "NONCOMPETE PERIOD"
(as such term is defined herein) neither Seller nor Shareholders shall directly
or indirectly, (a) within the "NONCOMPETE AREA" (as such term if defined
herein), acquire, lease, manage, consult for, serve as agent or subcontractor
for, finance, invest in, own any part of or exercise management control over any
pharmaceutical operation or business which provides any
33
<PAGE> 39
goods or services competitive with the goods and services provided by the
Business as of the Closing; (b) solicit for employment or employ any person who
at Closing or thereafter became an employee of Buyer or an Affiliate unless such
person is not so employed for at least six (6) months; or (c) with respect to
any customer, patient, physician, physician group, or healthcare provider with
whom Buyer or an Affiliate contracts with or serves in connection with the
Business subsequent to Closing, or any potential customer with whom Buyer or
Affiliate may reasonably be expected to contract with or service in connection
with the Business within six (6) months of the Closing, either solicit the same
in a manner which could adversely affect Buyer or an Affiliate or make
statements to the same which disparage Buyer, an Affiliate, the Business or
their respective operations in anyway. The "NONCOMPETE PERIOD" shall commence at
the Closing and terminate on the fifth anniversary thereof. The "NONCOMPETE
AREA" shall mean (a) the area within a fifty (50) mile radius of each location
at or for which Seller delivers pharmaceuticals as of the Closing, and (b) the
area within a one hundred fifty (150) mile radius of (i) each Pennsylvania
location from which the business of Buyer or Affiliate is operated or conducted
as of the Closing and (ii) each location from which the Business is operated or
conducted as of the Closing. Ownership of less than five percent (5%) of the
stock of a publicly held company shall not be deemed a breach of this covenant.
14.2 Enforceability. In the event of a breach of paragraph 14.1, Seller and
Shareholders recognize that monetary damages shall be inadequate to compensate
Buyer and Buyer shall be entitled, without the posting of a bond or similar
security, to an injunction restraining such breach, with the costs (including
attorneys fees) of securing such injunction to be jointly and severally borne by
Seller and Shareholders. Nothing contained herein shall be construed as
prohibiting Buyer from pursuing any other remedy available to it for such breach
or threatened breach.
All parties hereby acknowledge the necessity of protection against the
competition of Seller and Shareholders and that the nature and scope of such
protection has been carefully considered by the parties. The period provided and
the area covered are expressly represented and agreed to be fair, reasonable and
necessary. The consideration provided for herein is deemed to be sufficient and
adequate to compensate Seller and Shareholders for agreeing to the restrictions
contained in paragraph 14.1 (which restrictions and the payment in consideration
therefor are independent of similar restrictions and any payment in
consideration therefor to be found outside of this Agreement). If, however, any
court determines that the forgoing restrictions are not reasonable, such
restrictions shall be modified, rewritten or interpreted to include as much of
their nature and scope as will render them enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer may freely assign any or all of
its rights or delegate any or all of its obligations under this Agreement
without the express written consent of Seller or Shareholders. Neither Seller
nor Shareholders may assign any
34
<PAGE> 40
rights or delegate any obligations under this Agreement without the prior
written consent of Buyer, and any prohibited assignment or delegation will be
null and void.
15.2 Other Expenses. Except as otherwise provided in this Agreement, Seller
and Shareholders shall pay all of their expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated by
this Agreement and Buyer shall pay all of its expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated by
this Agreement. In the event Seller or Shareholders has retained a broker or
finder in connection with the transactions contemplated hereunder, such fee
shall be paid in full at Closing by a deduction to the cash portion of the
Purchase Price, and Seller will provide Buyer a pay-off letter from the broker
or finder in form satisfactory to Buyer. All state and local sales and use
taxes, recording fees and transfer taxes incurred in connection with the
transactions contemplated within this Agreement shall be borne and timely paid
by Seller. All ad valorem taxes incurred in connection with the transactions
contemplated within this Agreement shall be shared equally by Seller and Buyer
and shall be prorated as of Closing. The Purchase Price shall be reduced, on a
dollar-per-dollar basis, to the extent and in an amount equal to any taxes that
are accrued but unpaid by Seller as of the date of Closing, and Buyer shall
thereafter assume responsibility for payment of such accrued but unpaid taxes to
the extent of any such reduction .
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days after
mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller or Shareholders:
Pennsylvania Prescriptions, Inc.
d/b/a Emerald Drug Store
2300 North Third Street
Harrisburg, PA 17110-1894
attn: Gary W. Croft and Marshall P. Burnside
and
Richard R. Deluca
301 West Courtland Avenue
Shiremans Town, PA 17011
and
Gary W. Croft
5979 Devonshire Heights Road
35
<PAGE> 41
Harrisburg, PA 17112
and
Marshall P. Burnside
6000 Dell Road
Harrisburg, PA 17111
with a copy to:
Edmund G. Myers
Johnson, Duffle, Stewart & Werdner
301 Market Street
Lemoyne, PA 17043-0109
To Buyer:
Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, MD 21230
Attn: R. Dirk Allison, President
with a copy to:
Mark Manner
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
15.4 Confidentiality; Prohibition on Trading. All parties agree to maintain
the confidentiality of the existence of this Agreement and the transactions
contemplated hereunder, unless disclosure is required by law. Seller,
Shareholders and their Affiliates agree not to trade in the securities of Buyer
or its Affiliates based upon any nonpublic information.
15.5 Controlling Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
15.6 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
15.7 Benefit. Subject to paragraph 15.1, this Agreement shall be binding
upon and shall inure to the exclusive benefit of the parties hereto and their
respective heirs, legal
36
<PAGE> 42
representatives, successors and assigns. This Agreement is not intended to,
nor shall it, create any rights in any other party.
15.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted. Further, there shall be automatically
substituted for such invalid or unenforceable provision a provision as similar
as possible which is valid and enforceable.
15.9 Waiver. Neither the failure nor any delay on the part of any party
hereto in exercising any rights, power or remedy hereunder shall operate as a
waiver thereof, or of any other right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy. No waiver
of any of the provisions of this Agreement shall be valid unless it is in
writing and signed by the party against which it is sought to be enforced.
15.10 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.11 Interpretation; Knowledge. All pronouns and any variation thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the person or entity, or the context, may require. Further,
it is acknowledged by the parties that this Agreement has undergone several
drafts with the negotiated suggestions of both; and, therefore, no presumptions
shall arise favoring either party by virtue of the authorship of any of its
provisions or the changes made through revisions. Whenever in this Agreement the
term "to the best knowledge of Seller or Shareholders" or the like is used,
Seller and Shareholders shall each be deemed to have the knowledge of Seller's
Shareholders, officers, directors and key employees, and of its Affiliates; and
Seller and Shareholders shall each be under a duty of due inquiry.
15.12 Entire Agreement. This Agreement, including the Exhibits and
attachments hereto, which are incorporated herein by reference, constitutes the
entire agreement between the parties hereto with regard to the matters contained
herein and it is understood and agreed that all previous undertakings,
negotiations, letters of intent and agreements between the parties are merged
herein. This Agreement may not be modified orally, but only by an agreement in
writing signed by Buyer, Seller and Shareholders.
15.13 Legal Fees and Costs. In the event any party incurs legal expenses to
enforce or interpret any provision of this Agreement, the prevailing party will
be entitled to recover such legal expenses, including, without limitation,
attorney's fees, costs and disbursements, in addition to any other relief to
which such party shall be entitled.
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"SELLER":
PENNSYLVANIA PRESCRIPTIONS, INC.
d/b/a Emerald Drug Store
By: ________________________________
Title: ________________________________
"SHAREHOLDERS":
________________________________________
GARY W. CROFT
________________________________________
MARSHALL P. BURNSIDE
________________________________________
RICHARD R. DELUCA
"BUYER"
CAPSTONE PHARMACY SERVICES, INC.
By: ________________________________
Title: ________________________________
INSTITUTIONAL PHARMACY SERVICES, INC.
By: ________________________________
Title: ________________________________
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<PAGE> 44
EXHIBIT INDEX
PENNSYLVANIA PRESCRIPTIONS, INC., D/B/A EMERALD DRUG STORE
[Copies of Schedules and Exhibits to be Furnished Upon Request]
<TABLE>
<S> <C>
A Type of services and products provided by the Seller at each location
1.1(1) Real Estate
1.1(2) Equipment and Furnishings; including vehicles
1.2 Excluded Assets
1.3 Assumed Liabilities
3.1 Form of Contingent Promissory Note
3.2 Allocation of Purchase Price
4.3 Financial Statements
4.6 Employment Discrimination
4.7(1) Licenses and Permits; Licensure Surveys; Deficiency Reports; List of Regulatory
Bodies
4.9 Copies of easements and rights
4.11 List and Copies/Summaries of Leases and Contracts
4.13 Copies of all appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies, surveys within last 5 years.
4.14 Litigation
4.15 Seller's Employees
4.17 Insurance; Summary of Coverage; Pending Claims
4.20 Intellectual Property
4.23(1) Welfare Benefit Plans
4.23(2) Pension Benefit Plans
4.23(3) Unfunded Liabilities
9.7(a) Form of Employment Agreement with Gary Croft
9.7(b) Form of Employment Agreement with Marshall Burnside
10.3 Form of Opinion of Counsel for the Seller and Shareholders
</TABLE>
38
<PAGE> 1
EXHIBIT 2.9
ASSET PURCHASE AGREEMENT
between
PHARMACARE, INC.
the Seller
DAVID STEPHENSON,
MIKE LAUTIGAR, WILLIAM CUNDIFF,
SAMUEL CUNDIFF, AND WALLACE CUNDIFF,
the Shareholders
and
INSTITUTIONAL PHARMACY SERVICES, INC.,
the Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. PURCHASE AND SALE.................................................................................1
1.1 Purchase and Sale...........................................................................1
1.2 Excluded Assets.............................................................................3
1.3 Assumed Contracts, Leases and Liabilities...................................................3
ARTICLE II. RECEIVABLES.......................................................................................4
2.1 Collection of Receivables....................................................................4
ARTICLE III. PURCHASE PRICE....................................................................................4
3.1 Purchase Price................................................................................4
3.2 Allocation of Purchase Price..................................................................4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS..................................................................................5
4.1 Organization, Qualification and Authority...................................................5
4.2 Absence of Default..........................................................................6
4.3 Financial Statements........................................................................6
4.4 Operations Since December 31, 1996 .........................................................6
4.5 Absence of Certain Liabilities..............................................................8
4.6 Employment Discrimination...................................................................8
4.7 Licenses and Permits........................................................................8
4.8 Medicare, Medicaid and Other Third-Party Payors.............................................9
4.9 [Reserved]..................................................................................9
4.10 Title to Assets.............................................................................9
4.11 Leases and Contracts.......................................................................10
4.12 Environmental Matters......................................................................11
4.13 Miscellaneous Representations Relating to Real Estate......................................13
4.14 Litigation.................................................................................14
4.15 Seller's Employees.........................................................................14
4.16 Labor Relations............................................................................14
4.17 Insurance..................................................................................15
4.18 Broker's or Finder's Fee...................................................................15
4.19 Conflicts of Interest......................................................................15
4.20 Intellectual Property......................................................................15
4.21 Inventories................................................................................15
4.22 Motor Vehicles.............................................................................16
4.23 Employee Benefit Plans.....................................................................16
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.24 Compliance with Healthcare Laws and Other Laws.............................................16
4.25 Condition of Assets........................................................................17
4.26 Tax Returns; Taxes.........................................................................17
4.27 Operating Targets..........................................................................17
4.28 Value of Assets............................................................................18
4.29 Beds.......................................................................................18
4.30 No Omissions or Misstatements..............................................................18
4.31 Bulk Sales Law.............................................................................18
4.32 Covenant Not to Compete....................................................................18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER...........................................................19
5.1 Organization, Qualification and Authority..................................................19
5.2 Absence of Default.........................................................................19
5.3 Broker's or Finder's Fee...................................................................19
ARTICLE VI. COVENANTS OF PARTIES..............................................................................20
6.1 Preservation of Business and Assets........................................................20
6.2 Absence of Material Change.................................................................20
6.3 Ownership of Intellectual Property.........................................................20
6.4 Access to Books and Records................................................................20
6.5 Preserve Accuracy of Representations and Warranties........................................22
6.6 Maintain Books and Accounting Practices....................................................22
6.7 Indebtedness; Liens........................................................................22
6.8 Compliance with Laws and Regulatory Consents...............................................22
6.9 Maintain Insurance Coverage................................................................23
6.10 Medicare and Medicaid Reporting............................................................23
6.11 Current Return Filing......................................................................23
6.12 WARN Act...................................................................................23
6.13 No Sale, Merger or Consolidation...........................................................23
6.14 Risk of Loss...............................................................................23
6.15 Condemnation...............................................................................24
6.16 Use of Medicare and Medicaid Provider Numbers..............................................24
ARTICLE VII. CLOSING.........................................................................................24
7.1 Closing....................................................................................24
ARTICLE VIII. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE.................................................24
8.1 Representations and Warranties True at Closing; Compliance with
Agreement..................................................................................24
8.2 No Action/Proceeding.......................................................................25
8.3 Order Prohibiting Transaction..............................................................25
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
8.4 Employment Agreement.......................................................................25
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE......................................................................25
9.1 Representations and Warranties True at Closing; Compliance with
Agreement..................................................................................25
9.2 Regulatory Approvals.......................................................................25
9.3 No Action/Proceeding.......................................................................25
9.4 Inspection of Assets; UCC Searches, etc....................................................26
9.5 Order Prohibiting Transaction..............................................................26
9.6 No Loss, Damage or Destruction.............................................................26
9.7 Employment Agreement.......................................................................26
9.8 Operating Targets..........................................................................26
9.9 Value of Assets............................................................................26
9.10 Beds.......................................................................................27
9.11 Third-Party Consents.......................................................................27
9.12 Approval of Board of Directors.............................................................27
ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING..................................................27
10.1 Documents Relating to Title................................................................27
10.2 Possession.................................................................................28
10.3 Opinion of Counsel.........................................................................28
10.4 Corporate Good Standing and Corporate Resolutions..........................................28
10.5 Closing Certificate........................................................................28
10.6 Third-Party Consents.......................................................................28
10.7 Taxes and Other Payments...................................................................29
10.8 Insurance..................................................................................29
10.9 Employment Agreements.....................................................................29
10.10 Additionally Requested Documents; Post Closing Assistance..................................29
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING..................................................................29
11.1 Purchase Price.............................................................................29
11.2 Assumption of Liabilities..................................................................29
11.3 Opinion of Counsel.........................................................................30
11.4 Corporate Good Standing and Board Resolutions..............................................30
11.5 Closing Certificate........................................................................30
ARTICLE XII. OPINION OF BUYER'S COUNSEL......................................................................30
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION.....................................................30
13.1 Survival...................................................................................30
13.2 Indemnification by Seller and Shareholders.................................................31
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
13.3 Indemnification by Buyer...................................................................31
13.4 Rules Regarding Indemnification............................................................32
13.5 Indemnity Period...........................................................................33
13.6 Limitation on Claims.......................................................................33
13.7 Indemnification Net of Benefits............................................................34
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS........................................................................34
14.1 Covenant Not to Compete....................................................................34
14.2 Enforceability.............................................................................35
ARTICLE XV. MISCELLANEOUS....................................................................................36
15.1 Assignment.................................................................................36
15.2 Other Expenses.............................................................................36
15.3 Notices....................................................................................36
15.4 Confidentiality; Prohibition on Trading....................................................37
15.5 Controlling Law............................................................................37
15.6 Headings...................................................................................37
15.7 Benefit....................................................................................37
15.8 Partial Invalidity.........................................................................37
15.9 Waiver.....................................................................................37
15.10 Counterparts...............................................................................38
15.11 Interpretation; Knowledge..................................................................38
15.12 Entire Agreement...........................................................................38
15.13 Legal Fees and Costs.......................................................................38
15.14 Disclosure.................................................................................38
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made
on March 24, 1997, by and among PHARMACARE, INC., a Virginia corporation (the
"Seller"), DAVID STEPHENSON, MIKE LAUTIGAR, WILLIAM CUNDIFF, SAMUEL CUNDIFF,
and WALLACE CUNDIFF, residents of the State of Virginia (the "Shareholders"),
and INSTITUTIONAL PHARMACY SERVICES, INC., a Maryland corporation (the "Buyer")
and wholly-owned subsidiary of Capstone Pharmacy Services, Inc., a Delaware
corporation ("Capstone").
R E C I T A L S:
WHEREAS, Seller owns and operates a pharmacy business in the Vinton,
Virginia area providing institutional pharmacy services, all as more
particularly described on the attached Exhibit A describing the services and
products provided by Seller at each of its locations (the "Business"); and
WHEREAS, Shareholders own all of the issued and outstanding
securities of Seller; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Seller and Shareholders desire to sell and transfer all of the Assets
(as such term is defined herein) of the Business to Buyer, and Buyer desires to
purchase the same from Seller, subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants contained in this Agreement, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller agrees to sell, transfer, assign,
convey and deliver to Buyer, and Buyer agrees to purchase from Seller, all
right, title and interest in all assets (except the Excluded Assets listed on
Exhibit 1.2) of Seller of every kind and type, tangible or intangible, real and
personal, that are owned or leased by Seller necessary or reasonably needed to
operate the Business (collectively, the "Assets"), free and clear of all
encumbrances, mortgages, pledges, liens, security interests, obligations and
liabilities other than the Assumed Liabilities (as defined in Section 1.3)
(except for those certain agreements included in the term "Assets" and more
particularly identified on Exhibit 10.1(d)
<PAGE> 7
which require the consent of the other contracting party to any assignment and
for which consent was not obtained), which Assets include, without limitation,
the following:
(1) All right, title and interest of Seller in and to
all of the land and real estate owned or leased by Seller and used in connection
with the Business as listed on the attached Exhibit 1.1(1) and in and to all
structures, improvements, fixed assets and fixtures including fixed machinery
and fixed equipment situated thereon or forming a part thereof and all
appurtenances, easements and rights-of-way related thereto (collectively, the
"Real Estate");
(2) All tangible personal property, pharmaceutical
and other equipment, machinery, data processing hardware and transferable
software, furniture, furnishings, appliances, vehicles and other tangible
personal property of every description and kind and all replacement parts
therefor used in connection with the Business including, without limitation,
the items listed on the attached Exhibit 1.1(2) (collectively, the "Equipment
and Furnishings");
(3) All inventory of goods and supplies used or
maintained in connection with the Business (collectively, the "Inventory");
(4) All accounts and notes receivable (the
"Receivables");
(5) All patient, medical, personnel and other
records related to the Business (including both hard and microfiche copies),
and all manuals, books and records used in operating the Business, including,
without limitation, personnel policies and files and manuals, accounting
records, and transferable computer software;
(6) To the full extent transferable, all licenses,
permits, registrations, certificates, consents, accreditations, approvals and
franchises necessary to operate and conduct the Business, together with
assignments thereof, if required, and all waivers which Seller currently has,
if any, of any requirements pertaining to such licenses, permits,
registrations, certificates, consents, accreditations, approvals and
franchises;
(7) All goodwill, and, to the extent assignable by
Seller, all warranties (express or implied) and rights and claims related to
the Assets or the operation of the Business;
(8) All prepaid expenses;
(9) All contract and leasehold rights and interests
pursuant to contracts for purchase or lease of personal property, contracts for
purchase, sale, or lease
2
<PAGE> 8
of pharmaceuticals, supplies, equipment, goods or services, including those
relating to long-term care facilities, currently furnished or to be furnished in
connection with the Business and that are Assumed Liabilities (as such term is
defined in paragraph 1.3(1));
(10) All intangible or intellectual property owned,
leased, licensed or possessed by either Seller or Shareholders and utilized in
connection with the Business, including without limitation, the name
"Pharmacare" and derivatives thereof; and
(11) All Seller's right, title and interest in any
partnerships, joint ventures or similar arrangements, subject to Buyer's
approval.
1.2 Excluded Assets. Seller is not selling and Buyer is not
purchasing or assuming obligations with respect to the following (collectively,
the "Excluded Assets"):
(1) Seller's corporate and fiscal records and other
records that Seller is required by law to retain in its possession; and
(2) The Excluded Assets set forth on the attached
Exhibit 1.2.
The parties acknowledge and agree that Seller is not conveying to Buyer any of
the Excluded Assets and that, following Closing (as such term is defined
herein), Buyer will not have any right, title, interest or obligation with
respect to the Excluded Assets.
1.3 Assumed Contracts, Leases and Liabilities.
(1) At Closing, Buyer will assume and agree to pay
or perform, as the case may be, only (a) those obligations consisting of
current trade accounts payable and other current working capital liabilities
incurred in the ordinary course of business which Buyer expressly elects to
assume as specifically set forth on Exhibit 1.3(a) attached hereto, up to, in
the aggregate, Fifty One Thousand Two Hundred Eighty Six Dollars ($51,286.00)
(the "Assumed Liabilities Cap"), and (b) those obligations arising after
Closing and that do not relate to operation of the Business prior to Closing
under those Leases and Contracts (as such term is defined in paragraph 4.11)
that Buyer expressly elects to assume and (c) the vacation and sick-leave days
listed on Exhibit 1.3(b) (collectively, the "Assumed Liabilities").
Notwithstanding anything in the Agreement to the_contrary, all of the
liabilities set forth on Exhibit 1.3 (a) up to the Assumed Liabilities Cap and
Exhibit 1.3(b) and the Leases and Contracts set forth on Exhibit 4.11 shall be
assumed by Buyer at Closing unless otherwise noted on such Exhibit.
(2) Except for the Assumed Liabilities, it is
expressly agreed and understood by each of the parties to this Agreement that
Buyer does not assume, and shall not be liable for, any debt, liability or
obligation of Seller or Shareholders, of any type or description whatsoever,
whether related or unrelated to the Assets, the Business or the
3
<PAGE> 9
transactions contemplated within this Agreement and that Seller and/or
Shareholders shall remain liable and responsible for the payment or performance,
as the case may be, of all debts, liabilities, obligations, contracts, leases,
notes payable, accounts payable, commitments, agreements, suits, claims,
indemnities, mortgages, taxes, contingent liabilities and other obligations of
Seller and/or Shareholders including, without limitation, any and all investment
tax credit recapture, depreciation recapture, recapture or prior period
adjustments under Medicare, Medicaid and Blue Cross, all impositions of income
tax and other taxes including, without limitation, payroll-related taxes; all
employee wages, salaries and benefits including, without limitation, COBRA and
WARN obligations, sick pay, and other accrued employee benefits including rights
of Seller's retirees to participate in Seller's medical plans. Notwithstanding
any statement contained in this Agreement or otherwise seemingly to the
contrary, Buyer shall not be obligated to assume liabilities pursuant to
paragraph 1.3(1)(a) in excess of, in the aggregate, an amount equal to the
Assumed Liabilities Cap.
ARTICLE II. RECEIVABLES
2.1 Collection of Receivables. At Closing, Seller and
Shareholder will take all appropriate action necessary to vest in Buyer all
right, title and interest in the Receivables, and Buyer will proceed to collect
the Receivables following Closing. In the event that any Receivable cannot be
transferred to Buyer, then Seller and Shareholders shall collect the Receivable
in compliance with all applicable laws, as Buyer's agents for the limited
purpose of such collection, and shall immediately deliver to Buyer the gross
proceeds of such collection. Seller and Shareholders shall each also provide
such additional assistance in the collection process as Buyer may reasonably
request. If, within 180 days following Closing, Buyer has collected less than
the amount of the Receivables as reflected on the Financial Statements (as such
term is defined in paragraph 4.3(1) in excess of the reserves also therein set
forth, Seller and/or Shareholders shall promptly pay to Buyer the amount of the
shortfall, less the amount of the reserves, and such receivables shall be
transferred immediately by Buyer to Seller.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to
Seller for the Assets and in consideration for the agreements contained herein,
including the agreements contained in Article XIV hereof, shall be Eight
Million Five Hundred Thousand Dollars ($8,500,000.00), subject to certain
adjustments pursuant to Section 15.2 of this Agreement, payable in immediately
available funds at Closing.
3.2 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in Exhibit 3.2 attached
hereto (the "Allocation").
4
<PAGE> 10
The parties to this Agreement expressly agree that the Allocation shall be used
by them for tax, reimbursement and all other purposes. Each party to this
Agreement agrees that it will report the transaction completed pursuant to this
Agreement in accordance with the Allocation, including any report made under
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that no such party will take a position inconsistent with the Allocation except
with the prior written consent of the other parties hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and Shareholders hereby
jointly and severally represent and warrant to Buyer, which representations and
warranties shall be true and correct on the date hereof and as of the date of
Closing, as follows:
4.1 Organization, Qualification and Authority. Seller is a
corporation duly organized and validly existing in the Commonwealth of Virginia
and is in good standing. Since the date of its organization and incorporation,
Seller has consistently observed and operated within the corporate formalities
of the Commonwealth of Virginia and has consistently observed and complied with
the general corporation law of such jurisdiction. Seller has full power and
authority to own, lease and operate its facilities and assets as presently
owned, leased and operated; to carry on its business as it is now being
conducted; and is duly qualified to do business and is in good standing in the
Commonwealth of Virginia. Seller does not conduct business in any other state.
Except for Shareholders, no other person or entity owns or holds, has any
interest in, whether legal, equitable or beneficial, or has the right to
purchase, any capital stock or other security of Seller. Seller owns no
capital stock, security, interest or other right, or any option or warrant
convertible into the same, of any corporation, partnership, joint venture or
other business enterprise. Seller has the full right, power and authority to
execute, deliver and carry out the terms of this Agreement and all other
documents and agreements necessary to give effect to the provisions of this
Agreement and to consummate the transactions contemplated on the part of Seller
hereby. Shareholders have the full right, power, and authority to execute,
deliver, and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement, to
consummate the transactions contemplated on the part of Shareholders hereby,
and to take all actions necessary, in their capacity as the sole stockholders
of Seller, to permit or approve the actions of Seller taken in connection with
this Agreement. The execution, delivery and consummation of this Agreement,
and all other agreements and documents executed in connection herewith by
Seller, have been duly authorized by all necessary action on the part of
Seller. No other action, consent or approval on the part of Seller,
Shareholders or any other person or entity is necessary to authorize Seller's
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection hereto. This Agreement
and all other agreements and
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documents executed in connection herewith by Seller and/or Shareholders, upon
due execution and delivery thereof, shall constitute the valid and binding
obligations of each of Seller and Shareholders, enforceable in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and by general principles of equity.
4.2 Absence of Default. The execution, delivery, and
consummation of this Agreement, and all other agreements and documents executed
in connection herewith by Seller and/or Shareholders will not constitute a
violation of, or be in conflict with, will not, with or without the giving of
notice or the passage of time, or both, result in a breach of, constitute a
default under, create (or cause the acceleration of the maturity of) any debt,
indenture, obligation or liability affecting the Assets or the Business pursuant
to, result in the creation or imposition of any security interest, lien, charge
or other encumbrance upon any of the Assets, or otherwise adversely affect
Buyer, Seller, or Business under: (a) any term or provision of the Articles of
Incorporation or Bylaws of Seller; (b) except as set forth on the attached
Exhibit 10.1(d), any contract, lease, purchase order, agreement, document,
instrument, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which Seller and/or Shareholders are a party or by which
Seller and/or Shareholders or the Assets are bound; (c) any judgment, decree,
order, regulation or rule of any court or regulatory authority; or (d) except as
set forth on Exhibit 10.1(d) Item 2 any law, statute, rule, regulation, order,
writ, injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Seller and/or Shareholders and/or the Assets are
subject.
4.3 Financial Statements.
(1) Attached hereto as Exhibit 4.3 are true and
correct copies of Seller's unaudited balance sheets as of December 31, 1996 and
its unaudited income statements for the year then ending (the "Fiscal Year
Financial Statements"), and the interim unaudited balance sheet and income
statement of Seller for the two month period ended February 28, 1997 (the
"Interim Financial Statements," which with the Fiscal Year Financial Statements
shall be the "Financial Statements"). The Financial Statements are based on
the books and records of Seller and present fairly, in compliance with
statements and standards established by the American Institute of Certified
Public Accountants, the financial position of Seller as of, and the results of
its operations for, the periods specified.
(2) The books and records of Seller are in such
order and completeness so that an unqualified audit may be performed for any
period prior to Closing not already audited. Seller and Shareholders shall
fully and readily cooperate with Buyer in Buyer's attempt to perform an audit
of Seller for any period prior to Closing not already audited.
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4.4 Operations Since December 31, 1996 . Except as set forth
on Exhibit 4.4, since December 31, 1996 there has been no:
(a) material change, financial or otherwise, which
has, or could reasonably be unexpected to have, an adverse effect on any of the
Assets, the Business or future prospects of the Business, or in the results of
the operations of Seller;
(b) loss, damage or destruction of or to any of the
Assets, whether or not covered by insurance;
(c) sale, lease, transfer or other disposition by
Seller of, or mortgages or pledges of or the imposition of any lien, charge or
encumbrance on, any portion of the Assets, other than those made in the
ordinary course of business;
(d) increase in the compensation payable by Seller
to Shareholders, any of Seller's employees, directors, independent contractors
or agents, or any increase in, or institution of, any bonus, insurance,
pension, profit-sharing or other employee benefit plan or arrangements made to,
for or with the employees, directors, Shareholders, independent contractors or
agents of Seller;
(e) cumulative net operating loss incurred in the
operation of the Business;
(f) adjustment or write-off of Receivables or reduction in
reserves for Receivables outside of the ordinary course of business;
(g) change in the accounting methods or practices
employed by Seller or change in depreciation or amortization policies;
(h) issuance or sale by Seller or Shareholders, or
contract or other commitment entered into by Seller or Shareholders, for the
issuance or sale of any shares of capital stock or securities convertible into
or exchangeable for capital stock of Seller;
(i) payment by Seller of any dividend, distribution
(except to shareholders as listed on Exhibit 4.4 for payment of taxes,
consistent with past practices) or extraordinary or unusual disbursement or
expenditure or intercompany payable;
(j) sale, transfer, pledge, mortgage or other
disposition of any of the Assets (except inventory and equipment held for rent
in the ordinary course of business);
(k) merger, consolidation or similar transaction; or
solicitations therefor;
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(l) federal, state or local statutes, rule,
regulation, order or case adopted, promulgated or decided which, to the best
knowledge of Seller and Shareholders, adversely affects the Business or Assets;
(m) strike, work stoppage or other labor dispute
adversely affecting the Business; or
(n) termination, waiver or cancellation of any
rights or claims of Seller, under contract or otherwise.
4.5 Absence of Certain Liabilities. Except as set forth in
Exhibit 4.5 or in the Financial Statements, Seller has, and as of the Closing
will have, no contingent liabilities or obligations, which, if incurred, will
have a material adverse impact on the Assets.
4.6 Employment Discrimination. Except as disclosed in Exhibit
4.6 attached hereto, no person or party (including, without limitation, any
governmental agency) has asserted, or to the best knowledge of Seller or
Shareholders, has threatened to assert, any claim for any action or proceeding,
against Seller (or any officer, director, employee, agent or Shareholders of
Seller) arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, without limitation, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as
amended, the Occupational Safety and Health Act, the Age Discrimination in
Employment Act of 1967, the Americans With Disabilities Act or the Family and
Medical Leave Act). The claims disclosed in Exhibit 4.6 will not result in any
liability to or obligation of Buyer, and will not cause or lead to any lien or
encumbrance being placed, created or filed against or upon any of the Assets.
4.7 Licenses and Permits.
(1) Seller has all local, state and federal
licenses, permits, registrations, certificates, contracts, consents,
accreditations and approvals (collectively, the "Licenses and Permits")
necessary for Seller to occupy, operate and conduct the Business, and there do
not exist any waivers or exemptions relating thereto. There is no default on
the part of Seller or any other party under any of the Licenses and Permits.
There exist no grounds for revocation, suspension or limitation of any of the
Licenses or Permits, except as set forth on Exhibit 4.7(1). Copies of each of
the Licenses and Permits are attached to and listed on Exhibit 4.7(1) attached
hereto. The most recent licensure surveys and deficiency reports related to
each of these items has also been included in Exhibit 4.7(1). Seller is, and
at the time of Closing will be, licensed by the regulatory bodies listed on
Exhibit 4.7(1). No notices have been received by Seller or Shareholders with
respect to any threatened, pending, or possible revocation, termination,
suspension or limitation of the Licenses and Permits.
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(2) Each employee of Seller has all Licenses and
Permits required for each such employee to perform such employees' designated
functions and duties for Seller in connection with conducting the Business, and
there exists no waivers or exemptions relating thereto. There is no default
under, nor does there exist any grounds for revocation, suspension or
limitation of, any such Licenses and Permits.
4.8 Medicare, Medicaid and Other Third-Party Payors.
(1) Seller participates in the Medicare and Medicaid
Programs (the "Programs"). A list of and copies of its existing Medicare and
Medicaid contracts or, if such contracts do not exist, other documentation
evidencing such participation (collectively, the "Program Agreements") are
included in Exhibit 4.11 attached hereto. Seller is, and will be at the time of
Closing, in full compliance with all of the terms, conditions and provisions of
the Program Agreements.
(2) No notice of any offsets against future
reimbursements under or pursuant to the Programs has been received by either
Seller or Shareholders, nor is there any basis therefor. There are no pending
appeals, adjustments, challenges, audits, litigation, notices of intent to
recoup past or present reimbursements with respect to the Programs. Seller has
not been subject to or threatened with loss of waiver of liability for
utilization review denials with respect to the Programs during the past twelve
(12) months, nor have either Seller or Shareholders received notice of any
pending, threatened or possible decertification or other loss of participation
in, any of the Programs.
(3) Seller currently has contractual arrangements
with Blue Cross and other third party payors. A list of and copies of its
existing Blue Cross contracts and other third party payor contract(s) are
included in Exhibit 4.11 attached hereto. Seller is, and will be at the time
of Closing, in full compliance with all of the material terms, conditions and
provisions of such contracts.
(4) All liabilities and contractual adjustments of
Seller under any third party payor or reimbursement programs have been properly
reflected and adequately reserved for in the Financial Statements. In the
event that, following Closing, Buyer suffers any offsets against any
reimbursement under any third-party payor or reimbursement programs due to
Buyer relating to Seller's (or any agents of Seller's, including, without
limitation, employees, officers and directors) actions or inactions during the
periods on or prior to the Closing, then, to the extent not reserved for in the
Financial Statements, Seller and/or Shareholders shall pay to Buyer the amounts
so offset, with interest at a rate equal to eight percent (8%) per annum that
shall begin to accrue ninety (90) days following notice to the Seller and
Shareholders.
4.9 [RESERVED]
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4.10 Title to Assets.
(1) Seller is the sole legal and beneficial owner
of, or has the exclusive, unrestricted right and authority to use and transfer
to Buyer, the personal property included in the Assets, free and clear of all
mortgages, security interests, liens, leases, covenants, assessments,
easements, options, rights of refusal, restrictions, reservations, defects in
the title, encroachments, and other encumbrances, except for the failure to
obtain consent set forth on Exhibit 10.1(d) in the Leases and Contracts
attached hereto. The Assets are all the assets set forth on the Interim
Financial Statements and/or used in the operation of the Business.
(2) The descriptions of the Real Estate contained in
Exhibit 1.1(1) hereto and in each of the Assignment and Assumption of Lease
Agreements required to be delivered by Seller to Buyer pursuant to paragraph
10.1(a) of this Agreement are accurate and sufficient for their intended
purposes, and such descriptions include all real property leased or owned by
Seller and used in connection with the Business or set forth on the Financial
Statements. Seller owns no real estate. Seller is in lawful possession of all
of the Real Estate, including, without limitation, the buildings, structures and
improvements situated thereon and appurtenances thereto, in each case free and
clear of all mortgages, liens and other encumbrances or restrictions that are
related to or impair the Assets or the Business. Additionally, Seller, as
tenant, has the right and authority to transfer and convey the Real Estate to
Buyer as contemplated by the terms of this Agreement, and such transfer and
conveyance, once effected as contemplated hereunder, will vest in Buyer the
lawful right to possess and use the leased Real Estate, superior in right to all
others.
4.11 Leases and Contracts.
(1) Exhibit 4.11 attached hereto sets forth a
complete and accurate list of all contracts, including the Program Contracts,
agreements, purchase orders, leases, subleases, options and commitments, oral
or written, and all assignments, amendments, schedules, exhibits and appendices
thereof, affecting or relating to the Business or any Asset or any interest
therein, to which either Seller and/or Shareholders are a party or by which
Seller, the Assets or the Business are bound or affected, including, without
limitation, service contracts, management agreements, equipment leases and
building leases pertaining to any part of the Real Estate (collectively, the
"Leases and Contracts"). Complete and accurate copies of all written Leases
and Contracts, as well as written summaries of the key terms of all oral Leases
and Contracts, are also included in Exhibit 4.11. Except for the Assumed
Liabilities, all Leases and Contracts and all other obligations and liabilities
relating to the Assets and the Business shall be retained by Seller.
(2) None of the Leases and Contracts have been
modified, amended, assigned or transferred and each is in full force and effect
and is valid, binding and
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enforceable in accordance with its respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
(3) Except as set forth on Exhibit 4.11, no event or
condition has happened or presently exists which constitutes a default or
breach or, after notice or lapse of time or both, would constitute a default or
breach by any party under any of the Leases and Contracts. There are no
counterclaims or offsets under any of the Leases and Contracts.
(4) There does not exist any security interest,
lien, encumbrance or claim of others created or suffered to exist on any
interest created under any of the Leases and Contracts (except for those that
result from or relate to leased Assets).
(5) No purchase commitment by Seller is in excess of
Seller's ordinary business requirements.
(6) Assignment to Buyer of those Leases and
Contracts constituting part of the Assumed Liabilities will not default (other
than defaults caused by Buyer's failure to obtain consent of the other party in
those agreements described on Exhibit 10.1(d)), alter or terminate any such
Leases and Contracts, and such assignment will confer and convey all of
Seller's rights thereunder to Buyer.
4.12 Environmental Matters.
(1) Hazardous Substances. As used in this Section,
the term "Hazardous Substances" means any hazardous or toxic substances,
materials or wastes, including but not limited to those substances, materials,
and wastes defined in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") listed in the
United States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or which are regulated under any other Environmental Law (as such term is
defined below), or any of the following: hydrocarbons, petroleum and petroleum
products, asbestos, polychlorinated biphenyls, formaldehyde, radioactive
substances (other than naturally occurring materials in place), flammables and
explosives.
(2) Compliance with Laws and Regulations. All
operations or activities upon, or any use of occupancy of the Real Estate, or
any portion thereof, by Seller, any Affiliates of Seller (wherein the term
"Affiliates" shall mean any person or entity controlling, controlled by or
under common control at any time with Seller, and the term "control" shall mean
the power, directly or indirectly to direct the management or policies of such
person or entity), and any agent, contractor or employee of any agent or
contractor of Seller or its Affiliates ("Agents"), or any tenant or subtenant
of Seller of any part of the Real Estate is
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and has been in compliance with any and all laws, regulations, orders, codes,
judicial decisions, decrees, licenses, permits and other applicable requirements
of governmental authorities with respect to Hazardous Substances, pollution or
protection of human health and safety (collectively, "Environmental Law"),
including but not limited to the release, emission, discharge, storage and
removal of Hazardous Substances. Seller, Affiliates and Agents have kept the
Real Estate free of any lien imposed pursuant to Environmental Law. To the best
knowledge of Seller and Shareholders, all prior owners, operators and occupants
of the Real Estate complied with Environmental Law. Except for uses and storage
or presence of Hazardous Substances reasonably necessary or incidental to the
customary operation of a business similar to the Business, as appropriate, which
if required, was duly licensed or authorized by appropriate governmental
authorities or otherwise permitted by and complies with Environmental Law:
(a) Neither Seller nor Affiliates nor, to
the best knowledge of Seller and Shareholders, the Agents have allowed the use,
generation, treatment, handling, manufacture, voluntary transmission or storage
of any Hazardous Substances over, in or upon the Real Estate, nor, to the best
knowledge of Seller and Shareholders, has the Real Estate ever been used for
any of the foregoing.
(b) Neither Seller, Affiliates nor, to the
best knowledge of Seller and Shareholders, the Agents have installed or
permitted to be installed, in or on the Real Estate friable asbestos or any
substance containing asbestos in condition or amount deemed hazardous by
Environmental Law respecting such material.
(c) Seller has not at any time engaged in
or permitted, nor, to the best knowledge of Seller and Shareholders, has any
tenant of Seller, Agent, Affiliate or any other occupant of the Real Estate, or
any portion thereof, engaged in or permitted any dumping, discharge, disposal,
spillage, or leakage (whether legal or illegal, accidental or intentional) of
such Hazardous Substances, at, on, in or about the Real Estate, or any portion
thereof that would subject the Real Estate or Buyer to clean-up obligations
imposed by governmental authorities.
(d) None of the Real Estate, nor any part
thereof, nor Seller nor any present owner or operator of the Real Estate (i)
has either received or been issued a notice, demand, request for information,
citation, summons or complaint regarding an alleged failure to comply with
Environmental Law, or (ii) is subject to any existing, pending, or threatened
investigation or inquiry by any governmental authority for failure to comply
with, or any remedial obligations under, Environmental Law, and there are no
circumstances known to Seller or Shareholders which could serve as a basis
therefor. Seller has not assumed any liability of a third party for clean up
under, or noncompliance with, Environmental Law.
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(e) Neither Seller, its Affiliates nor, to
the best knowledge of Seller and Shareholders, its Agents have transported or
arranged for the transportation of any Hazardous Substances to any location
which is listed or, to the best knowledge of Seller and Shareholders, proposed
for listing under Environmental Law, or is the subject of any enforcement
action, investigation or other inquiry under Environmental Law.
Seller and Shareholders shall promptly notify Buyer in writing of any
order of which either is aware, receipt of any notice of violation or
noncompliance with any Environmental Law, any threatened or pending action of
which either is aware by any regulatory agency or governmental authority, or
any claims made by any third party of which it is aware relating to Hazardous
Substances on, emanations on or from, releases on or from, any of the Real
Estate which relate to the period prior to Closing; and shall promptly furnish
Buyer with copies of any written correspondence, notices or legal pleadings and
written summaries of any oral communications or notices in connection
therewith. If, and only if, required by law or the failure to do so would
impose liabilities on Buyer or the Assets, Buyer shall have the right, but
shall not be obligated, to notify any governmental authority of any state of
facts which may come to its attention with respect to Hazardous Substances on,
released from or emanating from any part of the Real Estate. Buyer shall give
Seller prior or simultaneous notice of such notification.
(3) Other Environmental Matters. There are no
underground storage tanks on any portion of the Real Estate, and the Real Estate
is free of dangerous levels of naturally-emitted radon. To the best knowledge
of Seller and Shareholders, no portion of the Real Estate has ever been used as
a landfill. Seller has furnished to Buyer a copy of any environmental audit,
study, report or other analysis on the Real Estate, which Seller or its
Affiliates obtained or was furnished.
4.13 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject
to condemnation proceedings, and, to the best knowledge of Seller and
Shareholders, no condemnation or taking is threatened or contemplated. There
are no public improvements which may result in special assessments against or
otherwise affect the Real Estate. There are no facts known to either Seller or
Shareholders that would adversely affect the possession, use or occupancy of
the Real Estate.
(2) Attached as Exhibit 4.13 are complete copies of
all appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies or surveys that have
been prepared by or at the direction of Seller or Shareholders within the last
five years relating to any of the Assets.
(3) All utilities serving the Real Estate are
adequate to operate the Real Estate in the manner it is currently operated.
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(4) All potable and industrial water and all gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the Real Estate and the
facilities of the Business are installed and operating and are sufficient to
enable the Real Estate and the facilities of the Business to continue to be
used and operated in the manner currently being used and operated, and any
so-called hook-up fees or other associated charges accrued to date have been
fully paid. Seller has received no written recommendation from any insurer to
repair or replace any of the Assets with which Seller has not complied.
4.14 Litigation. Except as set forth in Exhibit 4.14, neither
Seller nor Shareholders have received notice of any violation of any law, rule,
regulation, ordinance or order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, legislation and regulations
applicable to the Medicare and Medicaid programs, Food and Drug Administration,
Drug Enforcement Administration, state controlled substance agencies and boards
of pharmacy, environmental protection, civil rights, public health and safety
and occupational health). Except as set forth in Exhibit 4.14 attached hereto
(for which Buyer assumes no liability), there are no lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to the best knowledge of Seller and Shareholders,
threatened involving Seller, Shareholders, any of the Assets or the Business.
4.15 Seller's Employees. Exhibit 4.15 attached hereto sets
forth: (a) a complete list of all of Seller's employees, and rates of pay, (b)
true and correct copies of any and all fringe benefits and personnel policies,
(c) the employment dates and job titles of each such person, and (d)
categorization of each such person as a full-time or part-time employee of
Seller. For purposes of this paragraph, "part-time employee" means an employee
who is employed for an average of fewer than twenty (20) hours per week or who
has been employed for fewer than six of the twelve (12) months preceding the
date on which notice is required pursuant to the "Worker Adjustment and
Retraining Notification Act" ("WARN"), 29 U.S.C. Section 2102 et seq. Except
as provided in Exhibit 4.11, Seller has no employment agreements with its
employees and all such employees are employed on an at "at will" basis.
Exhibit 4.15 lists all ex-employees of Seller utilizing or eligible to utilize
COBRA (health insurance). Seller will terminate all of its employees at
Closing, and each of Seller and Shareholders agree, jointly and severally, to
indemnify and hold Buyer harmless, from and against any and all claims of
Seller's employees relating to their employment by Seller through Closing and
such termination by Seller, whenever made. Other than Assumed Liabilities
which include, without limitation, the vacation pay and sick leave specified on
Exhibit 1.3(b), the parties expressly agree that Seller shall retain
responsibility for and fully and timely pay all salaries and wages, related
payroll taxes and all sick leave, holiday, vacation benefits, retirement and
other fringe benefits that have accrued to its employees through the date of
Closing, including related payroll taxes.
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Seller shall use its best efforts to retain its employees in their current
positions up to Closing.
4.16 Labor Relations. Seller is not a party to any labor
contract, collective bargaining agreement, contract, Letter of Understanding,
or any other arrangement, formal or informal, with any labor union or
organization which obligates Seller to compensate Seller's employees at
prevailing rates or union scale, nor are any of its employees represented by
any labor union or organization. There is no pending or, to the best knowledge
of Seller and Shareholders, threatened labor dispute, work stoppage, unfair
labor practice complaint, strike, administrative or court proceeding or order
between Seller and any present or former employee(s) of Seller. There is no
pending or, to the best knowledge of Seller and Shareholders, threatened suit,
action, investigation or claim between Seller and any present or former
employee(s) of Seller. There has not been any labor union organizing activity
at any location of Seller, or elsewhere, with respect to Seller's employees
within the last three years.
4.17 Insurance. Seller has in effect and has continuously
maintained insurance coverage for all of its operations, personnel and assets,
and for the Assets and the Business. A complete and accurate list of all such
insurance policies is set forth in Exhibit 4.17 attached hereto, which policies
have previously been provided to Buyer. Exhibit 4.17 also sets forth a summary
of Seller's current insurance coverage (listing type, carrier and limits), and
includes a list of any pending insurance claims relating to Seller. Seller and
Shareholders agree, jointly and severally, to indemnify and hold harmless Buyer
from and against such pending insurance claims. Seller is not in default or
breach with respect to any provision contained in any such insurance policies,
nor has Seller failed to give any notice or to present any claim thereunder in
due and timely fashion.
4.18 Broker's or Finder's Fee. Neither Seller nor Shareholders
have employed, or is liable for the payment of any fee to, any finder, broker,
consultant or similar person in connection with the transactions contemplated
by this Agreement.
4.19 Conflicts of Interest. None of the following is either a
supplier of goods or services to Seller, or directly or indirectly controls or
is a director, officer, employee or agent of any corporation, firm,
association, partnership or other business entity that is a supplier of goods
or services to Seller: (a) Shareholders, (b) any director or officer of
Seller, or (c) any entity under common control with Seller or controlled by or
related to Shareholders.
4.20 Intellectual Property. All trademarks, service marks,
trade names, patents, inventions, processes, copyrights and applications
therefor, whether registered or at common law (collectively, the "Intellectual
Property"), owned by Seller are listed and described in Exhibit 4.20 attached
hereto. No proceedings have been instituted or are pending or, to the best
knowledge of Seller and Shareholders, threatened which challenge the validity
of the ownership by Seller of any such Intellectual Property. Seller has not
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licensed anyone to use any such Intellectual Property, and neither Seller nor
Shareholders have any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. Seller owns or possesses adequate
and enforceable licenses or other rights to use all Intellectual Property now
used in the conduct of its Business.
4.21 Inventories. The Inventory is and on Closing will be of a
quality and quantity previously used by Seller in the ordinary course of
business determined and valued consistent with Seller's past practice and
containing no significant amount of excess, dated or obsolete inventory. The
Inventory is properly valued at the lower of third party acquisition cost or
market value on a first-in/first-out basis in accordance with generally
accepted accounting principles consistently applied. Since the date of the
Financial Statements, Seller has not decreased or substituted its items of
Inventory other than in the ordinary course of business. Seller has fairly
represented the nature and extent of the Inventory to its outside accountants
on a consistent basis and in the exercise of good faith.
4.22 Motor Vehicles. All motor vehicles used in the Business,
whether owned or leased, are listed in Exhibit 1.1(2) attached hereto. All
such vehicles are properly licensed and registered in accordance with
applicable law.
4.23 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.23(1) attached
hereto contains a true, accurate and complete list of each "employee welfare
benefit plan" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA")) maintained by Seller or to which
Seller contributes or is required to contribute (such employee welfare benefit
plans being hereinafter collectively referred to as the "Welfare Benefit
Plans"). Copies of all Welfare Benefit Plans have previously been provided to
Buyer.
(2) Pension Benefit Plans. Exhibit 4.23(2) attached
hereto contains a true and complete list of each "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained by Seller, to which
Seller contributes or is required to contribute, or which covered employee of
Seller during the period of their employment with any predecessor of Seller,
including any multi-employer pension plan as defined under Internal Revenue
Code of 1986, Section 414(f) (such employee pension benefit plans being
hereinafter collectively referred to as the "Pension Benefit Plans"). Copies
of all Pension Benefit Plans have previously been provided to Buyer.
(3) Liabilities. Unfunded liabilities under any
Welfare Benefits Plans or Pension Benefit Plans are described on Exhibit
4.23(3) attached hereto. Buyer shall not be liable and not be responsible for
any debt, obligation, responsibility or liability of Seller under any such
plans. Seller shall be liable under its Welfare Benefit Plans and Pension
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Benefit Plans for all claims due and unpaid at Closing and for all claims
incurred before Closing, whether or not paid or presented before Closing.
4.24 Compliance with Healthcare Laws and Other Laws. Seller has
not made any kickback, bribe or payment to any person or entity, directly or
indirectly, for referring, recommending or arranging business or patients with,
to or for Seller which action could have a material adverse effect on the
Business. The transactions contemplated under this Agreement comply with any
applicable state antitrust or similar laws. None of the Leases and Contracts
and no activity of Seller violates Section 1877 of the Social Security Act or
any similar provision of applicable state law in any material respect. None of
the Leases and Contracts and no activity of Seller violates provisions of
applicable state law relating to the corporate practice of medicine in any
material respect. The Seller is in compliance (without obtaining waivers,
variances or extensions) with, all federal, state and local laws, rules and
regulations which relate to the operations of the Business, except where the
failure to be in compliance does not have a material adverse effect on the
Business. All healthcare, tax and other returns, reports, plans and filings of
any nature required to be filed by Seller with any federal, state or local
governmental authorities and any third party payors have been properly
completed, except where the failure to be so completed or filed does not have a
material adverse effect on the Business, and timely filed in compliance with
all applicable requirements. Each return, report, plan and filling contains no
materially untrue or misleading statements and does not omit anything which
would cause it to be misleading or inaccurate in any material respect. Seller
shall retain and be responsible, for any liability incurred, and Seller shall
be entitled to receive any refund or other benefit which may result from the
same in connection with any such return, report, plan and filing.
4.25 Condition of Assets. The Equipment and Furnishings are all
of the "Equipment" reflected on the Financial Statements, other than those items
sold and replaced in the ordinary course of business. The Assets together with
the Excluded Assets comprise all of the following: all assets owned by Seller
and all assets used in connection with the Business and any related businesses.
All components of all of the Equipment and Furnishings (a) operate in accordance
with their respective specifications, (b) perform the functions they are
supposed to perform, (c) are free of structural, installation, engineering, or
mechanical defects or problems, and (d) are otherwise in good working order.
Seller has received no written recommendation from any insurer to repair or
replace any of the Assets with which Seller has not complied. Except as
otherwise disclosed in Exhibit 4.4, since December 31, 1996, the Business has
been operated in conformity with the methods and procedures observed and
utilized during the two year period immediately preceding December 31, 1996, and
that since December 31, 1996 and except as required in the ordinary and usual
course of the Business, no assets have been removed, distributed, assigned or
paid by or from Seller.
4.26 Tax Returns; Taxes. Seller has filed all federal, state
and local tax returns and tax reports required by such authorities to be filed.
Seller has paid all taxes,
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assessments, governmental charges, penalties, interest and fines due or claimed
to be due (including, without limitation, taxes on properties, income,
franchises, licenses, sales and payrolls) by any federal, state or local
authority. Additionally, the reserves for taxes reflected in the Financial
Statements are adequate to cover all tax liabilities accrued as of the
respective dates thereof. There has never been and is not now pending a tax
examination or audit of, nor any action, suit, investigation or claim asserted
or, to the best knowledge of Seller and Shareholders, threatened against Seller
by any federal, state or local authority; and Seller has not been granted any
extension of the limitation period applicable to any tax claims.
4.27 Operating Targets. For the twelve (12) month period ended
at December 31, 1996, Seller achieved income, before interest, taxes and
depreciation, and after the add-back of "Redundant or Unnecessary Expenses" (as
defined on Exhibit 4.27 hereto), of at least One Million Six Hundred Thousand
Dollars ($1,600,000.00). For the twelve (12) month period ended at December
31, 1996, Seller achieved net revenues of no less than Five Million Four
Hundred Seventy Thousand Dollars ($5,470,000.00). These operating targets
shall be computed in the manner set forth in Exhibit 4.27.
4.28 Value of Assets. As of the date of Closing, the Assets
shall have a net value (being the aggregate book value of the Assets, less the
amount of Assumed Liabilities listed on Exhibit 1.3(a) and (b) hereto) of at
least One Million Two Hundred Fifty One Thousand Three Hundred Ninety Nine
Dollars ($1,251,399.00). From December 31, 1996 through Closing, no assets
were removed, distributed, assigned or paid by or from Seller except (1) as
required in the ordinary and usual course of the Business, and (2) as disclosed
in this Agreement and/or the Exhibits hereto. At Closing the Assets shall be
free from liabilities, mortgages, security interests, liens, leases, covenants,
assessments, easements, options, rights of first refusal, restrictions,
reservations, defects in title, encroachments or other encumbrances except
those acceptable to Buyer which are associated with the Assumed Liabilities,
except as set forth in Exhibit 10.1(d) and Section 4.31.
4.29 Beds. As of the date of Closing, there shall be a minimum
of 1,900 beds being actively serviced by Seller under agreements as set forth
on Exhibit 4.11.
4.30 No Omissions or Misstatements. There is no fact material
to the Assets, liabilities, Business or prospects of Seller or the Business
which has not been set forth or described in this Agreement or in the Exhibits
hereto and that is material to the conduct, prospects, operations or financial
condition of Seller, the Business or the Assets. None of the information
included in this Agreement and Exhibits hereto, or other documents furnished or
to be furnished by Shareholders or Seller, or any of its representatives,
contains any untrue statement of a material fact or is misleading in any
material respect or omits to state any material fact necessary in order to
make any of the statements herein or therein not misleading in light of the
circumstances in which they were made. Copies
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of all documents referred to in any Exhibit hereto have been delivered or made
available to Buyer and constitute true, correct and complete copies thereof and
include all amendments, exhibits, schedules, appendices, supplements or
modifications thereto or waivers thereunder.
4.31 Bulk Sales Law. Buyer and Seller agree that Seller has not
provided notice of the sale of the Assets and Seller's creditors under the
Uniform Commercial Code - Bulk Sales Act. Nevertheless, Seller's indemnity in
Section 13.2 hereof shall apply as to its failure to comply with the Bulk Sales
Act.
4.32 Covenant Not to Compete. The Seller and Shareholders
hereby agree that that certain covenant not to compete dated October 12, 1990
between Seller and the Shareholders is void and is of no further force and
effect.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholders to enter into this
Agreement and to consummate the transactions contemplated herein, Buyer hereby
represents and warrants to Seller and Shareholders, which representations and
warranties shall be true and correct on the date hereof and on the date of
Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland. Buyer has the full corporate power and corporate
authority to own, lease and operate its properties and assets as presently
owned, leased and operated and to carry on its business as it is now being
conducted. Buyer has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated on the part of Buyer hereby. The execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection herewith by Buyer has been duly authorized by
all necessary corporate action on the part of Buyer. No other action on the
part of Buyer or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement, and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute the valid binding obligations
of Buyer, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
5.2 Absence of Default. The execution, delivery and
consummation of this Agreement and all other agreements and documents executed
in connection herewith by
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Buyer will not constitute a violation of, be in conflict with, or, with or
without the giving of notice or the passage of time, or both, result in a breach
of, constitute a default under, or create (or cause the acceleration of the
maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreement) under: (a) any term or provision of the
Articles of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Buyer has not employed and is
not liable for the payment of any fee to any finder, broker, government
official, consultant or similar person in connection with the transactions
contemplated by this Agreement, except for fees payable to Adirondack Capital.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. Until the Closing,
each of Seller and Shareholders shall use their best efforts and shall do or
cause to be done all such acts and things as may be necessary to preserve,
protect and maintain intact the operation of the Business and Assets as a going
concern consistent with prior practice and not other than in the ordinary course
of business, and to preserve, protect and maintain for Buyer the goodwill of the
suppliers, employees, clientele, patients and others having business relations
with Seller or the Business. Each of Seller and Shareholders shall use their
best efforts to obtain all documents called for by this Agreement. Buyer,
Seller and Shareholders shall use their best efforts to facilitate the
consummation of the transactions contemplated under this Agreement. Until
termination of this Agreement, Seller and Shareholders agree that except in the
ordinary course of business they will not sell or transfer, or negotiate the
sale or transfer of, either the Assets or any stock of Seller. Until the Closing
except as set forth on Exhibit 4.4, Seller shall pay no dividend, and shall make
no distribution or extraordinary payment to Shareholders or any third party or
pay any intercompany payable and, other than in the ordinary course of business,
Seller will not sell, discard or dispose of any of the Assets. None of the
Leases and Contracts shall be amended between the date hereof and Closing
without the prior written consent of Buyer. Until Closing, the Seller and any
party in possession of all or any part of the Real Estate will not perform any
material grading or excavation, construction or removal of any improvement, or
make any material other change or improvement upon or about the Real Estate.
Until the Closing, Seller and any party in possession of all or any part of the
Assets
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will maintain and keep the Assets in a sanitary, well-maintained condition and
in good order and repair.
6.2 Absence of Material Change. Until Closing, neither Seller
nor Shareholders shall make any change in the Business or in the utilization of
the Assets outside the ordinary course of business and shall not enter into any
other material contract or commitment or any other transaction with respect to
the Business or the Assets without the prior written consent of Buyer.
6.3 Ownership of Intellectual Property. Company will provide
any and all assistance and cooperation required by Buyer (including, but not
limited to the execution of all necessary documents and agreements) in order
for Buyer to create, perfect or renew rights in any Intellectual Property
(including but not limited to rights which are created, perfected or renewed
subsequent to the Closing).
6.4 Access to Books and Records.
(a) From the date hereof until the Closing, Seller
shall give to Buyer and to Buyer's counsel, accountants and other
representatives, full access to all of Seller's offices, properties, books,
contracts, commitments, records and affairs relating to the Assets or the
Business so that Buyer may inspect and audit them and shall furnish to Buyer a
copy of all documents and information concerning the properties and affairs of
Seller, the Business or the Assets as Buyer may request. If any such books,
records and materials are in the custody of third parties, Seller shall direct
such third parties to promptly provide them to Buyer. Copies of documents
furnished to Buyer by Seller will be returned by Buyer upon request if the
transactions contemplated hereunder are not consummated. Seller shall provide
Buyer promptly with interim financial statements of Seller and any other
management reports, as and when they are available.
(b) Following the Closing, Buyer shall permit
Seller's representatives (including, without limitation, their counsel and
auditors), during normal business hours, to have reasonable access to, and
examine and make copies of, all books and records of the Business which relate
to transactions or events occurring prior to the Closing. All out-of-pocket
costs associated with the delivery of the requested documents shall be paid by
Buyer.
(c) Following the Closing, Seller shall permit Buyer
and its representatives (including, without limitation, their counsel and
auditors), to have access to, and examine and make copies of, all books and
records of Seller and its affiliates relating to the Business or Assets, which
books and records are retained by Seller and which relate to transactions or
events occurring prior to the Closing. For a period of five
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years after the Closing, Seller agrees that, prior to the destruction or
disposition of any such books or records, Seller shall provide not less than
forty-five (45) days', nor more than ninety (90) days', prior written notice to
Buyer of such proposed destruction or disposal. If Buyer desires to obtain any
such documents or records, it may do so by notifying Seller in writing at any
time prior to the date scheduled for such destruction or disposal. In such
event, Seller shall not destroy such documents or records and the parties shall
then promptly arrange for the delivery of such documents or records to Buyer,
its successors or assigns. All out-of-pocket costs associated with the delivery
of the requested documents or records shall be paid by Buyer.
(d) Seller shall cause its accounting firm to
consent to, and provide the necessary written consents for, the inclusion of
the Financial Statements in any registration statements, private placement
memoranda, and periodic reports, if any, necessary or appropriate in order to
enable Buyer or its affiliates to comply with any applicable registration or
reporting requirements of federal or state securities laws.
(e) After Closing, Seller and Shareholder shall make
the books and records of Seller available to Buyer (and, without limitation, to
Buyer's auditors and other agents) and shall otherwise cooperate with Buyer in
order to permit Buyer to conduct an audit of Seller's financial statements for
any period prior to Closing not already audited. Seller agrees to cooperate,
with Buyer in Buyer's preparation of financial statements relating to such
periods and Buyer's filing in a timely manner of registration statements,
private placement memoranda and periodic reports, if any, pursuant to any
applicable federal or state securities law.
6.5 Preserve Accuracy of Representations and Warranties. Each
of Seller and Shareholders shall refrain from taking any action which would
render any representation and warranty contained in Article IV hereof untrue,
inaccurate or misleading as of Closing. Seller and Shareholders will each
promptly notify Buyer of any lawsuit, claim, administrative action or other
proceeding asserted or commenced against Seller, its directors, officers or
Shareholders, that may involve or relate in any way to Buyer, the Assets or the
operation of the Business by Buyer. Seller and Shareholders each shall
promptly notify Buyer of any facts or circumstances that come to either's
attention and that cause, or through the passage of time may cause, any of
Seller's and Shareholders' representations and warranties to be untrue or
misleading at any time from the date hereof to Closing.
6.6 Maintain Books and Accounting Practices. Until the
Closing, Seller shall maintain its books of account in the usual, regular and
ordinary manner on a basis consistent with prior years and shall make no change
in its accounting methods or practices.
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6.7 Indebtedness; Liens. Until the Closing, with respect to
the Assets, including the Business and operations conducted with the Assets,
Seller shall not create, incur, assume, guarantee or otherwise become liable or
obligated with respect to any indebtedness for borrowed money, nor make any
loan or advance to, or any investment in, any person or entity, nor create any
lien, security interest, mortgage, right or other encumbrance in any of the
Assets, without Buyer's prior written approval. At Closing the Assets will be
free and clear of all mortgages, security interests, liens, leases, covenants,
assessments, easements, options, rights of first refusal, restrictions,
reservations, defects in title, encroachments or other encumbrances, except as
specifically set forth in those Leases and Contracts which Buyer expressly
elects to assume.
6.8 Compliance with Laws and Regulatory Consents. Until the
Closing, (a) Seller shall comply with all applicable statutes, laws, ordinances
and regulations, (b) Seller shall keep, hold and maintain all certificates,
registrations, accreditations, participations, licenses, and other permits
necessary for the business and operation of the Assets, (c) Seller and
Shareholders shall use their best efforts and shall cooperate fully with Buyer
to obtain all consents, approvals, exemptions and authorizations of third
parties, whether governmental or private, necessary to consummate the
transactions contemplated under this Agreement, and (d) except as set forth on
Exhibit 10.1(d) and Section 4.31, Seller and Shareholders shall make and cause
to be made all filings and give and cause to be given all notices which may be
necessary or desirable under all applicable laws and under applicable
contracts, agreements and commitments in order to consummate the transactions
contemplated under this Agreement.
6.9 Maintain Insurance Coverage. Until the Closing, Seller
shall maintain and cause to be maintained in full force and effect the existing
insurance on the Assets and the operations of the Business and shall provide at
Closing evidence satisfactory to Buyer that such insurance continues to be in
effect and that all premiums due have been paid. Seller will maintain its
existing product and professional liability insurance on an "occurrence" basis
policy, and covering at least five years after Closing.
6.10 Medicare and Medicaid Reporting. Until the Closing, Seller
shall timely file or cause to be filed all reports and claims of every kind,
nature or description, required by law or by written or oral contract to be
filed with respect to the purchase of services by third party payors,
including, but not limited to, Medicare, Medicaid and Blue Cross. Seller has
paid or will pay all liabilities for contracted adjustments, discounts, refunds
and other offsets in connection with the filing of such reports and claims
through the date of Closing.
6.11 Current Return Filing. Seller shall be responsible for (a)
the preparation and filing of the federal, state and local income tax and gross
receipts and use tax returns for all the tax periods of Seller ending on or
before the Closing; and (b) the payment of all such taxes when due.
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6.12 WARN Act. Within the period ninety (90) days prior to
Closing, Seller will not temporarily or permanently close or shut down any
"single site of employment" or any "facility" or any "operating unit,"
department or service within a single site of employment, as such terms are
used in WARN.
6.13 No Sale, Merger or Consolidation. Until the Closing,
Shareholders shall not sell, pledge or transfer any of their capital stock in
Seller, and Seller shall not sell all or substantially all of its assets, or
merge or consolidate with any other entity; neither party shall solicit any
inquiries, proposals or offers relating to any such transactions; and both
parties shall promptly notify Buyer orally, and confirm in writing, of all
relevant details relating to inquiries, proposals or offers which either may
receive relating to any of the matters referred to in this paragraph.
6.14 Risk of Loss. In the event there is any material damage to
or loss of any of the Assets (whether by fire, theft, vandalism, or other cause
or casualty), between the date hereof and the Closing, Buyer at its sole
option, may elect either (a) to terminate this Agreement in its entirety, or
(b) to terminate this Agreement with respect to the damaged Assets only, with a
reduction in the cash portion of the Purchase Price to be paid at Closing equal
to the appraised value of the Assets damaged or lost plus the cost of such
appraisal. Seller, Shareholders and Buyer shall mutually select an appraiser
for such purpose.
6.15 Condemnation. Until the Closing, in the event that any
portion of the Assets become subject to or is threatened with any condemnation
or eminent domain proceedings, then Buyer, at its sole option, may elect either
(a) to terminate this Agreement in its entirety, or (b) to terminate this
Agreement with respect only to that portion of the Assets which is condemned or
threatened to be condemned, with a reduction in the cash portion of the
Purchase Price determined as provided in paragraph 6.14.
6.16 Use of Medicare and Medicaid Provider Numbers. Seller
agrees to allow Buyer to use Seller's Medicare and Medicaid provider numbers to
the extent that income from Medicare and Medicaid has been allocated to Buyer
from March 1 to Closing (the "Interim Period") pursuant to Section 7.1. Buyer
agrees that it will hold all billings after closing until such time as Buyer
receives Medicare and/or Medicaid Provider Numbers in its name, for a period
not to exceed 90 days from Closing. Buyer agrees to use its best efforts to
obtain its own Provider Numbers. Buyer hereby agrees to indemnify and hold
Seller harmless from any and all claims which may arise from Buyer's use of
Seller's Medicare and Medicaid provider numbers, including, but not limited to,
any claims under the federal and state anti- kickback and anti-referral laws
and the federal False Claims Act or similar laws except to the extent such
claims arise from Seller's actions prior to closing. Buyer agrees to reimburse
Seller and/or Shareholders, no later than April 15, 1997, for any tax liability
incurred by Seller and/or Shareholders which is attributable to Buyer due to
Buyer's use of such Provider Numbers during the Interim Period.
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ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in
Articles VIII and IX hereof are satisfied, then the Closing shall occur on or
by March 24, 1997, at the offices of Harwell Howard Hyne Gabbert & Manner,
P.C., 1800 First American Center, 315 Deaderick Street, Nashville, Tennessee
37238, or at such other time or place as the parties may mutually agree (the
"Closing"). Notwithstanding any statement herein seemingly to the contrary,
upon consummation, for accounting purposes only, the parties hereto agree that
Closing will be deemed to be effective, and the transfer of the Assets and
assumption of the Assumed Liabilities will be deemed to have occurred, as of
12:01 a.m. local time on March 1, 1997 (the "Effective Date"). Accordingly,
for accounting purposes, all income generated from operation of the Business on
and after the Effective Date (and the corresponding income tax liability) will
belong to Buyer, and adjustments to reflect the distribution of income and
liabilities with respect to the Business as contemplated under this Agreement
will be made as of the Effective Date in a manner mutually satisfactory to
Buyer and Seller.
ARTICLE VIII. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE
The obligations of Seller and Shareholders under this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived in writing by Buyer in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits and attachments hereto) or in any certificate
or document delivered to Seller pursuant hereto, shall be deemed to have been
made again at the Closing and shall then be true in all respects; and Buyer
shall have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior to or
at Closing.
8.2 No Action/Proceeding. No action or proceeding before a
court or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transactions hereunder contemplated, and
no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Seller
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
8.3 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of
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(a) making the transactions contemplated under this Agreement illegal, or (b)
otherwise preventing consummation of such transactions. There shall have been
no United States federal or state statute, rule or regulations enacted or
promulgated after the date of this Agreement that would reasonably, directly or
indirectly, result in any of the consequences referred to in this paragraph.
8.4 Employment Agreement. Buyer and each of David Stephenson
and Mike Lautigar shall have entered into an employment agreement in the form
attached hereto as Exhibit 9.7(a) and (b), respectively.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Seller and Shareholders in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Seller and Shareholders
contained in this Agreement (including the Exhibits and attachments hereto) or
in any certificate or document delivered to Buyer in connection herewith, shall
be deemed to have been made again at the Closing and shall then be true in all
respects; and Seller and Shareholders shall have performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at Closing.
9.2 Regulatory Approvals. As set forth in Section 6.16, Seller
has permitted Buyer to use Seller's Medicare and Medicaid numbers for the
limited purposes set forth therein. Buyer will obtain (a) certification for
participation in the Medicaid Programs of the states where the Business is
conducted, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, and (c) all other
consents, licenses, registrations, permits, approvals, provider contracts,
necessary in the judgment of Buyer to acquire and operate the Assets and
Business as contemplated hereunder.
9.3 No Action/Proceeding. No action or proceeding before a
court or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction hereunder contemplated, and
no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Buyer
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
9.4 Inspection of Assets; UCC Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in
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connection with Buyer's due diligence review, and the results of Buyer's
inspection and due diligence review shall be acceptable to it. Seller shall
have delivered to Buyer, at Seller's expense, all UCC financing statements and
title searches, local and central, including fixtures, and federal and state
pending litigation, tax lien and judgment searches, with respect to Seller, the
Assets and the Business, including all "DBA's," tradenames and fictitious names
of Seller, dated no more than ten (10) days prior to Closing, with results
satisfactory to Buyer.
9.5 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of (a) making the transactions contemplated under
this Agreement illegal, (b) otherwise preventing consummation of such
transactions, or (c) imposing material limitations on the ability of Buyer
effectively to acquire and hold Assets, to operate the Business, or, in any
case, to exercise rights of ownership pursuant thereto. There shall have been
no federal or state statute, rule or regulations enacted or promulgated after
the date of this Agreement that would reasonably result, directly or
indirectly, in any of the consequences referred to in this paragraph.
9.6 No Loss, Damage or Destruction. In the event there is any
damage to or loss of any of the Assets, the terms of paragraphs 6.14 and/or
6.15, as applicable, shall have been complied with to the satisfaction of
Buyer.
9.7 Employment Agreement. Buyer and each of David Stephenson
and Mike Lautigar shall have entered into an employment agreement in the form
attached hereto as Exhibit 9.7(a) and (b), respectively.
9.8 Operating Targets. As of the date of Closing, Seller and
the Business shall meet the following minimum operating thresholds: (i) for
the twelve (12) month period ended at December 31, 1996, Seller shall have
achieved income, before interest, taxes and depreciation, and after the
add-back of Redundant or Unnecessary Expenses, of at least One Million Six
Hundred Thousand Dollars ($1,600,000.00); and (ii) for the twelve (12) month
period ended at December 31, 1996, Seller shall have achieved net revenues of
no less than Five Million Four Hundred Seventy Thousand Dollars
($5,470,000.00);
9.9 Value of Assets. As of the date of Closing, the Assets
shall have a net value (being the aggregate book value of the Assets, less the
amount of Assumed Liabilities listed on Exhibit 1.3 hereto) of at least One
Million Two Hundred Fifty One Thousand Three Hundred Ninety Nine Dollars
($1,251,399.00). From December 31, 1996 through Closing and except as required
in the ordinary and usual course of the Business, no assets shall have been
removed, distributed, assigned or paid by or from Seller. Further, upon
Buyer's request, just prior to the time of Closing, Seller shall provide to
Buyer interim, unaudited financial statements evidencing that no material
change has occurred
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in connection with the Business or the Assets since the date of the Financial
Statements. At Closing the Assets shall be subject to no liabilities,
mortgages, security interests, liens, leases, covenants, assessments, easements,
options, rights of first refusal, restrictions, reservations, defects in title,
encroachments or other encumbrances except for the Assumed Liabilities, and
except for any restrictions which arise due to failure to obtain consent as
disclosed on Exhibit 10.1(d).
9.10 Beds. As of the date of Closing, there shall be a minimum
of 1,900 beds being actively serviced by Seller under agreements as set forth
on Exhibit 4.11.
9.11 Third-Party Consents. Seller shall provide to Buyer all
consents and authorizations of governmental agencies and other third parties
believed by Buyer to be necessary or advisable for the legal and proper
consummation of all agreements and transactions contemplated within this
Agreement, each in form and substance acceptable to Buyer, except as set forth
on Exhibit 10.1(d).
9.12 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Seller.
ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING
At Closing, Seller and Shareholder shall deliver or cause to be
delivered to Buyer the following in form and substance reasonably satisfactory
to Buyer:
10.1 Documents Relating to Title. Seller shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(a) An Assignment and Assumption of Lease agreement
for each location of the leased Real Estate, each in form and substance
reasonably satisfactory to Buyer, with all recording, stamp tax or other
transfer fees paid by Seller, and conveying to Buyer the legal right to possess
and use the leased Real Estate free and clear of all liens, mortgages, superior
rights of possession or use, except for those expressly acceptable to Buyer.
(b) A Bill of Sale, in form attached hereto as
Exhibit 10.1(b) and substance satisfactory to Buyer, warranting and conveying
to Buyer good, valid and marketable title to all Assets, free and clear of all
liens, mortgages, pledges, encumbrances, security interests, covenants,
easements, rights of way, equities, options, rights of first refusal
restrictions, special tax or governmental assessments, defects in title,
encroachments and other burdens, except for the Assumed Liabilities and except
as set forth in Exhibit 10.1(d).
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(c) Certificates of title to all vehicles that
constitute Assets endorsed by Seller together with completed originals of any
forms required by all applicable states to transfer the same, free and clear of
all liens, except for the Assumed Liabilities.
(d) An effective and enforceable assignment (except
for the failure to obtain consent as set forth in Exhibit 10.1(d)) to Buyer of
each of the Leases and Contracts which Buyer has agreed to assume.
10.2 Possession. Seller shall deliver to Buyer full possession
and control of the Business and Assets in accordance with the terms and
conditions of this Agreement.
10.3 Opinion of Counsel. Seller and Shareholders shall deliver
to Buyer the favorable opinion of counsel for Seller and Shareholders, dated as
of Closing, in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolutions. Seller
and Shareholders shall deliver to Buyer certificates of good standing from the
Secretary of State of its state of organization, and from each jurisdiction in
which Seller is qualified to do business, certified copies of the Bylaws and
Articles of Incorporation of Seller (all dated the most recent practical date
prior to Closing), certified copies of the resolutions of the Board of
Directors and Shareholders of Seller authorizing the execution, delivery and
consummation of this Agreement and the execution, delivery and consummation of
all other agreements and documents executed in connection herewith by them,
including all deeds, bills of sale and other instruments required hereunder,
sufficient in form and content to meet the requirements of the law of the state
of Seller's incorporation relevant to such transactions and certified by
officers of Seller to be validly adopted and in full force and effect and
unamended as of Closing.
10.5 Closing Certificate. Seller and Shareholders shall deliver
to Buyer a certificate of an officer of Seller and of Shareholders, dated as
of Closing, certifying that (a) each covenant and obligation of Seller and
Shareholders has been complied with by such parties, and (b) each
representation and warranty of Seller and Shareholders is true and correct at
the Closing as if made on and as of the Closing.
10.6 Third-Party Consents. Except as set forth on Exhibit
10.1(d), Seller shall deliver to Buyer, all consents, estoppels, approvals and
authorizations of governmental agencies and other third parties that Buyer
believes are necessary or advisable for the legal and proper execution,
delivery and consummation of this Agreement, and the transactions contemplated
hereby, including, without limitation, those consents necessary for the
assignment of Leases and Contracts pursuant to paragraph 10.1(d).
10.7 Taxes and Other Payments. Seller shall deliver to Buyer:
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(a) A certificate of non-foreign status signed by
the appropriate party and sufficient in form and substance to relieve Buyer of
all withholding obligations under Section 1445 of the Code.
(b) Executed releases of all mortgages, security
interests, liens, pledges, restrictions or other encumbrances on or applicable
to the Assets, except those encumbrances permitted under Paragraph 9.10 or as
provided in Exhibit 10.1(d) and Section 4.31.
10.8 Insurance. Seller shall deliver evidence of its insurance
coverage required by paragraph 6.8.
10.9 Employment Agreements. David Stephenson and Mike
Lautigar shall deliver to Buyer the agreements described in paragraphs 9.7(a)
and (b) herein.
10.10 Additionally Requested Documents; Post Closing Assistance.
At the reasonable request of Buyer at Closing and at any time or from time to
time thereafter, Seller and Shareholders shall cooperate with Buyer to put
Buyer in actual possession and operating control of the Assets and Business,
execute and deliver such further instruments of sale, conveyance, transfer and
assignment, as Buyer may reasonably request in order to effectively sell,
convey, transfer and assign the Assets and Business to Buyer, to execute and
deliver such further instruments and to take such other actions as Buyer may
reasonably request to release Buyer from all obligation and liability with
regard to any obligation or liability retained by Seller and/or Shareholders
and to execute and deliver such further instruments and to cooperate with Buyer
as Buyer may reasonably request or to enable Buyer to obtain all necessary
health care or regulatory certifications, approvals, registrations, consents
and licenses, accreditations or permits.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller
the following in a form and substance reasonably satisfactory to Seller:
11.1 Purchase Price. Buyer shall make available to Seller the
Purchase Price upon the terms specified in paragraph 3.1.
11.2 Assumption of Liabilities. Buyer shall covenant to fully
perform and comply with all of the Assumed Liabilities, subject to the
provisions of this Agreement, from and after Closing.
11.3 Opinion of Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in the form
specified in Article XII hereof.
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11.4 Corporate Good Standing and Board Resolutions. Buyer shall
deliver to Seller a certificate of good standing from the Secretary of State of
Maryland, dated the most recent practical date prior to Closing, together with
a certified copy of the resolutions of the Board of Directors of Buyer
approving this Agreement and the consummation of the transactions hereunder
contemplated.
11.5 Closing Certificate. Buyer shall deliver to Seller a
certificate of an officer of Buyer, dated as of Closing, certifying that (a)
each covenant and obligation of Buyer has been complied with by Buyer, and (b)
each representation and warranty of Buyer is true and correct on the Closing as
if made on and as of the Closing.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Seller an opinion of Harwell
Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant
to the Legal Opinion Accord of the ABA Section of Business Law (1991), in form
and substance reasonably satisfactory to Seller and its counsel to the effect
that:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
all requisite corporate power and corporate authority to own, operate and lease
its properties and assets and to carry on its business as now conducted.
(b) Buyer has the corporate power and corporate
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements delivered by Buyer at Closing and to consummate the
transactions contemplated on the part of Buyer hereby and thereby; Buyer has
taken all action required by law, and its Certificate of Incorporation and
Bylaws, to authorize such execution, delivery and consummation of this
Agreement, and this Agreement, and all other agreements delivered by Buyer at
Closing constitute the valid and binding obligations of Buyer enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Seller and Shareholder contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, shall be
deemed to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to the
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Closing, and shall survive the date of Closing and shall not be merged into any
documents delivered in connection with the Closing.
13.2 Indemnification by Seller and Shareholders. Subject to
provisions of paragraph 13.4, Seller and Shareholders, jointly and severally,
shall promptly indemnify, defend, and hold harmless Buyer, the directors,
officers, shareholders, employees and agents of Buyer, and the Assets against
any and all losses, costs, and expenses (including reasonable cost of
investigation, court costs and legal fees) actually incurred resulting from (i)
any breach by either Seller or Shareholders of any of the covenants,
obligations, representations or warranties contained in this Agreement or any
certificate or document of Seller and/or Shareholders delivered pursuant to this
Agreement, (ii) any liability of Seller not expressly assumed by Buyer pursuant
to paragraph 1.3, and (iii) any claim (whether or not disclosed herein) that is
brought or asserted by any third party(ies) against Buyer arising out of the
ownership, licensing, operation or conduct of the Business or Assets related to
the operation of the Business prior to Closing or the conduct of any of Seller's
employees, agents or independent contractors, relating to all periods of time
through the date of Closing, except Seller and Shareholders shall not indemnify
Buyer for claims arising out of Buyer's use of Seller's Medicare and Medicaid
provider numbers and failure to obtain consent as set forth on Exhibit 10.1(d).
Any indemnification payment made pursuant to this Article shall include interest
at a floating rate equal to two points over the prime rate of Bankers Trust
Company established from time to time (the "Rate"), payable for the period
measured from one-hundred twenty (120) days following notice of the existence of
such claim until the date of payment. The liability created under this
paragraph shall be joint and several between Seller and Shareholders.
13.3 Indemnification by Buyer. Subject to the provisions of
paragraph 13.4, Buyer shall promptly indemnify, defend, and hold Seller
harmless against any and all losses, costs, and expenses (including reasonable
cost of investigation, court costs and reasonable legal fees actually incurred)
and other damages resulting from (i) any breach by Buyer of any of its
covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Buyer delivered pursuant to this
Agreement,(ii) any claim which is brought or asserted by any third party(ies)
against Seller for failure to pay or perform any of the Assumed Liabilities,
and (iii) any claim that is brought or asserted by any third party(s) against
Seller arising out of the ownership, licensing, operation or conduct of the
Business or Assets or the conduct of any of Buyer's employees, agents or
independent contractors, relating to all periods of time subsequent to the date
of Closing including without limitation claims arising out of Buyer's use of
Seller's Medicare and Medicaid provider numbers as more fully provided in
Section 6.16 and claims arising out of the liability for failure to obtain
consent for assignment as set forth in Exhibit 10.1(d), Item 1. Any
indemnification payment pursuant to the foregoing shall include interest at the
Rate for the period measured from one- hundred twenty (120) days following
notice of the existence of such claim until the date of payment.
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13.4 Rules Regarding Indemnification. The obligations and
liabilities of each party which may be subject to indemnification liability
hereunder (the "indemnifying party") to the other party (the "indemnified
party") shall be subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party
shall give written notice within a reasonably prompt period of time to the
indemnifying party of any written claim by a third party which is likely to give
rise to a claim by the indemnified party against the indemnifying party based on
the indemnity agreements contained in this Article, stating the nature of said
claim and the amount thereof, to the extent known. The indemnified party shall
give notice to the indemnifying party that pursuant to the indemnity, the
indemnified party is asserting against the indemnifying party a claim with
respect to a potential loss from the third party claim, and such notice shall
constitute the assertion of a claim for indemnity by the indemnified party. If,
within thirty (30) days after receiving such notice, the indemnifying party
advises the indemnified party that it will provide indemnification and assume
the defense at its expense, then so long as such defense is being conducted, the
indemnified party shall not settle or admit liability with respect to the claim
and shall afford to the indemnifying party and defending counsel reasonable
assistance in defending against the claim. If the indemnifying party assumes
the defense, counsel shall be selected by such party and if the indemnified
party then retains its own counsel, it shall do so at its own expense. If the
indemnified party does not receive a written objection to the notice from the
indemnifying party within thirty (30) days after the indemnifying party's
receipt of such notice, the claim for indemnity shall be conclusively presumed
to have been assented to and approved, and in such case the indemnified party
may control the defense of the matter or case and, at its sole discretion,
settle or admit liability. If within the aforesaid thirty (30) day period the
indemnified party shall have received written objection to a claim (which
written objection shall briefly describe the basis of the objection to the claim
or the amount thereof, all in good faith), then for a period of ten (10) days
after receipt of such objection the parties shall attempt to settle the dispute
as between the indemnified and indemnifying parties. If they are unable to
settle the dispute, the unresolved issue or issues shall be settled by
arbitration in Roanoke, Virginia in accordance with the rules and procedures of
the American Arbitration Association.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in subparagraph (1)
above) pursuant to this Article shall be made as follows: The indemnified party
shall give written notice within a reasonably prompt period of time to the
indemnifying party of any claim by the indemnified party which has not been
made pursuant to subparagraph (1) above, stating the nature of such claim and
the amount thereof, to the extent known. The claim shall be deemed to have
resulted in a determination in favor of the indemnified party and to have
resulted in a liability of the indemnifying party in an amount equal to the
amount of such claim estimated pursuant to this paragraph if within forty-five
(45) days after the indemnifying party's receipt of the claim the indemnified
party shall not have received written objection to the claim. In such event,
the claim shall be conclusively presumed to have been assented to and approved.
If within the aforesaid forty-five (45) day period the indemnified party shall
have received written objection to a claim (which written objection shall
briefly describe the basis of the objection
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to the claim or the amount thereof, all in good faith), then for a period of
sixty (60) days after receipt of such objection the parties shall attempt to
settle the disputed claim as between the indemnified and indemnifying parties.
If they are unable to settle the disputed claim, the unresolved issue or issues
shall be settled by arbitration in Roanoke, Virginia in accordance with the
rules and procedures of the American Arbitration Association.
(3) Claims by a Straddle Customer or Patient. Any
claim by a customer or patient relating to professional negligence or similar
matters involving a customer or patient served both prior to and subsequent to
Closing will be the responsibility of either Seller and Shareholders, jointly
and severally on the one hand, or Buyer, on the other hand, in accordance with
the following guidelines: (i) if it is a claim in which the incident giving rise
to liability clearly arose on or before the date of Closing, Seller and
Shareholders shall respond to the loss and defense expenses; (ii) if it is a
claim in which the incident giving rise to liability clearly arose subsequent to
the date of Closing, Buyer shall respond to the loss and defense expenses; and
(iii) in the event that the incident giving rise to liability as to time is not
clear, Seller, Shareholders and Buyer will jointly defend the case and each will
fully cooperate with the others in such defense. Once the case is closed, if
Buyer and Seller and Shareholders cannot agree to the allocation of both
indemnity and expenses, then the matter shall be submitted to binding
arbitration in Roanoke, Virginia in accordance with the rules and procedures of
the American Arbitration Association.
13.5 Indemnity Period. The representations, warranties and
covenants, and the indemnity obligations related thereto, under this Agreement
shall expire thirty-six (36) months from the Closing, except for claims under
sections 4.8, 4.12, 4.24, and 4.26 hereof, which shall expire upon the
expiration of the applicable statute of limitations. The indemnification
obligations under this Agreement shall not expire as provided herein for a
claim made, but not resolved, within the above periods.
13.6 Limitation on Claims. The limitations provided in this
Section 13.6 apply solely to the liability of the Shareholders and the Seller.
The obligations of an indemnifying Shareholder or Seller under this Agreement
shall not begin until the indemnified party incurs one or more liabilities
which equal Fifty Thousand and No/100 Dollars ($50,000.00) (the "Basket").
Once the Basket is reached, the obligations of an indemnifying Seller or
Shareholder under this Agreement shall apply to all claims of the indemnified
party in excess thereof. In no event shall the obligations of an indemnifying
Seller or Shareholder under this Agreement exceed the lesser of Five Million
Dollars ($5,000,000.00) (the "Cap") or the amount of total consideration that
such party received in connection with the sale of the Business, including the
amount received as consideration pursuant to this
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Agreement and/or the amount received as a dividend from the Seller and/or
received as a non-compete payment in connection with the sale of the Business.
The amount of the Basket notwithstanding, the Seller and Shareholders
shall be liable for any of the following regardless of whether said liability
is less than the amount of the Basket:
(1) any litigation which is listed on (or should
have been listed on) Exhibit 4.14;
(2) obligations of Seller consisting of current
trade accounts payable and other current working capital liabilities incurred
in the ordinary course of business to the extent such liabilities exceed Fifty
One Thousand Two Hundred Eighty Six Dollars ($51,286.00).
(3) offsets against any reimbursement under any
third-party payor or reimbursement programs as more fully provided in Section
4.8 (4).
13.7 Indemnification Net of Benefits. The amount for which any
Shareholder or the Seller shall be liable under Article XIII of this Agreement
shall be (i) net of any current tax benefits realized by the Buyer by reason of
the facts and circumstances giving rise to the Shareholder's liability, and (ii)
net of any insurance proceeds received by the Buyer which proceeds were
attributable to the facts and circumstances giving rise to the right of
indemnification.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller and Shareholders hereby,
jointly and severally, covenant and agree with Buyer that, during the
"NONCOMPETE PERIOD" (as such term is defined herein) neither Seller nor
Shareholders shall directly or indirectly, (a) within the "NONCOMPETE AREA" (as
such term if defined herein), acquire, lease, manage, consult for, serve as
agent or subcontractor for, finance, invest in, own any part of or exercise
management control over any pharmaceutical operation or business which provides
any goods or services competitive with the goods and services provided by the
Business as of the Closing; (b) solicit for employment or employ any person who
at Closing or thereafter became an employee of Buyer or an Affiliate unless
such person is not so employed for at least six (6) months; or (c) with respect
to any customer, patient, physician, physician group, or healthcare provider
with whom Buyer or an Affiliate contracts with or serves in connection with the
Business subsequent to Closing, or any potential customer with whom Buyer or
Affiliate may reasonably be expected to contract with or service in connection
with the Business within six (6) months of the Closing, either solicit the same
in a manner which could adversely affect Buyer or an Affiliate or make
statements to the same which disparage Buyer, an Affiliate, the Business or
their respective operations in anyway. The
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"NONCOMPETE PERIOD" shall commence at the Closing and terminate on the fifth
anniversary thereof. The "NONCOMPETE AREA" shall mean (a) the area within a
fifty (50) mile radius of each location at or for which Seller delivers
pharmaceuticals as of the Closing, and (b) the area within a one hundred fifty
(150) mile radius of (i) each Virginia location from which the business of Buyer
or Affiliate is operated or conducted as of the Closing, and (ii) each location
from which the Business is operated or conducted as of the Closing. Ownership
of less than five percent (5%) of the stock of a publicly held company shall not
be deemed a breach of this covenant. Notwithstanding the foregoing, neither
Wallace Cundiff, Samuel Cundiff nor William Cundiff nor Mike Lautigar shall be
prohibited during the Noncompete Period from 1) working for, or owning an
interest in, any retail pharmacy, including without limitation, the Cundiff
Drug Store located in Vinton, Virginia, and the Blue Ridge Pharmacy in Blue
Ridge, Virginia or 2) working for, or owning an interest in, the Richfield
Pharmacy, Inc., which provides institutional pharmacy services in competition
with the Buyer in the Noncompete area or 3) working as a consultant pharmacist
at nursing homes which have captive institutional pharmacies which do not serve
any other facilities. (1), 2), & 3) are hereinafter referred to as the
"Noncompete Carveout"); provided however, the Noncompete Carveout shall not
apply to Mike Lautigar for so long as he is employed by Buyer. Provided
further, said exclusion of Cundiff Drug Store and Richfield Pharmacy, Inc. from
the noncompete shall not be effective as to either the drug store or the
pharmacy if either becomes part of a major institutional drug company.
The period and area covered are expressly acknowledged and agreed to
be fair, reasonable and necessary. In the event any covenant of this
noncompete is held to be invalid, illegal or unenforceable because of the
duration of such covenant, the geographic area covered thereby or otherwise,
the parties agree that the tribunal making such determination shall have the
power to reduce the duration, the area and/or other provisions of any such
covenant to the maximum permissible and to include as much of its nature and
scope as will render it enforceable, and, in its reduced form said covenant
shall be valid, legal and enforceable.
14.2 Enforceability. In the event of a breach of paragraph
14.1, Seller and Shareholders recognize that monetary damages shall be
inadequate to compensate Buyer and Buyer shall be entitled, without the posting
of a bond or similar security, to an injunction restraining such breach, with
the costs (including attorneys fees) of securing such injunction to be jointly
and severally borne by Seller and Shareholders. Nothing contained herein shall
be construed as prohibiting Buyer from pursuing any other remedy available to
it for such breach or threatened breach.
All parties hereby acknowledge the necessity of protection against
the competition of Seller and Shareholders and that the nature and scope of
such protection has been carefully considered by the parties. The period
provided and the area covered are expressly represented and agreed to be fair,
reasonable and necessary. The consideration provided for herein is deemed to
be sufficient and adequate to compensate
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Seller and Shareholders for agreeing to the restrictions contained in paragraph
14.1. If, however, any court determines that the foregoing restrictions are not
reasonable, such restrictions shall be modified, rewritten or interpreted to
include as much of their nature and scope as will render them enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer may freely assign any
or all of its rights or delegate any or all of its obligations under this
Agreement without the express written consent of Seller or Shareholders.
Neither Seller nor Shareholders may assign any rights or delegate any
obligations under this Agreement without the prior written consent of Buyer,
and any prohibited assignment or delegation will be null and void.
15.2 Other Expenses. Except as otherwise provided in this
Agreement, Seller and Shareholders shall pay all of their expenses in connection
with the negotiation, execution, and implementation of the transactions
contemplated by this Agreement and Buyer shall pay all of its expenses in
connection with the negotiation, execution, and implementation of the
transactions contemplated by this Agreement. In the event Seller or
Shareholders has retained a broker or finder in connection with the transactions
contemplated hereunder, such fee shall be paid in full at Closing by a deduction
to the cash portion of the Purchase Price, and Seller will provide Buyer a
pay-off letter from the broker or finder in form satisfactory to Buyer. All
state and local sales and use taxes, recording fees and transfer taxes incurred
in connection with the transactions contemplated within this Agreement shall be
borne and timely paid by Seller. All ad valorem taxes incurred in connection
with the transactions contemplated within this Agreement shall be shared equally
by Seller and Buyer and shall be prorated as of Closing. The Purchase Price
shall be reduced, on a dollar-per-dollar basis, to the extent and in an amount
equal to any taxes that are accrued but unpaid by Seller as of the date of
Closing.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller or Shareholders:
Pharmacare, Inc.
P. O. Box 883
Vinton, VA 24179
Attn: David Stephenson
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with a copy to:
Nicholas C. Conte
Woods Rogers & Hazelgrove PLC
First Union Tower, Suite 1400
10 South Jefferson Street
Roanoke, Virginia 24011
To Buyer:
Capstone Pharmacy Services, Inc.
9901 East Valley Ranch Parkway, Suite 3001
Irving, Texas 75063
Attn: Chief Executive Officer
with a copy to:
Mark Manner
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
15.4 Confidentiality; Prohibition on Trading. All parties agree
to maintain the confidentiality of the existence of this Agreement and the
transactions contemplated hereunder, unless disclosure is required by law.
Seller, Shareholders and their Affiliates agree not to trade in the securities
of Buyer or its Affiliates based upon any non-public information.
15.5 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the Commonwealth of
Virginia.
15.6 Headings. Any table of contents and paragraph headings in
this Agreement are for convenience of reference only and shall not be
considered or referred to in resolving questions of interpretation.
15.7 Benefit. Subject to paragraph 15.1, this Agreement shall
be binding upon and shall inure to the exclusive benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns.
This Agreement is not intended to, nor shall it, create any rights in any other
party.
15.8 Partial Invalidity. The invalidity or unenforceability of
any particular provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were
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omitted. Further, there shall be automatically substituted for such invalid or
unenforceable provision a provision as similar as possible which is valid and
enforceable.
15.9 Waiver. Neither the failure nor any delay on the part of
any party hereto in exercising any rights, power or remedy hereunder shall
operate as a waiver thereof, or of any other right, power or remedy; nor shall
any single or partial exercise of any right, power or remedy preclude any
further or other exercise thereof, or the exercise of any other right, power or
remedy. No waiver of any of the provisions of this Agreement shall be valid
unless it is in writing and signed by the party against which it is sought to
be enforced.
15.10 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.
15.11 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that this Agreement has undergone
several drafts with the negotiated suggestions of both; and, therefore, no
presumptions shall arise favoring either party by virtue of the authorship of
any of its provisions or the changes made through revisions. Whenever in this
Agreement the term "to the best knowledge of Seller or Shareholders" or the
like is used, Seller and Shareholders shall each be deemed to have the
knowledge of Seller's Shareholders, officers, directors and key employees, and
of its Affiliates; and Seller and Shareholders shall each be under a duty of
due inquiry.
15.12 Entire Agreement. This Agreement, including the Exhibits
and attachments hereto, which are incorporated herein by reference, constitutes
the entire agreement between the parties hereto with regard to the matters
contained herein and it is understood and agreed that all previous undertakings,
negotiations, letters of intent and agreements between the parties are merged
herein. This Agreement may not be modified orally, but only by an agreement in
writing signed by Buyer, Seller and Shareholders.
15.13 Legal Fees and Costs. In the event any party incurs legal
expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and disbursements, in addition to
any other relief to which such party shall be entitled.
15.14 Disclosure. Any information fairly disclosed in any
Section or Paragraph of this Agreement or any Exhibit or attachment hereto or
in any document furnished by Seller or the Shareholders prior to the Closing
shall constitute disclosure for purposes of all other sections, paragraphs,
Exhibits, attachments or documents.
39
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
"SELLER":
PHARMACARE, INC.
By: ________________________________
Title: ________________________________
"SHAREHOLDERS":
_______________________________________
DAVID STEPHENSON
_______________________________________
MIKE LAUTIGAR
_______________________________________
WILLIAM CUNDIFF
_______________________________________
SAMUEL CUNDIFF
_______________________________________
WALLACE CUNDIFF
"BUYER"
INSTITUTIONAL PHARMACY SERVICES, INC.
By: ________________________________
Title: ________________________________
40
<PAGE> 46
EXHIBIT INDEX
PHARMACARE, INC.
[Copies of Schedules and Exhibits to be Furnished Upon Request]
A Type of services and products provided by the Seller at each location
1.1(1) Real Estate
1.1(2) Equipment and Furnishings, including vehicles
1.2 Excluded Assets
1.3(a) Assumed Liabilities Cap
1.3(b) Assumed Liabilities
3.2 Allocation of Purchase Price
4.3 Financial Statements
4.4 Operations since December 31, 1996
4.5 Absence Certain Liabilities
4.6 Employment Discrimination
4.7(1) Licenses and Permits; Licensure Surveys; Deficiency Reports; List
of Regulatory Bodies
4.11 List and Copies/Summaries of Leases, Agreements and Contracts
4.14 Litigation
4.15 Seller's Employees
4.17 Insurance; Summary of Coverage; Pending Claims
4.20 Intellectual Property
4.23(1) Welfare Benefit Plans
4.23(2) Pension Benefit Plans
4.23(3) Unfunded Liabilities
4.27 Operating Targets
9.7 Form of Employment Agreement with:
(a) David Stephenson
(b) Mike Lautigar
10.1(b) Form of Bill of Sale
10.1(d) Leases and Contracts not assumed
10.3 Form of Opinion of Counsel for the Seller and Shareholders
<PAGE> 1
Exhibit 4.9
THIS STOCK PURCHASE WARRANT AND THE SHARES OF STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE WARRANT MAY
NOT BE EXERCISED, AND NEITHER THE WARRANT NOR THE STOCK ISSUABLE UPON
ITS EXERCISE MAY BE SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS OR AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, Capstone Pharmacy Services, Inc., a Delaware
corporation (the "Company"), hereby grants to IMD Corporation, an Illinois
corporation (the "Investor"), effective January 1, 1996 (the Effective Date"),
the right, subject to the provisions hereinafter set forth, to purchase 75,000
shares of the Company's Common Stock, $.01 par value (all shares of the Common
Stock of the Company being referred to as the "Shares"). The exercise price (the
"Exercise Price") is $12.50, being the closing price of the Stock for the
trading day immediately prior to the date hereof.
This Warrant is subject to the following provisions.
1. Exercise Period. This Warrant shall be exercisable by Investor, in whole
or in increments of 10,000 Shares or more, subject to the terms of Section 2,
beginning as of the date hereof, and Investor's right to exercise this Warrant
shall expire on January 1, 1999. Upon the expiration of this Warrant, Investor
shall return the Warrant to the Company.
2. Exercise Procedures.
a. Subject to the terms herein, this Warrant will be deemed to have been
exercised when the Company has received the following items (the date that all
such items have been received is hereinafter referred to as the "Exercise
Date"), at its offices at 2930 Washington Boulevard, Baltimore, Maryland 21230
or at such other address of which it notifies the holder hereof:
i. a completed Exercise Agreement, in the form attached hereto as
Exhibit A, executed by the Investor;
ii. this Warrant; and
iii. the Exercise Price, in immediately available funds.
<PAGE> 2
b. Certificate(s) evidencing the Shares being purchased will be
delivered to Investor promptly after the Exercise Date, and the Shares so issued
shall be deemed for all purposes to have been issued to Investor and Investor
will be deemed for all purposes to have become the record holder of the Shares
as of the Exercise Date. If the Investor exercises the Warrant for less than all
of the Shares issuable hereunder, the Company shall issue and deliver to the
Investor a new Warrant of like tenor and date for the balance of the Shares
issuable hereunder.
c. Freedom from Liens, etc. When issued in accordance with the terms
hereof, said Shares will be fully paid and nonassessable, and free and clear of
all liens, pledges, security interests, restrictions, claims, charges or other
encumbrances, other than those placed upon such securities by applicable state
and federal law and as otherwise provided herein.
3. Adjustment of Exercise Price, Conversion Price and Number of Shares. To
prevent dilution of the rights granted under this Warrant, the initial Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 3 (such price or such price as last adjusted pursuant to the terms
hereof, as the case may be, is herein called the "Exercise Price"), and the
number of Shares obtainable upon exercise of this Warrant shall be subject to
adjustment from time to time as provided in this Section 3.
a. Subdivision or Combination of Shares. If the Company at any time
after the date hereof shall, by stock dividend, subdivision, stock split or
combination or other reclassification of securities (any such action herein
referred to as a "Reclassification"), change any of the securities to which
purchase rights under this Warrant exist into the same or a different number of
securities of any class or series, this Warrant shall entitle the Investor to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities which were subject to the
purchase rights under this Warrant immediately prior to such Reclassification,
and the Exercise Price shall be appropriately adjusted.
b. Notices. Following any adjustment pursuant to this Section 3, the
Company will give written notice of the new Exercise Price and number of
securities to the Investor.
4. No Voting Rights. This Warrant will not entitle the Investor to any
voting rights or other rights as a shareholder of the Company.
5. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and loss, theft, destruction or mutilation of this
Warrant, and receipt of indemnity reasonably satisfactory to the Company, the
Company will execute and deliver a replacement to this Warrant, representing the
then current identical rights granted herein. All costs of such replacement
shall be borne by the Investor.
2
<PAGE> 3
6. Exercise, Transfer. This Warrant is not transferrable by the Investor,
other than pursuant to the laws of descent and distribution, without the consent
of the Company. In addition, the Company, if it agrees to the transfer of the
Warrant, may permit the transfer of this Warrant by Investor, or the exercise of
this Warrant by Investor or a transferee, only when the Warrant or securities or
Shares subject to this Warrant have been registered under the Securities Act of
1933, as amended (the "Act") and any applicable state securities law or when the
request for exercise or transfer is accompanied by an opinion of counsel, which
opinion and counsel shall be acceptable to the Company and its counsel, to the
effect that the exercise, sale or proposed transfer does not require
registration under the Act or any state securities law.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
8. Governing Law. This Warrant shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer on this ___ day of February , 1996.
CAPSTONE PHARMACY SERVICES, INC.
By: _____________________________
Title: ____________________________
Agreed to and Accepted by:
INVESTOR
IMD CORPORATION
By:___________________________
Title:__________________________
3
<PAGE> 4
EXHIBIT A
EXERCISE AGREEMENT
The undersigned, pursuant to the provisions set forth in the attached Stock
Purchase Warrant, hereby agrees to subscribe for and purchase ___________ shares
(the "Shares") of the Common Stock, $.01 par value, of Capstone Pharmacy
Services, Inc., a Delaware corporation (the "Corporation"), and herewith makes
payment in full therefor at the price per share set forth in said Stock Purchase
Warrant.
To induce the corporation to issue and deliver the Shares, the undersigned
represents and warrants to the Corporation that:
(a) The undersigned has not offered or sold the Shares within the meaning
of the Act;
(b) The undersigned is acquiring the Shares for its own account for
investment, with no present intention of dividing its interest with others or of
reselling or otherwise disposing of all or any portion of the same;
(c) The undersigned does not have in mind any sale of any of the Shares
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance;
(d) The undersigned has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for or which is
likely to compel a disposition of the Shares;
(e) The undersigned is not aware of any circumstances presently in
existence which are likely in the future to prompt a disposition of the Shares;
(f) The Warrant was offered to the undersigned in direct communication
between the undersigned and the Corporation and not through any advertisement of
any kind;
(g) The Corporation has given the undersigned access to all information
relating to its capital structure, its business operations, and all additional
information which the undersigned has felt necessary to make the purchase of the
Corporation's Shares. In this regard, the undersigned possesses the financial
and business experience in the area in which the Corporation will be involved to
make an informed decision to acquire the Shares which the undersigned hereby
agrees to purchase; and
4
<PAGE> 5
(h) the undersigned has the financial means to bear the economic risk of
the investment which the undersigned hereby agrees to make.
This letter will also confirm the undersigned's understanding as follows:
(a) The certificate for the Shares issued to the undersigned will bear the
following legend:
The shares represented by this certificate have not been registered under
the Securities Act of 1933 and therefore such shares may not be resold,
transferred or hypothecated without (A) the registration of such shares
under the Securities Act of 1933, or (B) an opinion of counsel satisfactory
to the Corporation to the effect that such registration is not necessary
and appropriate stock transfers will be noted in the Corporation's stock
records.
(b) The Corporation has informed the undersigned, and the undersigned
understands, that the Shares have not been registered under either the Act or
under the any state's "Blue Sky" law, and the Corporation has informed the
undersigned that any resale of such Shares is restricted and will require either
registration of such Shares or an opinion of the Corporation's counsel that such
registration is not necessary.
(c) Only the Corporation can take action to register the Shares under the
Act or to comply with the requirements for an exemption under Regulation A under
the Act, and the Corporation is under no obligation and does not propose to
attempt to do so.
IMD CORPORATION
Signature:______________________________
Name (Printed):_________________________
Title:__________________________________
Tax Identification No.:_________________
Date:___________________________________
Address:________________________________
________________________________
________________________________
5
<PAGE> 1
Exhibit 4.10
THIS STOCK PURCHASE WARRANT AND THE SHARES OF STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE WARRANT MAY NOT BE
EXERCISED, AND NEITHER THE WARRANT NOR THE STOCK ISSUABLE UPON ITS EXERCISE
MAY BE SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, Capstone Pharmacy Services, Inc. (formerly Choice Drug
Systems, Inc.), a Delaware corporation, (the "Corporation"), hereby grants to
Creditanstalt-Bankverein (the "Investor"), on this 20th day of December, 1995,
the right, subject to the provisions hereinafter set forth, to purchase 15,000
shares of the Company's Common Stock, $.01 par value (all shares of the Common
Stock of the Company being referred to as the "Shares"). The exercise price (the
"Exercise Price") shall be $7 5/16.
This Warrant is subject to the following provisions.
1. Exercise Period. This Warrant shall be exercisable by Investor, in whole
in an increment of 15,000 Shares subject to the terms of Section 2, beginning as
of the date hereof, and Investor's right to exercise this Warrant shall expire
on December 20, 2000. Upon the expiration of this Warrant, Investor shall return
the Warrant to the Company.
2. Exercise Procedures.
a. Subject to the terms herein, this Warrant will be deemed to have been
exercised when the Company has received the following items (the date that all
such items have been received is hereinafter referred to as the "Exercise
Date"), at its offices at 2930 Washington Boulevard, Baltimore, Maryland 21230
or at such other address of which it notifies the holder hereof:
i. a completed Exercise Agreement, in the form attached hereto as
Exhibit A, executed by the Investor;
ii. this Warrant; and
iii. the Exercise Price, in immediately available funds.
<PAGE> 2
b. Certificate(s) evidencing the Shares being purchased will be
delivered to Investor promptly after the Exercise Date, and the Shares so issued
shall be deemed for all purposes to have been issued to Investor and Investor
will be deemed for all purposes to have become the record holder of the Shares
as of the Exercise Date.
c. Freedom from Liens, etc. When issued in accordance with the terms
hereof, said Shares will be fully paid and nonassessable, and free and clear of
all liens, pledges, security interests, restrictions, claims, charges or other
encumbrances, other than those placed upon such securities by applicable state
and federal law and as otherwise provided herein.
3. Adjustment of Exercise Price, Conversion Price and Number of Shares. The
initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 3 (such price or such price as last adjusted pursuant
to the terms hereof, as the case may be, is herein called the "Exercise Price"),
and the number of Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time as provided in this Section 3.
a. Subdivision or Combination of Shares. If the Company at any time
after the date hereof shall, by stock dividend, subdivision, stock split or
combination or other reclassification of securities (any such action herein
referred to as a "Reclassification"), change any of the securities to which
purchase rights under this Warrant exist into the same or a different number of
securities of any class or series, this Warrant shall entitle the Investor to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities which were subject to the
purchase rights under this Warrant immediately prior to such Reclassification,
and the Exercise Price shall be appropriately adjusted.
b. Notices. Following any adjustment pursuant to this Section 3, the
Company will give written notice of the new Exercise Price and number of
securities to the Investor.
4. No Voting Rights. This Warrant will not entitle the Investor to any
voting rights or other rights as a shareholder of the Company.
5. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and loss, theft, destruction or mutilation of this
Warrant, and receipt of indemnity reasonably satisfactory to the Company, the
Company will execute and deliver a replacement to this Warrant, representing the
then current identical rights granted herein. All costs of such replacement
shall be borne by the Investor.
2
<PAGE> 3
6. Banking Law and Other Transfer Restrictions.
(a) By taking and holding this Warrant, the Investor acknowledges that
the exercise, sale, transfer or other disposal of this Warrant is subject to the
restrictions of the Bank Holding Company Act of 1956, as amended, (the "BHCA")
with respect to shares held by financial institutions and their affiliates and
agrees not to sell, transfer or otherwise dispose of this Warrant or the common
stock issuable upon exercise of the Warrant, or the common stock issuable upon
exercise of the Warrant, without compliance with the BHCA or without the
transferee's agreement to comply with the transfer restrictions set forth in
clause (b) of this Section 6; provided, that the Corporation hereby consents to
the transfer of this Warrant to Creditanstalt American Corporation and such
transfer shall not be subject to clause (b) below.
(b) This Warrant is not transferrable by the Investor, other than
pursuant to this Section 6 and the laws of descent and distribution, without the
consent of the Company. In addition, the Company, if it agrees to the transfer
of the Warrant, may permit the transfer of this Warrant by Investor, or the
exercise of this Warrant by Investor or a permitted transferee, only when the
Warrant or securities or Shares subject to this Warrant have been registered
under the Securities Act of 1933, as amended (the "Act") and any applicable
state securities law or when the request for exercise or transfer is accompanied
by an opinion of counsel, which opinion and counsel shall be acceptable to the
Company and its counsel, to the effect that the exercise, sale or proposed
transfer does not require registration under the Act or any state securities
law.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
8. Governing Law. This Warrant shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the date first above written.
CAPSTONE PHARMACY SERVICES, INC.
By: _____________________________
Title: ____________________________
Agreed to and Accepted by:
INVESTOR
CREDITANSTALT-BANKVEREIN
By:___________________________
Title:________________________
By:___________________________
Title:________________________
4
<PAGE> 5
EXHIBIT A
EXERCISE AGREEMENT
The undersigned, pursuant to the provisions set forth in the attached Stock
Purchase Warrant, hereby agrees to subscribe for and purchase 15,000 shares (the
"Shares") of the Common Stock, $.01 par value, of Capstone Pharmacy Services,
Inc., a Delaware corporation (the "Corporation"), and herewith makes payment in
full therefor at the price per share set forth in said Stock Purchase Warrant.
To induce the corporation to issue and deliver the Shares, the undersigned
represents and warrants to the Corporation that:
(a) The undersigned has not offered or sold the Shares within the meaning
of the Act;
(b) The undersigned is acquiring the Shares for its own account for
investment, with no present intention of dividing its interest with others or of
reselling or otherwise disposing of all or any portion of the same;
(c) The undersigned does not have in mind any sale of any of the Shares
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance;
(d) The undersigned has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for or which is
likely to compel a disposition of the Shares;
(e) The undersigned is not aware of any circumstances presently in
existence which are likely in the future to prompt a disposition of the Shares;
(f) The Warrant was offered to the undersigned in direct communication
between the undersigned and the Corporation and not through any advertisement of
any kind;
(g) The Corporation has given the undersigned access to all information
relating to its capital structure, its business operations, and all additional
information which the undersigned has felt necessary to make the purchase of the
Corporation's Shares. In this regard, the undersigned possesses the financial
and business experience in the area in which the Corporation will be involved to
make an informed decision to acquire the Shares which the undersigned hereby
agrees to purchase; and
(h) the undersigned has the financial means to bear the economic risk of
the investment which the undersigned hereby agrees to make.
5
<PAGE> 6
This letter will also confirm the undersigned's understanding as follows:
(a) The certificate for the Shares issued to the undersigned will bear the
following legend:
The shares represented by this certificate have not been registered under
the Securities Act of 1933 and therefore such shares may not be resold,
transferred or hypothecated without (A) the registration of such shares
under the Securities Act of 1933, or (B) an opinion of counsel satisfactory
to the Corporation to the effect that such registration is not necessary
and appropriate stock transfers will be noted in the Corporation's stock
records.
(b) The Corporation has informed the undersigned, and the undersigned
understands, that the Shares have not been registered under either the Act or
under the any state's "Blue Sky" law, and the Corporation has informed the
undersigned that any resale of such Shares is restricted and will require either
registration of such Shares or an opinion of the Corporation's counsel that such
registration is not necessary.
(c) Only the Corporation can take action to register the Shares under the
Act or to comply with the requirements for an exemption under Regulation A under
the Act or otherwise, and the Corporation is under no obligation and does not
propose to attempt to do so.
CREDITANSTALT-BANKVEREIN
Signature:_________________________________
Name (Printed):____________________________
Title:_____________________________________
Tax Identification No.:____________________
Date:______________________________________
Address:___________________________________
___________________________________
___________________________________
6
<PAGE> 1
Exhibit 4.11
THIS STOCK PURCHASE WARRANT AND THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE WARRANT MAY NOT BE EXERCISED, AND NEITHER
THE WARRANT NOR THE STOCK ISSUABLE UPON ITS EXERCISE MAY BE SOLD OR OTHERWISE
TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND LAWS OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, Capstone Pharmacy Services, Inc., a Delaware
corporation (the "Company"), hereby grants to ACA Investors, (the "Holder"), on
this ___ day of _______, 1997, the right, subject to the provisions hereinafter
set forth, to purchase _________ shares of the Company's Common Stock, $___ par
value (all shares of the Common Stock of the Company being referred to as the
"Shares"), at the exercise price (the "Exercise Price") of ________ dollars and
00/100 ($_____) per Share.
This Warrant is subject to the following provisions.
1. Exercise Period. This Warrant shall be exercisable by Holder, in whole
or in increments of ______ Shares or more, subject to the terms of Section 2,
beginning as of the date hereof, and Holder's right to exercise this Warrant
shall expire on ____________. Upon the expiration of this Warrant, Holder shall
return the Warrant to the Company.
2. Exercise Procedures.
a. Subject to the terms herein, this Warrant will be deemed to have been
exercised when the Company has received the following items (the date that all
such items have been received is hereinafter referred to as the "Exercise
Date"), at its offices at 2930 Washington Boulevard, Baltimore, Maryland 21230
or at such other address of which it notifies the holder hereof:
i. a completed Exercise Agreement, in the form attached hereto as
Exhibit A, (or, if the Shares have been registered under the Securities Act of
1933, in the form attached hereto as Exhibit B) executed by the Holder;
ii. this Warrant; and
iii. the Exercise Price, in immediately available funds or as set
forth in Section 6 hereof.
<PAGE> 2
b. Certificate(s) evidencing the Shares being purchased will be
delivered to Holder promptly after the Exercise Date, and the Shares so issued
shall be deemed for all purposes to have been issued to Holder and Holder will
be deemed for all purposes to have become the record holder of the Shares as of
the Exercise Date. If the Holder exercises the Warrant for less than all of the
Shares issuable hereunder, the Company shall issue and deliver to the Holder a
new Warrant of like tenor and date for the balance of the Shares issuable
hereunder.
c. Freedom from Liens, etc. When issued in accordance with the terms
hereof, said Shares will be fully paid and nonassessable, and free and clear of
all liens, pledges, security interests, restrictions, claims, charges or other
encumbrances, other than those placed upon such securities by applicable state
and federal law and as otherwise provided herein.
3. Adjustment of Exercise Price, Conversion Price and Number of Shares. To
prevent dilution of the rights granted under this Warrant, the initial Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 3 (such price or such price as last adjusted pursuant to the terms
hereof, as the case may be, is herein called the "Exercise Price"), and the
number of Shares obtainable upon exercise of this Warrant shall be subject to
adjustment from time to time as provided in this Section 3.
a. Subdivision or Combination of Shares. If the Company at any time
after the date hereof shall, by consolidation, merger, stock dividend,
subdivision, stock split or combination or other reclassification of securities
(any such action herein referred to as a "Reclassification"), change any of the
securities to which purchase rights under this Warrant exist into the same or a
different number of securities of any class or series, this Warrant shall
entitle the Holder to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
Reclassification, and the Exercise Price shall be appropriately adjusted.
b. Notices. Following any adjustment pursuant to this Section 3, the
Company will give written notice of the new Exercise Price and number of
securities to the Holder.
4. No Voting Rights. This Warrant will not entitle the Holder to any voting
rights or other rights as a shareholder of the Company.
5. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and loss, theft, destruction or mutilation of this
Warrant, and receipt of indemnity reasonably satisfactory to the Company, the
Company will execute and deliver a replacement to this Warrant, representing the
then current identical rights granted herein. All costs of such replacement
shall be borne by the Holder.
<PAGE> 3
6. Cashless Exercise. Notwithstanding anything to the contrary contained
herein, Holder shall have the right to pay the Exercise Price in shares of
Common Stock to be received pursuant to such exercise (a "Cashless Exercise").
If Holder elects to make a Cashless Exercise the Holder shall be entitled to
receive the total number of shares for which the exercise is made less the
Holdback Shares. "Holdback Shares" shall mean the number of shares equal to the
aggregate Exercise Price for such exercise divided by the quoted closing price
of the Company's Common Stock on the date of exercise (or if no quotation is
available, then the fair market value as determined in a manner agreeable to
Company and Holder).
7. Exercise, Transfer. This Warrant is not transferrable by the Holder,
other than pursuant to the laws of descent and distribution, without the consent
of the Company. In addition, the Company, in its discretion, may limit the
transfer of this Warrant by Holder, the exercise of this Warrant by Holder or a
transferee and the sale of the underlying Common Stock to instances, when (i)
the Warrant or the Shares subject to this Warrant have been registered under the
Securities Act and any applicable state securities law or (ii) when the request
for exercise or transfer is accompanied by an opinion of counsel, which opinion
and counsel shall be acceptable to the Company and its counsel, to the effect
that the exercise, sale or proposed transfer does not require registration under
the Securities Act or any state securities law.
8. Registration Rights. Holder shall be entitled to registration rights for
the Shares as described in that certain Letter Agreement dated _______, 199_, by
and between ACA Investors and Capstone Pharmacy Services, Inc.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
10. Governing Law. This Warrant shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware.
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the date first above written.
CAPSTONE PHARMACY SERVICES, INC.
By: _____________________________
Title: ____________________________
Agreed to and Accepted by:
HOLDER
ACA INVESTORS
By: ______________________________
Title: ______________________________
<PAGE> 5
EXHIBIT A
EXERCISE AGREEMENT
The undersigned, pursuant to the provisions set forth in the attached Stock
Purchase Warrant, hereby agrees to subscribe for and purchase ___________ shares
(the "Shares") of the Common Stock, $___ par value, of Capstone Pharmacy
Services, Inc., a Delaware corporation (the "Corporation"), and herewith makes
payment in full therefor at the price per share set forth in said Stock Purchase
Warrant.
To induce the corporation to issue and deliver the Shares, the undersigned
represents and warrants to the Corporation that:
(a) The undersigned has not offered or sold the Shares within the meaning
of the Act;
(b) The undersigned is acquiring the Shares for its own account for
investment, with no present intention of dividing its interest with others or of
reselling or otherwise disposing of all or any portion of the same;
(c) The undersigned does not have in mind any sale of any of the Shares
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance;
(d) The undersigned has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for or which is
likely to compel a disposition of the Shares;
(e) The undersigned is not aware of any circumstances presently in
existence which are likely in the future to prompt a disposition of the Shares;
(f) The Warrant was offered to the undersigned in direct communication
between the undersigned and the Corporation and not through any advertisement of
any kind;
(g) The Corporation has given the undersigned access to all information
relating to its capital structure, its business operations, and all additional
information which the undersigned has felt necessary to make the purchase of the
Corporation's Shares. In this regard, the undersigned possesses the financial
and business experience in the area in which the Corporation will be involved to
make an informed decision to acquire the Shares which the undersigned hereby
agrees to purchase; and
(h) the undersigned has the financial means to bear the economic risk of
the investment which the undersigned hereby agrees to make.
<PAGE> 6
This letter will also confirm the undersigned's understanding as follows:
(a) The certificate for the Shares issued to the undersigned will bear the
following legend if such Shares have not been registered under the Securities
Act of 1933:
The shares represented by this certificate have not been registered under
the Securities Act of 1933 and therefore such shares may not be resold,
transferred or hypothecated without (A) the registration of such shares
under the Securities Act of 1933, or (B) an opinion of counsel satisfactory
to the Corporation to the effect that such registration is not necessary
and appropriate stock transfers will be noted in the Corporation's stock
records.
(b) The Corporation has informed the undersigned, and the undersigned
understands, that the Shares have not been registered under either the Act or
under the any state's "Blue Sky" law, and the Corporation has informed the
undersigned that any resale of such Shares is restricted and will require either
registration of such Shares or an opinion of the Corporation's counsel that such
registration is not necessary.
ACA INVESTORS
Signature:__________________________________
Name (Printed):_____________________________
Title:______________________________________
Tax Identification No.:_____________________
Date:_______________________________________
Address:____________________________________
____________________________________
____________________________________
<PAGE> 7
EXHIBIT B
EXERCISE AGREEMENT
The undersigned, pursuant to the provisions set forth in the attached Stock
Purchase Warrant, hereby agrees to subscribe for and purchase ____ shares of the
Common Stock, $______ par value, of Capstone Pharmacy Services, Inc., a Delaware
corporation, and herewith makes payment in full therefor at the price per share
set forth in said Stock Purchase Warrant.
______________________________________________
Signature:____________________________________
Social Security No.: _________________________
Date: _______________________________________
Address:______________________________________
______________________________________
______________________________________
<PAGE> 1
Exhibit 10.18
Counsel Corporation
December 19, 1996
Page 1
LETTER AGREEMENT
December 19, 1996
Counsel Corporation
Two First Canadian Place
Suite 1300, P.O. Box 95
Toronto, Ontario
Canada M5X 1E3
RE: Registration Rights in connection with the purchase by Counsel
Corporation ("Counsel") of 2,112,490 shares of Common Stock of
Capstone Pharmacy Services, Inc. ("Capstone") on July 29, 1996
Gentlemen:
This letter sets forth the registration rights that Counsel received in
connection with the above-referenced Common Stock. As you know, Capstone's Board
of Directors agreed to grant to Counsel substantially the same registration
rights as granted to Integrated Health Services, Inc. ("IHS") in the Symphony
acquisition. The above-referenced shares (the "Capstone Stock") will have
registration rights as set forth below. Except as otherwise indicated herein,
capitalized terms used in this Letter Agreement are defined as set forth in the
Asset Purchase Agreement between IHS, Sellers and Buyer (each as defined
therein), dated as of June 19, 1996 (the "Purchase Agreement").
(a) Initial Registration. Unless all of the Capstone Stock has been
registered pursuant to the terms of Section (b) hereof, as soon as is
reasonably practicable but in any event by December 31, 1996, Capstone will
cause to be prepared and filed with the Securities and Exchange Commission
(the "Commission") (and will thereafter use its best efforts to have
declared effective as soon as possible) an underwritten registration
statement of all of the Capstone Stock on Form S-3 or its equivalent and
such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for Capstone and counsel for the holders of the
Capstone Stock in order to comply with the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), so as to permit an underwritten
public offering and sale by Counsel of all or a portion of the Capstone
Stock as elected by Counsel. Capstone shall give Counsel at least 30 days
notice prior to filing a registration statement. Capstone shall be entitled
to select the underwriter or underwriters for such registration statement.
In the event that Counsel elects, in its sole discretion, to delay or defer
the process, or to sell less than all shares of Capstone Stock owned by
Counsel, Counsel may
<PAGE> 2
Counsel Corporation
December 19, 1996
Page 2
at any time after December 31, 1996 notify Capstone that it desires that
the registration process commence or recommence (as the case may be) as to
all or any of said shares, and thereupon Capstone shall commence or
recommence (as the case may be) such process promptly and shall file within
60 days of the Counsel notification (or prosecute the effectiveness of a
registration statement if one is on file for Counsel) the registration
statement and use its best efforts to cause it to become effective as soon
as possible. Counsel may require Capstone to, and Capstone shall, file up
to a total of two such underwritten registration statements during the two
year period following Closing under the Purchase Agreement.
(b) Piggyback Registration Rights. If the Capstone shall at any time
propose to file a registration statement under the Securities Act for any
sales of securities of the Capstone (i) on behalf of the holders of
securities sold by Capstone in a private placement in April 1996 (the
"April Holders") pursuant to a demand registration by such April Holders or
(ii) any other filing Capstone shall give to Counsel written notice of such
registration no later than thirty (30) days before its filing with the
Commission; provided, that registrations relating solely to securities to
be issued by Capstone in connection with any acquisition, employee stock
option or employee stock purchase or savings or similar plan on Form S-4 or
S-8 (or successor Forms) under the Securities Act shall not be subject to
this Section (b). If Counsel so requests within fifteen (15) days of the
sending of such notice, Capstone shall include all of the Capstone Stock in
any such registration. However, Capstone shall not be obligated to include
any portion (or all) of such Capstone Stock to the extent any underwriter
or underwriters of such securities being otherwise registered by Capstone
shall determine in good faith that the inclusion of such Capstone Stock (or
any portion thereof) would jeopardize the successful sale of such other
securities proposed to be sold by such underwriter or underwriters;
provided, however that if such offering includes securities being offered
for resale by other sellers of Capstone stock, then the Capstone Stock may
be eliminated from such offering only to the extent that the securities
being offered by such other sellers also are eliminated on a pari passu
basis (except as otherwise set forth in this section). Notwithstanding the
foregoing, in the case of a registration statement filed under item (ii) of
this paragraph (b), to the extent any underwriter or underwriters for such
registration statement shall determine that inclusion of all of the
securities proposed to be sold would jeopardize the
<PAGE> 3
Counsel Corporation
December 19, 1996
Page 3
successful sale of such securities, the shares of Capstone Stock shall be
excluded from such registration statement prior to the exclusion of the
securities of the April Holders. Capstone represents and warrants that
there are no holders of shares of its common stock with registration rights
not previously included in a registration statement, other than the April
Holders, Counsel and IHS.
(c) Registration Expenses. Capstone shall bear all reasonable expenses
related to any registration referred to in paragraph (a). Such costs and
expenses shall include, without limitation, all underwriters' and brokers'
expenses exclusive of discounts and commissions applicable to the Capstone
Stock, the fees and expenses of counsel for Capstone and of its
accountants, all other costs, fees and expenses of Capstone incident to the
preparation, printing, registration and filing under the Securities Act of
the registration statement and all amendments and supplements thereto, the
fees and expenses of one counsel to the Sellers relating to such
registration, the cost of furnishing copies of each preliminary prospectus,
each final prospectus and each amendment or supplement thereto to
underwriters, dealers and Sellers.
(d) Registration Procedures, Etc. In connection with the registration
rights granted to the Sellers with respect to the Capstone Stock as
provided in paragraph (a), Capstone covenants and agrees to:
(1) use its best efforts to cause each registration under
paragraph (a) to be declared effective and to remain effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate for a period of two (2) years (plus an amount of time equal tot
he number of days during which sales of Capstone Stock under such
registration statement shall have been prohibited in any jurisdiction in
which such securities are registered for sale by applicable law, court
order or similar compulsion) after the effective date of such registration
statement, or, if sooner, until an exemption from registration of the
Capstone Stock becomes available to Sellers, including, without limitation,
the filing of post-effective amendments and supplements to any registration
statement or prospectus necessary to keep the registration statement
current and the further qualification under any applicable Blue Sky or
other state securities laws to permit such sale or distribution all as
requested by holders of
<PAGE> 4
Counsel Corporation
December 19, 1996
Page 4
Capstone Stock. Capstone will immediately notify holders of Capstone Stock
at any time when a prospectus relating to a registration statement under
paragraph (a) is required to be delivered under the Securities Act, of 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 light
of the circumstances then existing. Notwithstanding anything to the
contrary contained herein, in the event that a registration is an
underwritten offering, Capstone shall be required to maintain the
effectiveness of the underwritten registration statement only for a
reasonable period of time.
(2) furnish, at least five business days before filing a
registration statement that registers such Capstone Stock, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the
persons holding a majority of the Capstone Stock being so registered (the
"Stockholder Counsel"), copies of all such documents proposed to be filed
(it being understood that such five-business-day period need not apply to
successive drafts of the same document proposed to be filed so long as such
successive drafts are supplied to the Sellers in advance of the proposed
filing by a period of time that is customary and reasonable under the
circumstances);
(3) notify in writing (which notice may be sent via fax or
overnight courier) the Sellers promptly (i) of the receipt by Capstone of
any notification with respect to any comments by the Commission with
respect to such registration statement or prospectus or any amendment or
supplement thereto or any request by the Commission for the amending or
supplementing thereof or for additional information with respect thereto,
to the extent that such comments or requirements relate to information
regarding the persons selling Capstone Stock (ii) of the receipt by
Capstone of any notification with respect to the issuance by the Commission
of any stop order suspending the effectiveness of such registration
statement or prospectus or any amendment or supplement thereto or the
initiation or threatening of any proceeding for that purpose and (iii) of
the receipt by Capstone of any notification with respect to the suspension
of the
<PAGE> 5
Counsel Corporation
December 19, 1996
Page 5
qualification of such Capstone Stock for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purposes;
(4) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement, or the lifting
of any suspension of the qualification or exemption from qualification of
any of Capstone Stock for sale in any jurisdiction, at the earliest
possible time;
(5) use its best efforts to register or qualify such Capstone
Stock under such other securities or blue sky laws of such jurisdictions as
the Sellers selling Capstone Stock reasonably request and any and all other
acts and things which may be reasonably necessary or advisable to enable
such persons to consummate the disposition in such jurisdictions of
Capstone Stock; provided, however, that Capstone will not be required to
qualify generally to do business, subject itself to general taxation or
consent to general service of process in any jurisdiction where it would
not otherwise be required to do so but for this subparagraph (5);
(6) furnish to the persons selling Capstone Stock such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as such persons may reasonably request in order to
facilitate the public sale or other disposition of such Capstone Stock;
(7) use its best efforts to cause such Capstone Stock to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
Capstone to enable the persons selling Capstone Stock to consummate the
disposition of such Capstone Stock;
(8) notify the persons selling Capstone Stock on a timely basis at
any time when a prospectus relating to such Capstone Stock is required to
be delivered under the Securities Act of 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 a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing and, at the request of such persons, prepare and furnish to
<PAGE> 6
Counsel Corporation
December 19, 1996
Page 6
such persons 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 offerees of such shares, 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 light of the circumstances then existing;
(9) make available for inspection by the persons selling Capstone
Stock, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by such persons or underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents and
properties of Capstone (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause Capstone's officers, directors and employees and
any person possessing such information on behalf of Capstone to supply all
information (together with the Records, the "Information") reasonably
requested by any such Inspector in connection with such registration
statement; provided that any of the Information which Capstone determines
in good faith to be confidential, and of which determination the Inspectors
are so notified, shall not be disclosed by the Inspectors unless (i) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the registration statement, (ii) the release of
such Information is ordered pursuant to a subpoena or other order from a
court or government agency of competent jurisdiction or (iii) such
Information has been made generally available to the public; provided,
however, that each such person agrees that it will, upon learning that
disclosure of such Information is sought in a court of competent
jurisdiction, give notice to Capstone and allow Capstone, at its expense,
to undertake appropriate action to prevent disclosure of the Information
deemed confidential;
(10) use its best efforts to obtain from its independent certified
public accountants "cold comfort" letters addressed to Counsel and each
person selling Capstone Stock in customary form and at customary times and
covering matters of the type customarily covered by cold comfort letters;
<PAGE> 7
Counsel Corporation
December 19, 1996
Page 7
(11) use its best efforts to obtain from its counsel an opinion or
opinions addressed to Counsel in customary form covering matters of the
type customarily covered by such opinions;
(12) provide a transfer agent and registrar (which may be the same
entity and which may be Capstone) for such Capstone Stock;
(13) issue to any underwriter to which the Sellers selling
Capstone Stock may sell shares in such offering certificates evidencing
such Capstone Stock (following surrender of any existing certificate for
such securities);
(14) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make available to Capstone's
security holders, as soon as reasonably practicable, publicly available
earnings statements (which need not be audited) covering a period of twelve
(12) months beginning within three (3) months after the effective date of
the Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(15) use its best efforts to take all other steps necessary to
effect the registration of such Capstone Stock contemplated hereby.
(e) Indemnification Procedures, Etc.
(1) The information included or incorporated by reference in the
registration statements filed pursuant to paragraph (a) will not, at the
time any such registration statement becomes effective, contain any untrue
statement of a material fact, or omit to state any material fact required
to be stated therein as necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier filing of such
registration statement or any amendments thereto. The registration
statements will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder. Capstone shall
indemnify the holders of Capstone Stock to be sold pursuant to any
registration statement, their successors and assigns, and each person, if
any, who controls such holders within the meaning of ss.15 of the
Securities Act or ss.20(a) of the Securities
<PAGE> 8
Counsel Corporation
December 19, 1996
Page 8
Exchange Act of 1934, as amended (the "Exchange Act") against any and all
loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute, common law or
otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement executed by Capstone or based upon Written information furnished
by Capstone filed in any jurisdiction in order to qualify Capstone Stock
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, NYSE or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to Capstone by the holder
or its affiliate seeking indemnification expressly for use in such
registration statement, any amendment or supplement thereto or any
application, as the case may be. If any action is brought against the
holders or any controlling person of the holders in respect of which
indemnity may be sought against Capstone pursuant to this subparagraph
(e)(1), the holders or such controlling person shall promptly, and in any
event, within thirty (30) days (provided that the failure to give prompt
notice shall not relieve the indemnifying party of its indemnification
obligation but such obligation shall be reduced by any damages suffered by
such party resulting from a failure to give prompt notice) after the
receipt thereby of a summons or complaint, notify Capstone in writing of
the institution of such action and Capstone shall assume the defense of
such actions, including the employment and payment of reasonable fees and
expenses of counsel (reasonably satisfactory to the holders or such
controlling person). The holders or such controlling person shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the holders or such
controlling person unless (A) the employment of such counsel shall have
been authorized in writing by Capstone in connection with the defense of
such action, or (B) Capstone shall not have promptly employed counsel to
have charge of the defense of such action, or (C) such indemnified party or
parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to Capstone (in which case, Capstone shall not have the right
<PAGE> 9
Counsel Corporation
December 19, 1996
Page 9
to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of not
more than one additional principal firm of attorneys (and, if necessary,
applicable firms to serve as local counsel) for the holders and/or such
controlling person shall be borne, by Capstone. Except as expressly
provided in the previous sentence, in the event that Capstone shall have
assumed the defenses of any such action or claim, Capstone shall not
thereafter be liable to such holders or such controlling person for their
expenses in investigating, preparing or defending any such action or claim,
except for reimbursement of expenses incurred at Capstone's request (e.g.,
attending depositions etc.). Capstone agrees promptly to notify the holders
of the commencement or any litigation or proceedings against Capstone or
any of its officers, directors or controlling persons in connection with
the resale of Capstone Stock or in connection with such registration
statement.
(2) Each holder of Capstone Stock to be sold pursuant to a
registration statement, and his successors and assigns, shall severally,
and not jointly, indemnify Capstone, any underwriter, its or their officers
and directors and each person, if any, who controls Capstone or any
underwriter within the meaning of ss.15 of the Securities Act or ss.20(a)
of the Exchange Act against any and all loss, claim, damage, or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may
become subject under the Securities Act, the Exchange Act or any other
statute, common law or otherwise, arising from information containing any
untrue statement of a material fact furnished in writing by or on behalf of
such holder, or his successors or assigns for specific inclusion in such
registration statement. However, in no event shall the obligation of a
seller of Capstone Stock hereunder exceed the price received by such seller
for such shares.
(3) If the indemnification provided for in this paragraph (e) is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, expense,
liability or action referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall contribute to
the amounts paid or payable by such indemnified party as a result of such
loss, claim, damage, expense, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one
<PAGE> 10
Counsel Corporation
December 19, 1996
Page 10
and of the indemnified party on the other in connection with the statement
or omissions which resulted in such loss, claim, damage, expense, liability
or action as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. However, in no event shall the
obligation of a seller of Capstone Stock hereunder exceed the price
received by such seller for such shares.
(f) Carve Back Agreement. In the event that the shares of Capstone
Stock that Counsel proposes to register in a registration under paragraph
(a) is carved back or reduced by an underwriter or by Capstone, Counsel
shall be entitled to a shelf registration on Form S-3 in accordance with
paragraph (a) (in a form similar to Section 2.5 of the Purchase Agreement
as if not amended by Amendment No. 1 to the Purchase Agreement) covering
the number of shares that were subject to the carve back.
Please recall that Counsel Corporation has agreed to not exercise its
registration rights in a manner which would adversely affect the
registration rights of IHS.
If you are in agreement with the foregoing, please indicate your acceptance
by executing this Letter Agreement and returning it to Capstone.
Very truly yours,
CAPSTONE PHARMACY SERVICES, INC.
By:__________________________________
Its:_________________________________
<PAGE> 11
Counsel Corporation
December 19, 1996
Page 11
ACCEPTED BY:
Counsel Corporation
By:________________________________
Its:_______________________________
<PAGE> 1
Exhibit 10.19
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of January 3, 1997, by and among CAPSTONE PHARMACY SERVICES, INC., a
Delaware corporation (the "Company"), and the parties named on Schedule 1
attached hereto (each a "Holder" and, collectively, the "Holders").
RECITALS
The Holders propose to acquire an aggregate of 2,708,804 shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), in connection with a Merger Agreement dated of even date herewith
pursuant to which the Company acquired by merger certain companies of which
Holders were shareholders (the "Merger Agreement").
The Company has agreed to file a Registration Statement (the "Current
Registration") including the Shares by January 31, 1997, and to take all
appropriate action to cause such Registration Statement to be declared effective
by March 31, 1997.
In order to induce Holders to enter the Merger Agreement and accept the
Shares as a portion of the merger consideration, the Company has agreed to
provide the registration rights set forth in this Agreement.
1. Piggyback Registrations.
(a) Right to Piggyback. If, at any time after the Effective Date and prior
to the earlier of (x) January 3, 1999, and (y) the date upon which the Holders
become eligible to sell shares pursuant to Rule 144 ("Rule 144") promulgated
under the Exchange Act of 1933 (such date being herein referred to as the
"Rights Termination Date") (i) an effective registration statement is not in
place to allow Holders to sell Shares held by them, (ii) the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Securities Act"), and (iii) the registration form to be used may be used for
the registration of Shares (a "Piggyback Registration" and the rights to such
registration "Piggyback Registration Rights"), the Company will give prompt
written notice (in any event at least 30 days in advance) to all Holders of its
intention to effect such a registration and will include in such registration
all Shares with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The expenses incurred in connection with such
registration by the Holders will be paid by the Company in all Piggyback
Registrations.
<PAGE> 2
(c) Priority on Primary Registrations. If a Piggyback Registration is, in
whole or in part, an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number of piggyback shares which can be sold in such offering, the
Company will include in such registration (i) first, the shares of Common Stock
the Company proposes to sell, (ii) second, the shares of Common Stock proposed
to be sold by holders thereof who have registration rights pursuant to the
Registration Rights Agreement dated December 16, 1994, as amended, or the
Registration Rights Agreement dated May 22, 1995, as amended or the Registration
Rights Agreement dated April 16, 1996 or the Registration Rights Agreement dated
July 31, 1996 (such holders hereinafter referred to as the "Existing Holders"),
and (iii) third, other shares of Common Stock requested to be included in such
registration.
(d) Priority on Secondary Registration.
(i) If the Holders exercise their Piggyback Registration Rights in
connection with a registration statement filed in response to the exercise of
Demand Registration Rights (as defined below) and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) first,
to the shares, of Common Stock for which Demand Registration Rights are
exercised, (ii) second, the shares of Common Stock requested to be included by
the Existing Holders, and (iii) third, other securities requested to be included
in such registration.
(ii) If the Existing Holders exercise their Piggyback Registration Rights
in connection with a registration statement filed in response to the exercise of
Demand Registration Rights by the Holders, and the managing underwriters advise
the Company in writing that, in their opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will, subject to the rights of the Existing
Holders under paragraph 2(c) hereof, include in such registration statement (i)
first, the shares of Common Stock requested to be included by the Existing
Holders, and (ii) second, the other securities, requested to be included in such
registration, that in the opinion of such underwriter can be sold, pro rata
among the holders of such shares on the basis of the number of shares requested
to be included by such holders.
2. Demand Registration.
(a) Registration. If at any time after the Effective Date and prior to the
Rights Termination Date an effective registration statement is not in place to
allow Holders to sell Shares held by them and such Shares have previously not
registered pursuant to Section
2
<PAGE> 3
1 then the Holders of not less than one-half of the Shares may request one
registration under the Securities Act of all or part of their Registrable
Securities on Form S-1 under the Securities Act or any other permitted
registration form ("Demand Registration" and the right to such registration
"Demand Registration Rights") for which the Company will pay all Registration
Expenses (as defined Section 5 below). A registration will not count as a Demand
Registration until it has become effective.
(b) Priority on Demand Registrations. If, at any time after March 31, 1997
and prior to the Rights Termination Date, the Company receives a request by the
Holders for a Demand Registration, within five days after the receipt thereof
the Company will (i) give written notice of such request to all Holders and
Existing Holders previously not registered and (ii) include in such Demand
Registration all shares of Common Stock with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. If the managing underwriter of any Demand Registration
advises the Company in writing that in its opinion the number of Shares and
other securities requested to be included exceeds the number of Shares and other
securities which can be sold in such offering, the Company will include in such
registration (i) first, the shares of Common Stock requested to be included by
the Existing Holders, and (ii) second, the number of Shares requested to be
included that in the opinion of such underwriter can be sold, pro rata among the
respective Holders on the basis of their relative shares of Shares requested to
be included. Any persons other than Holders who participate in the Demand
Registration must pay their share of the Registration Expenses as provided in
Section 5.
(c) Priority on Demand Registrations with respect to Existing Holders. If,
during the period after the Company has received a request by the Holders for a
Demand Registration and 15 days after the Holders and Existing Holders have
received the Company's notice described in the first sentence of Section 2(b)
above, the Company receives a request by the Existing Holders for a demand
registration, then the Holders agree that the Company may file a registration
statement in response to the request by the Existing Holders in lieu of filing a
registration statement in response to the request by the Holders. The Holders
will have Piggyback Registration Rights in connection with such demand
registration in accordance with Section 1(d)(i) hereof and such registration
shall not count as Holders' Demand Registration.
(d) Selection of Underwriters. The Company will have the right to decide if
a Demand Registration shall be underwritten and to select the investment
banker(s) and manager(s) to manage or administer any offering pursuant to a
Demand Registration. Notwithstanding the foregoing, the Company's unwillingness
or inability to select such banker or manager shall not limit the Company's
obligation to proceed with a requested Demand Registration.
3
<PAGE> 4
(e) In the event that all of the Shares requested to be included in a
registration pursuant to a Demand Registration are not included therein by
operation of Section 2(b) then such registration shall not count as Holders'
Demand Registration.
3. Current Registration. (a) The provisions of Sections 4, 5,6, 7 and 8 hereof
will apply to the Current Registration.
(b) The parties hereby agree that in the event the Current Registration has
not been declared effective by the Securities and Exchange Commission by March
31, 1997 (the "Target Date") the Holders may be harmed by not being able to sell
shares until the date the Current Registration is actually declared effective
(the "Actual Date"), to the extent that the price on the Actual Date is less
than the price on the Target Date. Therefore, Company agrees to pay as
additional Merger Consideration (as defined in the related Merger Agreements
dated of even date herewith) and as liquidated damages an amount per share for
the total number of Shares equal to: (a) the closing bid price per share for the
common stock as quoted on the Nasdaq Stock Market on the Target Date, less (b)
the closing bid price per share for the common stock as quoted on the Nasdaq
Stock Market on the Actual Date, less $.50 (fifty cents) per share (the amount
per share in item (b) being referred to as the "Target Price" and the amount
calculated pursuant to items (a) and (b) being referred to herein as the "Per
Share Price Reconciliation"). The Per Share Price Reconciliation shall be
payable as follows:
(i) For Shares sold by the underwriters pursuant to the Current
Registration, the Company shall pay the Per Share Price Reconciliation
for such Shares immediately upon the Actual Date (or the sale date, if
later), first, by paying all or a portion of the underwriting discount
with respect to such shares and then, if necessary, by paying any
additional cash to the Holders; and
(ii) For Shares sold otherwise, the Company shall pay the Per Share Price
Reconciliation for such Shares immediately upon the date of such sale
in cash to the Holders.
Notwithstanding the foregoing, if at any time after the Actual Date (when an
effective registration statement is in place with respect to the Shares or
Holders are eligible to sell shares pursuant to Rule 144) the closing bid price
per share for the common stock as quoted on the Nasdaq Stock Market is above the
Target Price for any three (3) trading days in any period of five (5)
consecutive trading days, then the Per Share Price Reconciliation for any Shares
still held by Holders shall be canceled, and Company shall be relieved of any
further obligation with respect thereto.
4. Registration Procedures. Whenever the Holders have requested that any Shares
be registered pursuant to the Agreement, the Company will use its best efforts
to effect the
4
<PAGE> 5
registration and the sale of such Shares in accordance with the intended method
of disposition thereof, and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such Shares and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company may furnish to a single law firm selected by
the Holders of a majority of the Shares covered by such registration statement
copies of all such documents proposed to be filed, which documents would be
subject to the reasonable review of such counsel which review would be limited
to information concerning the Holders and their plans of distribution and other
issues reasonably related to the Holders as Selling Shareholders);
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than six months and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Holders thereof set forth in such registration statement;
(c) furnish to each Holder of Shares such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request in order to
facilitate the disposition of the Shares owned by such Holder;
(d) use its best efforts to register or qualify such Shares under such
other securities or blue sky laws of such jurisdiction as any Holder reasonably
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
such jurisdictions of the Shares owned by such Holder (provided that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
(e) notify each Holder of such Shares, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such Holder, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the
5
<PAGE> 6
purchasers of such Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading.
(f) cause all such Shares to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all such Shares not later
than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements
in customary form) and take all such other actions as the holders of a majority
of the Shares being sold or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Shares (including,
without limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Shares, 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, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement; and
(j) obtain a comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the holders of a majority of the Shares being sold
reasonably request (provided that such Shares constitute at least 10% of the
securities covered by such registration statement).
5. Registration Expenses and Holdback Agreement.
(a) All expenses incident to the Company's performance under this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions, which are the responsibility of the
seller) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of
6
<PAGE> 7
any liability insurance and the expenses and fees for listing the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed.
(b) Each Holder agrees not to effect any public sale or distribution of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 120 day period beginning on the effective date of any underwritten
Piggyback Registration or any underwritten Demand Registration in which Shares
are included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law, each
Holder, its officers, directors and employees and each person who controls such
holder (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such Holder expressly for use therein or by such Holder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such Holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers,
directors and employees and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Holders. Notwithstanding the foregoing, to
the extent that the provisions on indemnification and contribution contained in
any such underwriting agreement are in conflict with the foregoing provisions,
the provisions in the underwriting agreement shall control.
(b) In connection with any registration statement in which a Holder is
participating, each such Holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors, officers and
employees and each person who controls the Company (within the meaning of the
Securities Act) against any loss, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact
7
<PAGE> 8
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such holder
expressly for use herein.
(c) Any person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense, is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
7. Participation in Underwritten Registrations. No person may participate in any
registration hereunder which includes an underwritten offering unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, power of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8. Miscellaneous.
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of 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 has obtained the written consent of holders of at least
two-thirds of the Shares.
(b) Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of purchasers or Holders of are also for the benefit of, and
enforceable by, any subsequent Holder, provided that the Company is given
written notice at the time of or within a reasonable time after said assignment,
stating the name and address of the assignee or holder and identifying the
securities with respect to which such registration rights are being assigned,
and
8
<PAGE> 9
provided further, that the assignee or Holder of such rights assumes the
obligations of such Holder under this Agreement.
(c) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be effective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(d) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signature of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
(e) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(f) Governing Law. The construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto will be governed by the internal
law, and not the law of conflicts, of the State of Delaware.
(g) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to each other Holder at the address provided by such Holder and to
Company at the address indicated below:
Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, Maryland 21230
Attn: R. Dirk Allison, President
With a copy mailed to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has executed this Agreement as of January 3,
1997.
CAPSTONE PHARMACY SERVICES, INC.
By: _________________________
Its: ________________________
10
<PAGE> 11
Schedule 1
Ron Belville
Denis A. and Sandra Lou Portaro and the Denis A. and Sandra Lou Portaro
Revocable Trust of 1992.
11
<PAGE> 1
CREDIT AGREEMENT
by and among
CAPSTONE PHARMACY SERVICES, INC.,
THE BANKS NAMED HEREIN
and
BANKERS TRUST COMPANY,
as the Agent
Dated as of December 6, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION......................................................... 1
1.01 DEFINED TERMS.................................................................................... 1
1.02 PRINCIPLES OF CONSTRUCTION....................................................................... 18
SECTION 2. AMOUNT AND TERMS OF CREDIT......................................................................... 18
2.01 THE REVOLVING LOANS.............................................................................. 18
2.02 THE SWING LINE LOANS............................................................................. 21
2.03 [RESERVED]....................................................................................... 23
2.04 DISBURSEMENT OF FUNDS............................................................................ 23
2.05 NOTES .......................................................................................... 24
2.06 INTEREST ON THE LOANS............................................................................ 24
2.07 INCREASED COSTS; TAXES........................................................................... 28
2.08 USE OF PROCEEDS.................................................................................. 31
2.09 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS............................................... 32
2.10 LETTERS OF CREDIT................................................................................ 37
SECTION 3. FEES............................................................................................... 45
3.01 FEES .......................................................................................... 45
SECTION 4. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; PAYMENTS................................................ 46
4.01 SCHEDULED REDUCTIONS IN REVOLVING LOAN COMMITMENTS............................................... 46
4.02 PREPAYMENTS; VOLUNTARY AND MANDATORY REDUCTIONS IN REVOLVING
LOAN COMMITMENTS.......................................................................... 47
4.03 APPLICATION OF PREPAYMENTS....................................................................... 48
4.04 GENERAL PROVISIONS REGARDING PAYMENTS............................................................ 49
SECTION 5. CONDITIONS PRECEDENT............................................................................... 50
5.01 CONDITIONS TO EFFECTIVENESS...................................................................... 50
5.02 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT.................................................... 54
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS......................................................... 55
6.01 CORPORATE STATUS................................................................................. 55
6.02 CORPORATE POWER AND AUTHORITY.................................................................... 56
6.03 NO VIOLATION..................................................................................... 56
6.04 GOVERNMENTAL APPROVALS........................................................................... 57
6.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED LIABILITIES;
ETC....................................................................................... 57
6.06 LITIGATION....................................................................................... 58
6.07 TRUE AND COMPLETE DISCLOSURE..................................................................... 58
6.08 USE OF PROCEEDS; MARGIN REGULATIONS.............................................................. 58
6.09 TAX RETURNS AND PAYMENTS......................................................................... 58
6.10 COMPLIANCE WITH ERISA............................................................................ 58
</TABLE>
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<TABLE>
<S> <C>
6.11 CAPITALIZATION................................................................................... 59
6.12 SUBSIDIARIES..................................................................................... 59
6.13 COMPLIANCE WITH STATUTES, ETC.................................................................... 59
6.14 INVESTMENT COMPANY ACT........................................................................... 59
6.15 PUBLIC UTILITY HOLDING COMPANY ACT............................................................... 60
6.16 LABOR RELATIONS.................................................................................. 60
6.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS....................................................... 60
6.18 NO MATERIAL ADVERSE CHANGE....................................................................... 61
6.19 FRAUD AND ABUSE.................................................................................. 61
6.20 TITLE TO PROPERTIES; LIENS....................................................................... 63
6.21 JOINT VENTURES................................................................................... 63
6.22 ACCOUNTS RECEIVABLE COLLATERAL................................................................... 63
SECTION 7. AFFIRMATIVE COVENANTS.............................................................................. 63
7.01 INFORMATION COVENANTS............................................................................ 63
7.02 BOOKS, RECORDS AND INSPECTIONS................................................................... 66
7.03 MAINTENANCE OF PROPERTY, INSURANCE............................................................... 67
7.04 CORPORATE FRANCHISES............................................................................. 67
7.05 COMPLIANCE WITH STATUTES, ETC.................................................................... 67
7.06 ERISA .......................................................................................... 68
7.07 END OF FISCAL YEARS; FISCAL QUARTERS............................................................. 68
7.08 PERFORMANCE OF OBLIGATIONS....................................................................... 69
7.09 PAYMENT OF TAXES AND CLAIMS...................................................................... 69
7.10 LICENSING........................................................................................ 69
7.11 FURTHER ASSURANCES; NEW SUBSIDIARIES............................................................. 69
7.12 ACCOUNTS RECEIVABLE.............................................................................. 70
SECTION 8. NEGATIVE COVENANTS................................................................................. 70
8.01 LIENS .......................................................................................... 70
8.02 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.; ACQUISITIONS........................................ 72
8.03 DIVIDENDS........................................................................................ 74
8.04 INDEBTEDNESS..................................................................................... 74
8.05 ADVANCES, INVESTMENTS AND LOANS.................................................................. 76
8.06 TRANSACTIONS WITH AFFILIATES..................................................................... 78
8.07 CAPITAL EXPENDITURES............................................................................. 78
8.08 LEVERAGE RATIO................................................................................... 78
8.09 MINIMUM CONSOLIDATED NET WORTH................................................................... 78
8.10 MINIMUM INTEREST COVERAGE RATIO.................................................................. 79
8.11 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF
INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BY-
LAWS AND CERTAIN OTHER AGREEMENTS; ETC.................................................... 79
8.12 RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS..................................... 80
8.13 BUSINESS......................................................................................... 80
8.14 TRANSFER OF COPYRIGHTS, PATENTS AND TRADEMARKS................................................... 80
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
8.15 JOINT VENTURES................................................................................... 80
8.16 COLLECTION BANK AGREEMENTS....................................................................... 81
8.17 INACTIVE SUBSIDIARIES............................................................................ 81
SECTION 9. EVENTS OF DEFAULT.................................................................................. 81
9.01 PAYMENTS......................................................................................... 81
9.02 REPRESENTATIONS, ETC............................................................................. 81
9.03 COVENANTS........................................................................................ 81
9.04 DEFAULT UNDER OTHER AGREEMENTS................................................................... 81
9.05 BANKRUPTCY, ETC.................................................................................. 82
9.06 ERISA .......................................................................................... 82
9.07 CREDIT DOCUMENTS................................................................................. 83
9.08 CHANGES OF CONTROL............................................................................... 83
9.09 JUDGMENTS........................................................................................ 83
9.10 GOVERNMENTAL POLICIES............................................................................ 84
9.11 LOSS OF LICENSES................................................................................. 84
SECTION 10. THE AGENT......................................................................................... 85
10.01 APPOINTMENT..................................................................................... 85
10.02 NATURE OF DUTIES................................................................................ 85
10.03 LACK OF RELIANCE ON THE AGENT................................................................... 85
10.04 CERTAIN RIGHTS OF THE AGENT..................................................................... 86
10.05 RELIANCE........................................................................................ 86
10.06 INDEMNIFICATION................................................................................. 86
10.07 THE AGENT IN ITS INDIVIDUAL CAPACITY............................................................ 86
10.08 HOLDERS......................................................................................... 87
10.09 RESIGNATION BY THE AGENT AND THE SWING LINE BANK................................................ 87
SECTION 11. MISCELLANEOUS..................................................................................... 88
11.01 PAYMENT OF EXPENSES, ETC........................................................................ 88
11.02 RIGHT OF SETOFF................................................................................. 88
11.03 NOTICES......................................................................................... 89
11.04 BENEFIT OF AGREEMENT............................................................................ 89
11.05 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT................................... 89
11.06 NO WAIVER; REMEDIES CUMULATIVE.................................................................. 92
11.07 PAYMENTS PRO RATA............................................................................... 92
11.08 CALCULATIONS; COMPUTATIONS...................................................................... 93
11.09 GOVERNING LAW; WAIVER OF JURY TRIAL............................................................. 93
11.10 CONFIDENTIALITY................................................................................. 94
11.11 COUNTERPARTS.................................................................................... 94
11.12 HEADINGS DESCRIPTIVE............................................................................ 94
11.13 AMENDMENT OR WAIVER............................................................................. 94
11.14 SURVIVAL........................................................................................ 97
11.15 DOMICILE OF LOANS............................................................................... 97
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
11.16 INTEGRATION..................................................................................... 97
11.17 SECURED OBLIGATIONS............................................................................. 97
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
SCHEDULE 1.01(a) Pro Rata Shares, Revolving Commitments
SCHEDULE 6.05 Undisclosed Liabilities
SCHEDULE 6.06 Litigation
SCHEDULE 6.11 Rights With Respect to Capital Stock
SCHEDULE 6.12 Subsidiaries, Inactive Subsidiaries
SCHEDULE 6.13 Statutory Noncompliance
SCHEDULE 6.17 Trademarks
SCHEDULE 6.18 Material Adverse Changes
SCHEDULE 6.21 Joint Ventures
SCHEDULE 7.03 Insurance
SCHEDULE 8.01(iii) Permitted Liens
SCHEDULE 8.01(xvi) Existing Financing Statements
SCHEDULE 8.04(ii) Existing Indebtedness
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Form of Notice of Revolver Borrowing
EXHIBIT B Form of Notice of Swing Line Borrowing
EXHIBIT C Form of Notice of Conversion/Continuation
EXHIBIT D Form of Notice of Issuance of Letter of Credit
EXHIBIT E-1 Form of Revolving Note
EXHIBIT E-2 Form of Swing Line Note
EXHIBIT F Form of Subsidiary Guaranty
EXHIBIT G Form of Borrower Pledge Agreement
EXHIBIT H Form of Subsidiary Pledge Agreement
EXHIBIT I Form of Borrower Security Agreement
EXHIBIT J Form of Subsidiary Security Agreement
EXHIBIT K Form of Trademark Security Agreement
EXHIBIT L Form of Subordination Agreement
EXHIBIT M Form of Collection Bank Agreement
EXHIBIT N Form of Concentration Bank Agreement
EXHIBIT O Form of Assignment and Acceptance Agreement
EXHIBIT P Form of Compliance Certificate
EXHIBIT Q Form of Opinion of Harwell Howard Hyne Gabbert &
Manner, P.C., Counsel to Borrower
EXHIBIT R Form of Opinion of Kronish, Lieb, Weiner &
Hellman LLP, Counsel to Borrower
</TABLE>
<PAGE> 6
CAPSTONE PHARMACY SERVICES, INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 6, 1996 and entered into
by and among CAPSTONE PHARMACY SERVICES, INC. (the "BORROWER"), a corporation
organized and existing under the laws of Delaware, BANKERS TRUST COMPANY and THE
FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each a "BANK" and,
collectively, the "BANKS"), and BANKERS TRUST COMPANY, acting in the manner and
to the extent described in Section 10 (in such capacity, the "AGENT").
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Section 1.01 of this Agreement.
RECITALS
WHEREAS, the Borrower desires to obtain senior bank financing to
refinance the amounts outstanding under the Existing Credit Agreement, to
provide capital for general corporate purposes and for making Acquisitions;
WHEREAS, the Banks desire to provide such senior bank financing to the
Borrower for such purposes in the form of a revolving credit facility; and
WHEREAS, the Agent desires to perform the services and to act on behalf
of Banks as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and agreements,
provisions and covenants herein contained, the Borrower, the Banks and the Agent
agree as follows:
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION.
1.01 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ACCOUNTS RECEIVABLE" means all accounts receivable pledged as
Collateral.
"ACQUISITION" or "ACQUISITIONS" means any acquisitions by purchase or
otherwise by Borrower or any of its Wholly-Owned Subsidiaries of the capital
stock of, or all
<PAGE> 7
(or substantially all) of the assets of, any Person or any division of such
Person permitted pursuant to Section 8.02(iv).
"ACTIVE SUBSIDIARIES" means those Subsidiaries of Borrower identified on
SCHEDULE 6.12 as being active.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date, the rate (rounded upward to the next highest one hundredth of one percent)
obtained by dividing (i) the Eurodollar Rate for that date by (ii) a percentage
equal to 100% minus the stated maximum rate of all reserves required to be
maintained against "EUROCURRENCY LIABILITIES" as specified in Regulation D of
the Board of Governors of the Federal Reserve System (or against any other
category of liabilities that includes deposits by reference to which the
interest rate on Eurodollar Rate Loans is determined or any category of
extensions of credit or other assets that includes loans by a non-United States
office of a bank to United States residents).
"AFFECTED BANK" means any Bank affected by any of the events described
in Section 2.09(b) or (c).
"AFFILIATE" means, with respect to any Person, any other Person (other
than an individual) directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such Person; provided, however, that for
purposes of Section 8.06, an Affiliate of the Borrower shall include any Person
(including an individual) that directly or indirectly owns more than 10% of the
Borrower and any officer or director of the Borrower or any such Person. A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
"AGENT" has the meaning assigned to that term in the first paragraph of
this Agreement and shall include any successor to the Agent appointed pursuant
to Section 10.09.
"AGREEMENT" means this Credit Agreement, as it may be amended, amended
and restated, supplemented or otherwise modified from time to time.
"APPLICABLE BASE MARGIN" means, as of any date of determination, a
percentage per annum as shown below determined by the Leverage Ratio then in
effect; provided that, if the Borrower has failed to provide a Margin Rate
Determination Certificate within the most recent period set forth in Section
5.01 or 7.01, the Applicable Base Margin shall be 0.50% per annum:
<PAGE> 8
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE
BASE
MARGIN
<S> <C>
x 0.75 0.00%
0.75 < x < 1.50 0.00%
1.50 < x < 2.00 0.00%
2.00 < x < 2.50 0.25%
2.50 < x < 2.75 0.50%
</TABLE>
"APPLICABLE EURODOLLAR MARGIN" means, as of any date of determination, a
percentage per annum as shown below determined by the Leverage Ratio then in
effect; provided that, if the Borrower has failed to provide a Margin Rate
Determination Certificate within the most recent period set forth in Section
5.01 or 7.01, the Applicable Eurodollar Margin shall be 1.50% per annum:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE
EURODOLLAR
MARGIN
<S> <C>
x 0.75 0.50%
0.75 < x < 1.50 0.75%
1.50 < x < 2.00 1.00%
2.00 < x < 2.50 1.25%
2.50 < x < 2.75 1.50%
</TABLE>
"ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance Agreement
entered into by a Bank and an Eligible Assignee, and accepted by the Agent and
the Borrower, substantially in the form annexed hereto as EXHIBIT O.
"BANK" has the meaning assigned to that term in the first paragraph of
this Agreement and shall include each successor and assignee pursuant to Section
11.05.
"BANKRUPTCY CODE" has the meaning assigned to that term in Section 9.05.
"BASE LENDING RATE" means, at any time, the higher of, (a) the Prime
Rate and (b) the rate that is 1/2 of 1% in excess of the Federal Funds Effective
Rate.
"BASE RATE LOANS" means Loans maintained or made by the Banks bearing
interest at rates determined by reference to the Base Lending Rate as provided
in Section 2.06.
"BORROWER" has the meaning assigned to that term in the first paragraph
of
<PAGE> 9
this Agreement.
"BORROWER PLEDGE AGREEMENT" means the Borrower Pledge Agreement executed
and delivered by the Borrower and the Agent pursuant to Section 5.01 of this
Agreement, substantially in the form annexed hereto as EXHIBIT G, as such
Borrower Pledge Agreement may be amended, amended and restated, supplemented or
otherwise modified from time to time.
"BORROWER SECURITY AGREEMENT" means the Borrower Security Agreement
executed and delivered by the Borrower and the Agent pursuant to Section 5.01 of
this Agreement, substantially in the form annexed hereto as EXHIBIT I, as such
Borrower Security Agreement may be amended, amended and restated, supplemented
or otherwise modified from time to time.
"BUSINESS DAY" means any day except Saturday, Sunday and any day that
shall be in New York City a legal holiday or a day on which banking institutions
are authorized or required by law or other government action to close.
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Rating Services ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Bank or by any commercial
bank organized under the laws of the United States or any state thereof or the
District of Columbia that (a) is at least "adequately capitalized" (as defined
in the regulations of its primary Federal banking regulator) and (b) has Tier 1
capital (as defined in such regulations) of not less than $100,000,000; and (v)
shares of any money market mutual fund that (a) has at least 95% of its assets
invested continuously in the types of investments referred to in clauses (i) and
(ii) above, (b) has net assets of not less than $500,000,000, and (c) has the
highest rating then obtainable from either S&P or Moody's.
"CERTIFICATE OF EXEMPTION" has the meaning assigned to that term in
Section 2.09(g)(iii).
"CLOSING DATE" means December 6, 1996 provided that all of the
conditions set forth in Section 5.01 of this Agreement shall have been satisfied
or waived.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE> 10
"COLLATERAL" means all the personal and mixed property made subject to a
Lien pursuant to the Credit Documents.
"COLLECTION BANK AGREEMENTS" means any Collection Bank Agreements
executed on or after the Closing Date between the Borrower or any of its
Subsidiaries and the financial institutions into which the proceeds of Accounts
Receivable of such of the Borrower or its Subsidiaries are deposited,
substantially in the form annexed hereto as EXHIBIT M, as such agreements may be
amended, amended and restated, supplemented or otherwise modified from time to
time.
"COMMITMENTS" means the commitments of Banks to make Loans as set forth
in Sections 2.01 and 2.02.
"COMMITMENT FEE PERCENTAGE" means, as of any date of determination, a
percentage per annum determined by the Leverage Ratio then in effect as
specified below:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE
COMMITMENT FEE
PERCENTAGE
<S> <C>
x 2.50 0.250%
x > 2.50 0.375%
</TABLE>
The Commitment Fee Percentage shall equal 0.375% per annum if the Borrower has
failed to provide a Margin Rate Determination Certificate within the most recent
period set forth in Section 5.01 or 7.01.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
annexed hereto as EXHIBIT P delivered to the Agent and Banks by the Borrower
under Section 7.01(f).
"CONCENTRATION BANK AGREEMENT" means a Concentration Bank Agreement
substantially in the form annexed hereto as EXHIBIT N, entered into by and among
the Borrower, the Active Subsidiaries, the Agent and one of the Banks, as the
concentration bank, and delivered to the Agent and Banks by the Borrower.
"CONSOLIDATED ADJUSTED EBITDA" means Consolidated EBITDA of the Borrower
and its Subsidiaries at the end of any period of determination and shall be
calculated on a pro forma basis, in accordance with the balance sheets and
related statements of operations provided under Section 7.01(k), as if any
Acquisition that occurred during such period and any related Divestiture had
taken place on the first day of such period.
"CONSOLIDATED EBIT" means, as to any Person and for any period, the
Consolidated Net Income of such Person and its Subsidiaries for such period,
before
<PAGE> 11
interest expense and provision for taxes and without giving effect to (i) any
extraordinary gains (or extraordinary noncash losses) and (ii) gains (or losses)
from sales of assets (other than sales of inventory in the Ordinary Course of
Business) to the extent that the gain or loss from all such sales is, in the
aggregate, greater than $500,000 for the immediately prior four-quarter period.
"CONSOLIDATED EBITDA" means, as to any Person and for any consecutive
four-quarter period, the Consolidated EBIT of such Person and its Subsidiaries
and Joint Ventures for such period, adjusted by (i) adding thereto the amount of
all amortization of intangibles and depreciation that was deducted in arriving
at such Consolidated EBIT for such period and (ii) excluding therefrom amounts
attributable to (x) minority interests held by third Persons and/or their
Subsidiaries, (y) the portion of Consolidated EBIT attributable to operations
sold or disposed of in Divestitures during such period if the Consolidated
EBITDA associated with such operations exceeds $250,000, and (z) Joint Ventures
that remain invested in such Joint Ventures and are not distributed to the
Borrower.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to capitalized interest and capital
leases in accordance with generally accepted accounting principles consistently
applied) of the Borrower and its Subsidiaries on a consolidated basis with
respect to all outstanding Indebtedness of the Borrower and its Subsidiaries,
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, but excluding, however, any
amounts referred to in Section 3 payable to the Agent and Banks on or before the
Closing Date.
"CONSOLIDATED NET INCOME" means, as to any Person and for any period,
the net income (or loss) of such Person and its Subsidiaries, after provisions
for taxes, on a consolidated basis for such period taken as a single accounting
period determined in conformity with generally accepted accounting principles
consistently applied.
"CONSOLIDATED NET WORTH" means, as to any Person, the Net Worth of such
Person and its Subsidiaries determined on a consolidated basis without deduction
for any minority interests in any corporation, association, general partnership
or joint venture (including Joint Ventures).
"CONSOLIDATED SUBSIDIARIES" means, as to any Person, all Subsidiaries of
such Person that are consolidated with such Person for financial reporting
purposes in accordance with generally accepted accounting principles
consistently applied.
"CONTINGENT OBLIGATION" means, as to any Person, (A) any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of
<PAGE> 12
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the holder of such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the ordinary
course of business; and (B) any obligations of such Person under any Interest
Rate Agreement. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"CREDIT DOCUMENTS" means this Agreement, each Note, the Letters of
Credit, the Subsidiary Guaranty, the Borrower Pledge Agreement, the Subsidiary
Pledge Agreement, the Borrower Security Agreement, the Subsidiary Security
Agreement, the Collection Bank Agreements, the Concentration Bank Agreement and
the Trademark Security Agreement.
"DEFAULT" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DIVESTITURE" means the resale of any assets or property acquired in any
Acquisition within one year of such Acquisition.
"DOLLARS" and "$" means the lawful money of the United States of
America.
"ELIGIBLE ASSIGNEE" means (i) (A) a commercial bank organized under the
laws of the United States or any state thereof; (B) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (C) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that (x) such bank is
acting through a branch or agency located in the United States or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; and (D) any other entity that is an "accredited investor" (as defined
in Regulation D under the Securities Act of 1933, as amended) that extends
credit or buys loans as one of its businesses including, but not limited to,
insurance companies, mutual funds and lease financing companies, and (ii) any
Bank and any Affiliate of any Bank or the Issuing Bank; provided that no
Affiliate of the Borrower shall be an Eligible Assignee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement, and to any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" means any person (as defined in Section 3(9) of ERISA)
<PAGE> 13
that together with the Borrower or any of its Subsidiaries would be a member of
the same "CONTROLLED GROUP" within the meaning of Section 414(b), (m), (c) and
(o) of the Code.
"EURODOLLAR RATE" means, for any Interest Rate Determination Date, the
arithmetic average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of
the offered quotation, if any, to first class banks in the Eurodollar market by
Bankers Trust Company for Dollar deposits of amounts in immediately available
funds comparable to the principal amount of the Eurodollar Rate Loan of the
Agent for which the Eurodollar Rate is being determined with maturities
comparable to the Interest Period for which such Eurodollar Rate will apply as
of approximately 10:00 A.M. (New York time) two Business Days prior to the
commencement of such Interest Period.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined
by reference to the Eurodollar Rate as provided in Section 2.06.
"EURODOLLAR RATE TAXES" has the meaning assigned to that term in Section
2.09(g)(i).
"EVENT OF DEFAULT" has the meaning assigned to that term in Section 9.
"EXISTING CREDIT AGREEMENT" means that certain Credit Agreement dated as
of May 19, 1995 by and among Borrower, Creditanstalt-Bankverein, as agent, and
the lenders identified therein, as it may have been amended, restated or
otherwise modified through the date hereof.
"EXISTING INDEBTEDNESS" has the meaning assigned to that term in Section
8.04(ii).
"FDA" means the United States Food and Drug Administration.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"FEES" means all amounts payable pursuant to or referred to in Section
3.01.
"FISCAL YEAR" means the fiscal year of the Borrower and its Subsidiaries
(other than Joint Ventures) ending on December 31 of each calendar year.
"FOREIGN BANK" has the meaning assigned to that term in Section
2.09(g)(iii).
"FUNDING DATE" means the date of the funding of a Loan or the date of
the issuance of a Letter of Credit, as applicable.
<PAGE> 14
"GOVERNMENT ACTS" has the meaning assigned to such term in Section
2.10(h).
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTOR SUBSIDIARY" means each of the Active Subsidiaries and each
Subsidiary that executes a Subsidiary Guaranty pursuant to Section 7.11(b),
which constitute all of the Subsidiaries of the Borrower (other than the
Inactive Subsidiaries), each of which is a party to a Subsidiary Guaranty,
Subsidiary Security Agreement, Subsidiary Pledge Agreement and Collection Bank
Agreements (to the extent required by Section 8.16).
"INACTIVE SUBSIDIARIES" means those Subsidiaries of Borrower identified
on SCHEDULE 6.12 as being inactive.
"INDEBTEDNESS" means, as to any Person, without duplication, (i) all
indebtedness (including principal, fees and charges) of such Person for borrowed
money or for the deferred purchase price of property or services (other than
trade payables incurred in the Ordinary Course of Business), (ii) the maximum
undrawn amount of or maximum unreimbursed amount under all letters of credit
issued for the account of such Person and all drafts drawn thereunder, (iii) all
liabilities secured by any Lien on any property owned by such Person, whether or
not such liabilities have been assumed by such Person; provided that liabilities
that are nonrecourse to the credit of the Borrower and its Subsidiaries, shall
be deemed to constitute Indebtedness only in an amount equal to the lesser of
(a) the fair market value (on the date of determination of Indebtedness for
purposes of this Agreement) of such property or (b) the amount of such
liabilities, (iv) the aggregate amount required to be capitalized under
generally accepted accounting principles under leases under which such Person is
the lessee, (v) all Contingent Obligations of such Person and (vi) the total
redemption price (including, without limitation, the liquidation preference, par
value, premium and accrued dividends) of any preferred stock of such Person with
a mandatory redemption date prior to the Termination Date.
"INTEREST PAYMENT DATE" means, (i) with respect to any Eurodollar Rate
Loan having an Interest Period of one, two or three months, the last day of the
Interest Period applicable to such Loan or, (ii) in the case of any Eurodollar
Rate Loan having an Interest Period of six months, (a) the date that is three
months after the initial date of the Interest Period applicable to such Loan and
(b) the last day of the Interest Period applicable to such Loan.
"INTEREST PERIOD" means any period applicable to a Loan as determined
pursuant to Section 2.06(b).
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement or other similar agreement or arrangement designed
to protect
<PAGE> 15
the Borrower against fluctuations in interest rates.
"INTEREST RATE DETERMINATION DATE" means each date for calculating the
Eurodollar Rate for purposes of determining the interest rate in respect of an
Interest Period. The Interest Rate Determination Date shall be the second
Business Day prior to the first day of the related Interest Period for a
Eurodollar Rate Loan.
"ISSUING BANK" means Bankers Trust Company or its Affiliate or any
successor Bank or its Affiliate in the capacity of issuer of Letters of Credit
pursuant to Section 2.10.
"JOINT VENTURE" means a single-purpose corporation, partnership, joint
venture or other similar legal arrangement (whether created pursuant to contract
or conducted through a separate legal entity) now or hereafter formed by the
Borrower or any of its Subsidiaries with another Person (other than the Borrower
or any of its Subsidiaries) in order to conduct a common venture or enterprise
with such other Person.
"LENDING OFFICE" means, with respect to each Bank, the office of such
Bank specified opposite its signature below as its lending office or such other
office of such Bank as such Bank may from time to time specify as such to the
Borrower and the Agent.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means any of the standby
letters of credit issued (or deemed issued under Section 2.10(a)) or to be
issued by the Issuing Bank for the account of the Borrower pursuant to Section
2.10 and for the purposes described in Section 2.08(b); provided that,
notwithstanding anything to the contrary contained herein, any such letter of
credit may be issued by an Affiliate of the Issuing Bank; provided, further,
that to the extent that a letter of credit is issued by an Affiliate of the
Issuing Bank, such Affiliate shall, for all purposes under this Agreement, the
Credit Documents and all other instruments and documents referred to herein and
therein be deemed to be the "ISSUING BANK" with respect to such letter of
credit.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum
of (i) the maximum aggregate amount that is or at any time thereafter may become
available for drawing under all Letters of Credit then outstanding plus (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Issuing
Bank and not theretofore reimbursed by the Borrower.
"LETTER OF NON-EXEMPTION" has the meaning assigned to that term in
Section 2.09(g)(iii).
"LEVERAGE RATIO" means the ratio of Total Debt to Consolidated Adjusted
EBITDA on the date of the most recent Margin Rate Determination Certificate.
"LIEN" means any mortgage, pledge, hypothecation, assignment for
security, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, any agreement to give
any security interest and any lease having substantially the same effect as any
of the
<PAGE> 16
foregoing).
"LOAN" or "LOANS" means one or more of the Revolving Loans or the Swing
Line Loans.
"MARGIN RATE DETERMINATION CERTIFICATE" means an Officers' Certificate
of the Borrower setting forth in reasonable detail the Total Debt and the
Consolidated Adjusted EBITDA as of the date on which such Officers' Certificate
is delivered pursuant to Section 7.01(j) of this Agreement with the financial
statements required pursuant to Section 7.01(a) or (b) of this Agreement.
"MARGIN STOCK" has the meaning provided in Regulation U of the Board of
Governors of the Federal Reserve System.
"NET WORTH" means, as to any Person, the sum of its capital stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings/(deficit) and any other account that, in accordance with
generally accepted accounting principles consistently applied, constitutes
stockholders' equity, excluding any treasury stock.
"NOTES" means one or more of the Revolving Notes or the Swing Line Note.
"NOTICE OF REVOLVER BORROWING" means a notice substantially in the form
of EXHIBIT A annexed hereto with respect to a proposed Revolving Loan.
"NOTICE OF SWING LINE BORROWING" means a notice substantially in the
form of EXHIBIT B annexed hereto with respect to a proposed Swing Line Loan.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the
form of EXHIBIT C annexed hereto with respect to a proposed conversion or
continuation of a Loan.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice in the form of
EXHIBIT D annexed hereto with respect to a proposed issuance of a Letter of
Credit.
"NOTICE OFFICE" means the office of the Agent located at One Bankers
Trust Plaza, 130 Liberty Street, 14th Floor, New York, New York 10006, Attn:
Ariana Boer, in each case with a copy to 300 South Grand Avenue, 41st Floor, Los
Angeles, California 90071, Attn: Kate Cook, or such other office or offices as
the Agent may hereafter designate in writing as such to the other parties
hereto.
"OBLIGATIONS" means all amounts owing to the Agent or any Bank pursuant
to the terms of this Agreement or any other Credit Document.
"OFFICERS' CERTIFICATE" means, as applied to any corporation,
association or joint venture, a certificate executed on behalf of such
corporation, association or joint venture, by the Chairman of the Board (if an
officer), the Chief Executive Officer, the President or one of its Vice
Presidents and by the Chief Financial Officer or the Chief Accounting Officer or
the Treasurer or an Assistant Treasurer of such corporation or the managing
partner (or Person with equivalent authority) of such association or joint
venture;
<PAGE> 17
provided that every Officers' Certificate with respect to the compliance with a
condition precedent to the making of any Loans or issuance of any Letters of
Credit hereunder shall include (i) a statement that the officer or officers or
managing partner (or Person with equivalent authority) making or giving such
Officers' Certificate have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement that,
in the opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"ORDINARY COURSE OF BUSINESS" means, in respect of any transaction
involving the Borrower or any Subsidiary of the Borrower, the ordinary course of
such Person's business, as conducted by any such Person in accordance with past
practice (including, without limitation, such Person's past practice of
consultation with legal counsel) and undertaken by such Person in good faith and
not for purposes of evading any covenant or restriction in any Credit Document.
"OSHA" means the United States Occupational Safety and Health
Administration.
"PAYMENT OFFICE" means the office of the Agent located at One Bankers
Trust Plaza, New York, New York 10006, Attention: Commercial Loan Division Ref:
Capstone Pharmacy, or such other office as the Agent may hereafter designate in
writing as such to the other parties hereto.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"PERMITTED LIENS" has the meaning assigned to that term in Section
8.01(iii).
"PERSON" means any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"PERFORMANCE PLAN" has the meaning assigned to that term in Section
7.01(d).
"PLAN" means any multiemployer plan or single-employer plan as defined
in Section 4001 of ERISA, that is maintained or contributed to, or at any time
during the five calendar years preceding the date of this Agreement was
maintained or contributed to, by the Borrower or by a Subsidiary of the Borrower
or an ERISA Affiliate.
"PREMIER" means PremierPharmacy, Inc., a Delaware corporation.
"PREMIER NOTES" means, in connection with the acquisition of
Compuscript, Inc. by Premier, (i) that certain Amended and Restated
Nonnegotiable Promissory Note dated as of November 1, 1993 in the amount of
$1,451,879 executed by Premier in favor of Marvin A. Levine and Gloria C.
Levine; (ii) that certain Amended and Restated
<PAGE> 18
Nonnegotiable Promissory Note dated as of November 1, 1993 in the amount of
$318,728 executed by Premier in favor of John A. McBay; and (iii) any earn-out
payments to be made by Premier to Marvin A. Levine, Gloria C. Levine or John A.
McBay.
"PRIME RATE" means the rate that Bankers Trust Company announces from
time to time as its prime lending rate, and the Prime Rate shall change when and
as such prime lending rate changes. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually charged to any
customer. Bankers Trust Company may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
"PRO RATA SHARE" means the percentage obtained by dividing (x) the
Revolving Loan Exposure of that Bank by (y) the aggregate Revolving Loan
Exposure of all Banks as the applicable percentage may be adjusted by
assignments permitted pursuant to Section 11.05. The initial Pro Rata Share of
each Bank is set forth opposite the name of that Bank in SCHEDULE 1.01(A)
annexed hereto and SCHEDULE 1.01(A) shall be amended and the Banks' Pro Rata
Shares shall be adjusted from time to time to give effect to the addition of any
new Banks and any reallocations among existing Banks necessary to reflect
assignments pursuant to Section 11.05. The sum of the Pro Rata Shares of all
Banks at any date of determination shall equal 100%
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
Section 2.02(c).
"REPORTABLE EVENT" means an event described in Section 4043(b) of ERISA
with respect to a Plan as to which the 30-day notice requirement has not been
waived by the PBGC.
"REQUIRED BANKS" means Banks having or holding 51% or more of the sum of
the aggregate Revolving Loan Exposure of all Banks.
"REVOLVING LOAN COMMITMENT" or "REVOLVING LOAN COMMITMENTS" means the
commitment or commitments of a Bank or Banks to make Revolving Loans as set
forth in Section 2.01(a).
"REVOLVING LOAN EXPOSURE" means, with respect to any Bank as of any date
of determination (i) prior to the termination of the Revolving Loan Commitments,
that Bank's Revolving Loan Commitment and (ii) after the termination of the
Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal
amount of the Revolving Loans of that Bank plus (b) in the event that Bank is
the Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters
of Credit issued by that Bank (in each case net of any participations purchased
by other Banks in such Letters of Credit or any unreimbursed drawings
thereunder) plus (c) the aggregate amount of all participations purchased by
that Bank in any outstanding Letters of Credit or any unreimbursed drawings
under any Letters of Credit plus (d) in the case of Swing Line Bank, the
aggregate outstanding principal amount of all Swing Line Loans (net of any
participations therein purchased by other Banks) plus (e) the aggregate amount
of all participations purchased by that Bank in any outstanding Swing Line
Loans.
<PAGE> 19
"REVOLVING LOANS" means the Revolving Loans made by the Banks on or
after the Closing Date pursuant to Section 2.01(a). The term "Revolving Loan"
shall not include Swing Line Loans.
"REVOLVING NOTES" means the promissory notes of the Borrower issued in
favor of the Banks pursuant to Section 2.05 to evidence the Revolving Loans,
substantially in the form annexed hereto as EXHIBIT E-1, as they may be amended,
supplemented or otherwise modified from time to time.
"SEC" has the meaning assigned to that term in Section 7.01(h).
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SUBORDINATION AGREEMENTS" means any Subordination Agreement executed
and delivered among the Borrower, the Agent and certain holders of the Unsecured
Seller Debt, substantially in the form annexed hereto as EXHIBIT L.
"SUBSIDIARY" means, as to any Person, (i) any corporation more than 50%
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency which has not occurred by the date of
determination) is at the time owned by such Person and/or one or more
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Subsidiaries of such
Person has more than a 50% equity interest at the time.
"SUBSIDIARY GUARANTY" means a Guaranty Agreement executed and delivered
by each Guarantor Subsidiary for the benefit of the Agent pursuant to Section
5.01 and Section 7.11 of this Agreement, substantially in the form annexed
hereto as EXHIBIT F, as such Guaranty Agreement may be amended, amended and
restated, supplemented or otherwise modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means a Subsidiary Pledge Agreement
executed and delivered by the Agent and each Guarantor Subsidiary pursuant to
Section 5.01 and Section 7.11 of this Agreement substantially in the form
annexed hereto as EXHIBIT H, as such Subsidiary Pledge Agreement may be amended,
amended and restated, supplemented or otherwise modified from time to time.
"SUBSIDIARY SECURITY AGREEMENT" means a Subsidiary Security Agreement
executed and delivered by the Agent and each Guarantor Subsidiary pursuant to
Section 5.01 and Section 7.11 of this Agreement substantially in the form
annexed hereto as EXHIBIT J, as such Subsidiary Security Agreement may be
amended, amended and
<PAGE> 20
restated, supplemented or otherwise modified from time to time.
"SWING LINE LOAN COMMITMENT" has the meaning assigned to that term in
Section 2.02(a).
"SWING LINE BANK" means Bankers Trust Company in its capacity as the
holder of the Swing Line Loan Commitment and any entity that assumes Bankers
Trust Company's rights and obligations with respect thereto pursuant to Section
11.05.
"SWING LINE LOAN" means one or more of the Loans made by the Swing Line
Bank pursuant to Section 2.02(a). The term "Swing Line Loan" shall not include
Revolving Loans.
"SWING LINE NOTE" means (i) the promissory note of the Borrower issued
pursuant to Section 2.05 on the Closing Date and (ii) any promissory note issued
by the Borrower to any successor Agent and Swing Line Bank pursuant to the last
sentence of Section 10.09(d), in each case substantially in the form of EXHIBIT
E-2 annexed hereto, as they may be amended, supplemented or otherwise modified
from time to time.
"SYMPHONY" means Symphony Pharmacy Services, Inc., a Delaware
corporation, predecessor to Symphony Acquisition Co., a Delaware corporation.
"TARGET" means the Person to be acquired, or the Person whose assets are
to be acquired, in any Acquisition.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction (whether local,
state, federal or foreign) in which that Person's principal office (and/or, in
the case of a Bank, its lending office) is located or in which that Person is
deemed to be doing business on all or part of the net income, profits or gains
of that Person (whether worldwide, or only insofar as such income, profits or
gains are considered to arise in or to relate to a particular jurisdiction, or
otherwise).
"TERMINATION DATE" means the earlier of (a) December 1, 2001 and (b) the
date upon which the Revolving Loan Commitments are terminated pursuant to
Section 4.03 or Section 9.
"TOTAL DEBT" means all Indebtedness of the Borrower and its Subsidiaries
on a consolidated basis outstanding on any date of determination, including,
without limitation, any Indebtedness incurred or to be incurred on such date in
connection with an Acquisition, but excluding Indebtedness with respect to
Letters of Credit and Interest Rate Agreements.
"TOTAL REVOLVING LOAN COMMITMENTS" means, as at any date of
determination, the aggregate principal amount of all Revolving Loan Commitments
then outstanding.
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any
<PAGE> 21
date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans plus (ii) the Letter of Credit Usage plus (iii) the
aggregate principal amount of all Swing Line Loans outstanding at such time;
provided that Total Utilization of Revolving Loan Commitments shall be
determined without duplication of Revolving Loans, the proceeds of which are
used simultaneously to refund other Revolving Loans or Swing Line Loans.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement (i)
executed and delivered by the Borrower, the Agent and each Guarantor Subsidiary
which is a Guarantor Subsidiary on the Closing Date pursuant to Section 5.01 of
this Agreement and (ii) executed and delivered by the Agent and each Guarantor
Subsidiary which is not a Guarantor Subsidiary on the Closing Date pursuant to
Section 7.11 of this Agreement, in each case substantially in the form annexed
hereto as EXHIBIT K, as such Trademark Security Agreement may be amended,
amended and restated, supplemented or otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the relevant jurisdiction.
"UNFUNDED CURRENT LIABILITY" means, as to any Plan, the amount, if any,
by which the present value of the accrued benefits under such Plan as of the
close of its most recent plan year determined in accordance with Section 412 of
the Code exceeds the fair market value of the assets allocable thereto.
"UNSECURED SELLER DEBT" means the Indebtedness represented by the
Indebtedness permitted by Section 8.04(xii).
"WHOLLY-OWNED SUBSIDIARY" means, as to any Person, (i) any corporation
100% of whose capital stock is at the time owned by such Person and/or one or
more Wholly-Owned Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
1.02 PRINCIPLES OF CONSTRUCTION.
(a) All references to sections, schedules and exhibits are to
sections, schedules and exhibits in or to this Agreement unless otherwise
specified. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in
conformity with those used in the preparation of the financial statements
referred to in Sections 6.05(a). Except in connection with the preparation of
the financial statements and other information required to be delivered by the
Borrower to the Banks pursuant to Sections 7.01(a), (b), (d), (e) and (h),
calculations made with respect to the definitions, covenants and other
provisions of this Agreement shall give effect to adjustments in component
amounts required or permitted by Accounting Principles Board Opinions Nos. 16
and 17 as a result of any Acquisition.
<PAGE> 22
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.01 THE REVOLVING LOANS.
(a) THE REVOLVING LOANS. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower set forth herein, each Bank hereby severally agrees, subject to the
limitations set forth below with respect to the maximum amount of Revolving
Loans permitted to be outstanding from time to time, to make Revolving Loans to
the Borrower from time to time during the period from the Closing Date through
but excluding the Termination Date in an amount not exceeding its Pro Rata Share
of the difference between the (i) aggregate Revolving Loan Commitments (as
defined below) then in effect and (ii) the sum of (a) the aggregate principal
amount of Swing Line Loans then outstanding (excluding Swing Line Loans to be
repaid with the proceeds of such Revolving Loans) and (b) the Letter of Credit
Usage for the purposes identified in Section 2.08. Each Bank's commitment to
maintain and make Revolving Loans to the Borrower pursuant to this Section
2.01(a) is hereby called its "REVOLVING LOAN COMMITMENT" and such commitments of
all the Banks in the aggregate are herein called the "REVOLVING LOAN
COMMITMENTS." The initial amount of each Bank's Revolving Loan Commitment is set
forth in SCHEDULE 1.01(A) and the aggregate initial amount of all Revolving Loan
Commitments is $125,000,000. The amount of the Revolving Loan Commitments shall
be reduced by the amount of all reductions thereof made pursuant to Sections
4.01, 4.02, 4.03 or 9 through the date of determination. In no event shall the
aggregate principal amount of the Revolving Loans from any Bank outstanding at
any time exceed the amount of its Revolving Loan Commitment then in effect. Each
Bank's Revolving Loan Commitment shall expire on the Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to the
Revolving Loans, the Revolving Loan Commitments, or otherwise (including,
without limitation, any cash deposit required under Section 2.10(a) with respect
to any Letter of Credit having an expiration date subsequent to the Termination
Date) shall be paid in full no later than that date.
Notwithstanding the foregoing provisions of this Section 2.01(a) and the
provisions of Section 2.01(b), the extensions of credit under the Revolving Loan
Commitments shall be subject to the following limitations in the amounts and
during the periods indicated:
(i) The amount otherwise available for borrowing under the Revolving
Loan Commitments as of any time of determination (other than to reimburse the
Issuing Bank for the amount of any drawings under any Letter of Credit
honored by the Issuing Bank and not theretofore reimbursed by the Borrower or
to reimburse the Swing Line Bank for the amount of any Swing Line Loans
outstanding) shall be reduced by the Letter of Credit Usage and the aggregate
principal amount of the Swing Line Loans then outstanding as of such time of
determination;
(ii) In no event shall the Total Utilization of Revolving Loan
Commitments exceed the Total Revolving Loan Commitments then in effect; and
(iii) Anything contained in this Agreement to the contrary
notwithstanding,
<PAGE> 23
the Revolving Loans and the Revolving Loan Commitments shall be subject to
the limitation that for 30 consecutive days during any twelve- month period
the Revolving Loan Commitments must exceed the Total Utilization of Revolving
Loan Commitments by at least $10,000,000.
Subject to Section 2.09(d), all Revolving Loans under this Agreement
shall be made by the Banks simultaneously and proportionately to their
respective Pro Rata Shares, it being understood that no Bank shall be
responsible for any default by any other Bank in that other Bank's obligation to
make Revolving Loans hereunder nor shall the Revolving Loan Commitment of any
Bank be increased or decreased as a result of the default by any other Bank in
that other Bank's obligation to make Revolving Loans hereunder. Amounts borrowed
by the Borrower under this Section 2.01(a) may be repaid and, to but excluding
the Termination Date, reborrowed.
(a) NOTICE OF REVOLVER BORROWING. Subject to Section 2.01(a),
whenever the Borrower desires to borrow Revolving Loans under this Section 2.01,
it shall deliver to the Agent at its Notice Office a Notice of Revolver
Borrowing no later than 12:00 Noon (New York time) one Business Day in advance
of the proposed Funding Date (in the case of a requested Base Rate Loan) and
three Business Days in advance of the proposed Funding Date (in the case of a
requested Eurodollar Rate Loan). The Notice of Revolver Borrowing shall specify
(i) the proposed Funding Date (which shall be a Business Day), (ii) the amount
of the proposed borrowing and that the proposed borrowing shall be a Revolving
Loan, (iii) in the case of any Revolving Loans requested to be made on or within
thirty days after the Closing Date, that such Revolving Loans shall initially be
Base Rate Loans (unless the Agent otherwise consents in writing), (iv) in the
case of Revolving Loans requested to be made more than thirty days after the
Closing Date, whether such Revolving Loans are initially to consist of Base Rate
Loans or Eurodollar Rate Loans or a combination thereof, (v) if such Revolving
Loans, or any portion thereof, are initially to be Eurodollar Rate Loans, the
amounts thereof and the initial Interest Periods therefor and (vi) that the
Total Utilization of Revolving Loan Commitments (after giving effect to the
Revolving Loans then requested) will not exceed the Total Revolving Loan
Commitments then in effect. Unless made pursuant to Section 2.10(c), Revolving
Loans shall be made in an aggregate minimum amount of $1,000,000 and integral
multiples of $100,000 in excess of that amount. Revolving Loans may be continued
as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner
provided in Section 2.06(d); provided that unless the Agent otherwise consents
in writing, the Revolving Loans made during the period from and including the
Closing Date through the date which is thirty days after the Closing Date may
not be converted until more than thirty days after the Closing Date. In lieu of
delivering the above-described Notice of Revolver Borrowing, the Borrower may
give the Agent telephonic notice by the required time of any proposed borrowing
of Revolving Loans under this Section 2.01; provided that such notice shall be
promptly confirmed in writing by delivery of a Notice of Revolver Borrowing to
the Agent on or prior to the Funding Date of the requested Revolving Loans.
Neither the Agent nor any Bank shall incur any liability to the Borrower
in acting upon any telephonic notice referred to above that the Agent believes
in good faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of the Borrower or for otherwise acting in good
faith under this Section 2.01 and upon funding of Revolving Loans by the Banks
in accordance with this Agreement pursuant to
<PAGE> 24
any such telephonic notice, the Borrower shall have effected Revolving Loans
hereunder.
Except as provided in Section 2.09(d), a Notice of Revolver Borrowing
for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and the
Borrower shall be bound to make a borrowing in accordance therewith.
2.02 THE SWING LINE LOANS.
(a) The Swing Line Bank hereby agrees, subject to the limitations
set forth below with respect to the maximum amount of Swing Line Loans permitted
to be outstanding from time to time and subject to the other terms and
conditions hereof, to make a portion of the Revolving Loan Commitments available
to the Borrower from time to time during the period from the Business Day
immediately following the Closing Date to but excluding the second day prior to
the Termination Date by making Swing Line Loans to the Borrower in an aggregate
amount not exceeding the amount of the Swing Line Loan Commitment (as defined
below) to be used for the purposes identified in Section 2.08(a),
notwithstanding the fact that such Swing Line Loans, when aggregated with the
Swing Line Bank's outstanding Revolving Loans may exceed its Revolving Loan
Commitment. The Swing Line Bank's commitment to make Swing Line Loans to the
Borrower pursuant to this Section 2.02(a) is herein called its "SWING LINE LOAN
COMMITMENT," and the original amount of the Swing Line Loan Commitment is
$5,000,000 and may not be increased without the consent of the Swing Line Bank
and the Required Banks. Amounts borrowed under this Section 2.02(a) may be
repaid and reborrowed to but excluding the second day prior to the Termination
Date on which second day all Swing Line Loans and all other amounts owed
hereunder with respect to the Swing Line Loans shall be paid in full by the
Borrower.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the
following limitations in the amounts and during the periods indicated:
(i) in no event shall the Total Utilization of Revolving Loan
Commitments exceed the Total Revolving Loan Commitments then in effect;
(ii) any reduction of the Revolving Loan Commitments made pursuant to
Section 4.01 and Section 4.02 that reduces the aggregate Revolving Loan
Commitments to an amount less than the then current amount of the Swing Line
Loan Commitment shall result in an automatic corresponding reduction of the
Swing Line Loan Commitment to the amount of the Revolving Loan Commitments,
as so reduced, without any further action on the part of the Swing Line Bank;
and
(iii) Anything contained in this Agreement to the contrary
notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment
shall be subject to the limitation that for 30 consecutive days during any
twelve-month period the Revolving Loan Commitments must exceed the Total
Utilization of Revolving Loan Commitments by at least $10,000,000.
(b) Whenever the Borrower desires that the Swing Line Bank make a
<PAGE> 25
Swing Line Loan under Section 2.02(a), it shall deliver to the Swing Line Bank a
Notice of Swing Line Borrowing no later than 12:00 Noon (New York City time) on
the proposed Funding Date (which shall be a Business Day). The Notice of Swing
Line Borrowing shall specify (i) the proposed Funding Date, (ii) the amount of
the Swing Line Loan requested (which shall be in the amount of $100,000 and
integral multiples of $10,000 in excess thereof) and (iii) that the Total
Utilization of Revolving Loan Commitments (after giving effect to the proposed
borrowing) does not exceed the Total Revolving Loan Commitments then in effect.
In lieu of delivering the above-described Notice of Swing Line Borrowing, the
Borrower may give the Agent telephonic notice by the required time of any
proposed borrowing of Swing Line Loans under this Section 2.02; provided that
such notice shall be promptly confirmed in writing by delivery of a Notice of
Swing Line Borrowing to the Agent on or prior to the Funding Date of the
requested Loans, which Notice of Swing Line Borrowing may be given by facsimile.
(c) With respect to any Swing Line Loans that have not been
voluntarily prepaid by the Borrower pursuant to Section 4.02, the Swing Line
Bank may at any time (without regard to whether an Event of Default has occurred
and is continuing) in its sole and absolute discretion, deliver to each Bank
(with a copy to the Borrower), no later than 12:00 Noon (New York City time) at
least one Business Day in advance of the proposed Funding Date, a notice (which
shall be deemed to be a Notice of Revolver Borrowing given by the Borrower)
requesting Banks to make Revolving Loans that are Base Rate Loans on such
Funding Date in an aggregate amount equal to the amount of such Swing Line Loans
(the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given
that the Swing Line Bank requests the Banks to prepay. Each Bank (other than the
Swing Line Bank) shall make the amount of its Revolving Loan available to the
Agent by depositing the amount thereof in same day funds at the Agent's Payment
Office on the next Business Day. Anything contained in this Agreement to the
contrary notwithstanding, (i) the proceeds of such Revolving Loans made by the
Banks other than the Swing Line Bank shall be delivered immediately to the Swing
Line Bank (and not to the Borrower) and applied to repay a corresponding portion
of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are
made, the Swing Line Bank's Pro Rata Share of the Refunded Swing Line Loans
shall be deemed to be paid with the proceeds of a Revolving Loan made by the
Swing Line Bank and such portion of the Swing Line Loans deemed to be so paid
shall no longer be outstanding as Swing Line Loans and shall no longer be due
under the Swing Line Note of the Swing Line Bank but shall be outstanding as
Revolving Loans and shall be due under the Revolving Note of the Swing Line Bank
in its capacity as a Bank. If any portion of any such amount paid (or deemed to
be paid) to the Swing Line Bank should be recovered by or on behalf of the
Borrower from the Swing Line Bank in bankruptcy, by assignment for the benefit
of creditors or otherwise, the loss of the amount so recovered shall be shared
ratably among all the Banks in the manner contemplated by Section 11.07.
If, as a result of any bankruptcy or similar proceeding with respect to
the Borrower, Revolving Loans are not made pursuant to this Section 2.02(c) in
an amount sufficient to repay any amounts owed to the Swing Line Bank in respect
of any outstanding Swing Line Loans or if the Swing Line Bank shall so request
each Bank for any reason, the Swing Line Bank shall be deemed to have sold
without recourse or representation or warranty, and each Bank shall be deemed to
have purchased and hereby agrees to purchase, a participation in such
outstanding Swing Line Loans in an amount equal to its Pro Rata Share of the
unpaid amount thereof together with accrued interest thereon. Upon
<PAGE> 26
one Business Day's notice from the Swing Line Bank, each Bank (other than the
Swing Line Bank) shall deliver to the Swing Line Bank an amount equal to its
respective participation in same day funds at the Agent's Payment Office. In the
event any such Bank fails to make available to the Swing Line Bank the amount of
such Bank's participation as provided in this paragraph, the Swing Line Bank
shall be entitled to recover such amount on demand from such Bank together with
interest thereon at the Base Lending Rate in effect from time to time.
Anything contained herein to the contrary notwithstanding, the
obligation of each Bank (other than the Swing Line Bank) to make Revolving Loans
for the purpose of repaying any Refunded Swing Line Loans pursuant to the second
preceding paragraph and each such Bank's obligation to purchase a participation
in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph
shall be absolute and unconditional and shall not be affected by any
circumstance, including without limitation (a) any set-off, counterclaim,
recoupment, defense or other right that such Bank may have against the Swing
Line Bank, the Borrower or any other Person for any reason whatsoever; (b) the
occurrence or continuance of an Event of Default; (c) any adverse change in the
business, operations, properties, assets, condition (financial or otherwise), or
prospects of the Borrower or any of its Subsidiaries; (d) any breach of this
Agreement by any party hereto; or (e) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided, however,
that no Bank shall have any obligation to make a Revolving Loan for the purpose
of repaying, or to purchase any participation in, any Swing Line Loan to the
extent such Swing Line Loan increased the Total Utilization of Revolving Loan
Commitments (after giving effect to the repayment of any Loans with the proceeds
of such Swing Line Loan) and was made even though the Swing Line Bank had actual
knowledge that the conditions to making such Swing Line Loan were not satisfied.
2.03 [RESERVED].
2.04 DISBURSEMENT OF FUNDS. Promptly after receipt of a Notice of
Revolver Borrowing (or telephonic notice thereof) pursuant to Section 2.01(b),
but no later than 4:00 p.m. (New York time) on the date of such receipt, the
Agent shall notify each Bank of the proposed borrowing. Each Bank shall make the
amount of its applicable Loan available to the Agent, in same day funds, at its
Payment Office not later than 12:00 Noon (New York time) on the Funding Date.
Upon satisfaction or waiver of the conditions precedent specified in Section 5,
as applicable, the Agent shall make the proceeds of such Loans available to the
Borrower on such Funding Date by causing an amount of same day funds equal to
the proceeds of all such Loans received by the Agent to be credited to the
account of the Borrower at such office of the Agent.
Unless the Agent shall have been notified by any Bank in writing prior
to any Funding Date in respect of any Loans that such Bank does not intend to
make available to the Agent such Bank's applicable Loan on such Funding Date
(which such notice, if so received by the Agent, promptly shall be communicated
to the Borrower), the Agent may assume that such Bank has made such amount
available to the Agent on such Funding Date and the Agent in its sole discretion
may, but shall not be obligated to, make available to the Borrower a
corresponding amount on such Funding Date. If such corresponding amount is not
in fact made available to the Agent by such Bank, the Agent shall be entitled to
recover such corresponding amount on demand from such Bank together with
interest
<PAGE> 27
thereon, for each day from such Funding Date until the date such amount is paid
to the Agent, at the customary rate set by the Agent for the correction of
errors among banks for three Business Days and thereafter at the Base Lending
Rate. If such Bank does not pay such corresponding amount forthwith upon the
Agent's demand therefor, the Agent promptly shall notify the Borrower, and the
Borrower immediately shall pay such corresponding amount to the Agent. Nothing
in this Section 2.04 shall be deemed to relieve any Bank from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that the Borrower
may have against any Bank as a result of any default by such Bank hereunder.
2.05 NOTES. On the Closing Date, the Borrower shall execute and
deliver (i) to each Bank (or to the Agent for that Bank) a Revolving Note
substantially in the form of EXHIBIT E-1 to evidence that Bank's Revolving
Loans, in the principal amount of that Bank's Revolving Loan Commitment and with
other appropriate insertions and (ii) to the Swing Line Bank a Swing Line Note
substantially in the form of EXHIBIT E-2 annexed hereto to evidence the Swing
Line Bank's Swing Line Loans, in the principal amount of the Swing Line Loan
Commitment and with other appropriate insertions. Each Bank will note on its
internal records the amount of each Loan made by it and each payment in respect
thereof and, prior to any transfer of any of its Notes, will endorse on the
reverse side thereof the outstanding principal amount of the Loans evidenced
thereby. Failure to make any such notation shall not affect the Borrower's
obligations in respect of such Loans.
2.06 INTEREST ON THE LOANS.
(a) RATE OF INTEREST. Subject to the provisions of Sections 2.06(e)
and 2.09(g), each Loan shall bear interest on the unpaid principal amount
thereof from the date made through maturity (whether by acceleration or
otherwise) at a rate determined by reference to, (i) if a Revolving Loan, the
Base Lending Rate or the Adjusted Eurodollar Rate, (ii) if a Swing Line Loan,
the Base Lending Rate. The applicable basis for determining the rate of interest
for Revolving Loans shall be selected by the Borrower initially at the time a
Notice of Revolver Borrowing is given pursuant to Section 2.01(b). The basis for
determining the interest rate with respect to any Revolving Loan may be changed
from time to time pursuant to Section 2.06(d). If on any day a Revolving Loan is
outstanding with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the rate of interest, then for that day that Loan shall bear interest determined
by reference to the Base Lending Rate.
(i) The Revolving Loans shall bear interest through maturity as
follows:
(a) if a Base Rate Loan, then at the sum of the Base Lending
Rate plus the Applicable Base Margin; and
(b) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin;
(ii) The Swing Line Loans shall bear interest at a per annum
rate equal to the Base Lending Rate plus the Applicable Base Margin less the
Commitment Fee Percentage then in effect.
<PAGE> 28
On the Closing Date and until a subsequent Margin Rate Determination
Certificate is delivered to the Agent, the Applicable Eurodollar Margin and the
Applicable Base Margin shall be determined in accordance with the Leverage Ratio
set forth in the Margin Rate Determination Certificate delivered by the Borrower
to the Agent pursuant to Section 5.01(e). Upon delivery of any subsequent Margin
Rate Determination Certificate by the Borrower to the Agent pursuant to Section
7.01(j), the Applicable Eurodollar Margin and the Applicable Base Margin shall
automatically be adjusted in accordance with the Leverage Ratio set forth
therein, such adjustment to become effective on the Business Day next succeeding
the Business Day on which the Agent received such Margin Rate Determination
Certificate.
(b) INTEREST PERIODS. In connection with each Eurodollar Rate Loan,
the Borrower shall elect an interest period (each an "INTEREST PERIOD") to be
applicable to such Loan, which Interest Period shall be either a one, two, three
or six-month period; provided that:
(i) the initial Interest Period for any Loan shall commence on the
Funding Date of such Loan;
(ii) in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next
preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided that if any Interest Period would otherwise expire on
a day that is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month;
(v) no Interest Period with respect to any Loan shall extend beyond
the Termination Date;
(vi) there shall be no more than ten (10) Eurodollar Rate Loans with
different maturities outstanding at any time.
(c) INTEREST PAYMENTS. Subject to Section 2.06(e), interest shall be
payable on the Loans as follows:
(i) interest on each Base Rate Loan shall be payable quarterly in
arrears on and to the first Business Day of each March, June, September and
December, commencing on March 1, 1997;
(ii) interest on each Eurodollar Rate Loan shall be payable in
arrears on and to (but not including) each Interest Payment Date applicable
to that Loan, upon
<PAGE> 29
any prepayment of that Loan (to the extent accrued on the amount being
prepaid) and at maturity; and
(iii) interest on each Swing Line Loan shall be payable quarterly in
arrears on and to the first Business Day of each March, June, September and
December.
Notwithstanding anything in clauses (i) and (iii) of this Section
2.06(c) to the contrary, in the event that any Swing Line Loans or any Revolving
Loans that are Base Rate Loans are prepaid pursuant to Section 4.02, interest
accrued on such Swing Line Loans or Revolving Loans through the date of such
prepayment shall be payable on the next succeeding Interest Payment Date
applicable to Base Rate Loans (or, if earlier, upon the final termination for
any reason of the Revolving Loan Commitments).
(d) CONVERSION OR CONTINUATION. Subject to the provisions of Section
2.09, the Borrower shall have the option (i) to convert at any time all or any
part of the outstanding Revolving Loans from Revolving Loans bearing interest at
a rate determined by reference to one basis to Revolving Loans bearing interest
at a rate determined by reference to an alternative basis, or (ii) upon the
expiration of any Interest Period applicable to a Eurodollar Rate Loan, to
continue all or any portion of such Loan as a Eurodollar Rate Loan and the
succeeding Interest Period(s) of such continued Loan shall commence on the last
day of the Interest Period of the Loan to be continued; provided, however, Base
Rate Loans may only be converted to Eurodollar Rate Loans, and Eurodollar Rate
Loans may only be continued, in amounts equal to $1,000,000 and integral
multiples of $100,000 in excess of that amount; provided further, Eurodollar
Rate Loans may only be converted into Base Rate Loans on the expiration date of
an Interest Period applicable thereto; provided further that no outstanding Loan
may be continued as, or be converted into, a Eurodollar Rate Loan when any
Default or Event of Default has occurred and is continuing; and provided further
that Base Rate Loans made during the period from and including the Closing Date
through the date thirty days after the Closing Date may not be converted to
Eurodollar Rate Loans prior to thirty-one days after the Closing Date, unless
the Agent otherwise consents in writing.
The Borrower shall deliver a Notice of Conversion/Continuation to the
Agent no later than 12:00 Noon (New York time) at least two Business Days in
advance of the proposed conversion/continuation date (in the case of a
conversion to a Base Rate Loan), and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation
shall certify (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount of the Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of a conversion
to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period,
and (v) that no Default or Event of Default has occurred and is continuing. In
lieu of delivering the above-described Notice of Conversion/Continuation, the
Borrower may give the Agent telephonic notice by the required time of any
proposed conversion/continuation under this Section 2.06(d); provided that such
notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to the Agent on or before the proposed
conversion/continuation date.
Neither the Agent nor any Bank shall incur any liability to the Borrower
in
<PAGE> 30
acting upon any telephonic notice referred to above that the Agent believes in
good faith to have been given by a duly authorized officer or other person
authorized to act on behalf of the Borrower or for otherwise acting in good
faith under this Section 2.06(d) and upon conversion/continuation by the Agent
in accordance with this Agreement, pursuant to any telephonic notice the
Borrower shall have effected such conversion or continuation, as the case may
be, hereunder.
Except as provided in Section 2.09(d), a Notice of Conversion/
Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or
telephonic notice in lieu thereof) shall be irrevocable on and after the related
Interest Rate Determination Date, and the Borrower shall be bound to convert or
continue in accordance therewith.
(e) POST MATURITY INTEREST. Upon the occurrence and during the
continuation of any Event of Default, the outstanding principal amount of all
Loans and, to the extent permitted by applicable law, any interest payments
thereon not paid when due and any fees and other amounts then due and payable
hereunder, shall thereafter bear interest (including post-petition interest in
any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable upon demand at a rate that is 2.00% per annum in excess of the interest
rate otherwise payable under this Agreement with respect to the applicable Loans
(or, in the case of any such fees and other amounts, at a rate that is 2.00% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective, such Eurodollar Rate Loans shall thereupon become
Base Rate Loans and thereafter bear interest payable upon demand at a rate that
is 2.00% per annum in excess of the interest rate otherwise payable under this
Agreement for Base Rate Loans. The payment or acceptance of the increased rate
provided by this Section 2.06(e) shall not constitute a waiver of any Event of
Default or an amendment to this Agreement or otherwise prejudice or limit any
rights or remedies of the Agent or any Bank.
(f) COMPUTATION OF INTEREST. Interest on the Loans shall be computed
on the basis of a 360-day year and the actual number of days elapsed in the
period during which it accrues. In computing interest on any Revolving Loan (or
any loan from the Swing Line Bank to a Bank under Section 2.02(c)), the date of
the making of such Loan or the first day of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar
Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, shall be included; and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan, or with respect to a Base
Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of
such Base Rate Loan to such Eurodollar Rate Loan, shall be excluded; provided
that if a Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Loan.
2.07 INCREASED COSTS; TAXES.
(a) INCREASED COSTS. If any Bank shall determine that the adoption
of any applicable law, rule or regulation concerning capital adequacy or any
applicable change therein, or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or
<PAGE> 31
administration thereof, or compliance by such Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, in each
case occurring after the Closing Date, has or will have the effect of reducing
the rate of return on such Bank's capital as a consequence of its obligation to
make a Loan hereunder to a level below that which such Bank could have achieved
but for such adoption, change or compliance (taking into consideration such
Bank's policies with respect to capital adequacy) by any amount deemed by such
Bank to be material, then from time to time, within fifteen (15) days after
demand by such Bank, the Borrower shall pay to such Bank such additional amounts
as shall compensate such Bank for such reduction. Each Bank shall promptly
notify the Borrower of any of the matters set forth in the preceding sentence. A
certificate as to additional amounts owed any such Bank, showing in reasonable
detail the basis for the calculation thereof, submitted in good faith to the
Borrower and the Agent by such Bank shall be presumed to be correct.
(b) WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by the Borrower
under this Agreement and the other Credit Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction or
withholding on account of any Tax (other than franchise taxes and Taxes on
the overall net income of any Bank) imposed, levied, collected, withheld or
assessed by or within the United States of America or any political
subdivision in or of the United States of America or any other jurisdiction
from or to which a payment is made by or on behalf of the Borrower or by any
federation or organization of which the United States of America or any such
jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If the Borrower or any other Person is
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by the Borrower to the Agent or any Bank
under any of the Credit Documents:
(A) the Borrower shall notify the Agent of any such
requirement or any change in any such requirement as soon as the
Borrower becomes aware of it;
(B) the Borrower shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on the Borrower) for its own account or (if
that liability is imposed on the Agent or such Bank, as the case may be)
on behalf of and in the name of the Agent or such Bank;
(C) the sum payable by the Borrower in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, the Agent or such Bank, as the
case may be, receives on the due date a net sum equal to what it would
have received had no such deduction, withholding or payment been
required or made; and
<PAGE> 32
(D) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30 days
after the due date of payment of any Tax that it is required by clause
(B) above to pay, the Borrower shall deliver to the Agent evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any Bank
under clause (C) above except to the extent that any change, after the date
hereof (in the case of each Bank listed on the signature pages hereof) or after
the date of the assignment under Section 11.05 by which such Bank became a Bank
(in the case of each other Bank), in any such requirement for a deduction,
withholding or payment as is mentioned therein shall result in an increase in
the rate of such deduction, withholding or payment from that in effect at the
date of this Agreement or at the date of such assignment, as the case may be, in
respect of payments to such Bank.
(iii) Alternatives. Notwithstanding the provisions of Section
2.07(b)(ii), in lieu of paying a Bank such additional moneys as are required by
Section 2.07(b)(ii), the Borrower may exercise any one of the following options:
(A) If the requirement to make a deduction or withholding of
a Tax referred to in Section 2.07(b)(ii) relates only to Eurodollar Rate
Loans then being requested by the Borrower pursuant to a Notice of
Revolver Borrowing or a Notice of Conversion/Continuation, the Borrower
may by giving notice (by telephone promptly confirmed in writing) to the
Agent (who shall promptly give similar notice to each other Bank) no
later than the date immediately prior to the date on which such
Eurodollar Rate Loans are to be made, withdraw that Notice of Revolver
Borrowing or Notice of Conversion/Continuation and the Eurodollar Rate
Loans then being requested shall be made by the Banks as Base Rate
Loans; or
(B) If the requirement to make a deduction or withholding of
a Tax referred to in Section 2.07(b)(ii) relates only to Eurodollar Rate
Loans outstanding at the time the requirement is discovered, upon
written notice to the Agent and each Bank, the Borrower may terminate
the obligations of the Banks to make or maintain Loans as, and to
convert Loans into, Eurodollar Rate Loans and, in such event, the
Borrower shall at the end of the then current Interest Period, convert
all of the Eurodollar Rate Loans into Base Rate Loans in the manner
contemplated by Section 2.06(d) but without satisfying the advance
notice requirements therein in which case the Borrower must take the
actions referred to in Section 2.07(b)(ii) until such conversion; or
(C) If the requirement to make a deduction or withholding of
a Tax referred to in Section 2.07(b)(ii) relates to Loans other than
Eurodollar Rate Loans, the Borrower may notify each Bank to which such
requirement relates that the Borrower will not make the payments
required under Section
<PAGE> 33
2.07(b)(ii)(C) with respect to such Loans at the end of the 30 day
period described below and each such Bank will have 30 days in which to
notify the Agent (which will notify the Borrower) that it will continue
as a Bank under this Agreement without such payments or that it refuses
so to continue, and, if any such Bank refuses to continue, (i) the
Borrower shall pay to such Bank, on a date 15 days after notice of such
refusal is made, all interest and fees and other amounts due and owing
to such Bank including amounts due under Section 2.07(b)(ii) through the
end of such 30 day period (and, to the extent such Bank is the Issuing
Bank, any Letters of Credit shall be returned to the Issuing Bank marked
"cancelled" or Cash shall be deposited with the Issuing Bank in an
amount equal to the maximum amount that may at any time be drawn on such
Letters of Credit) on such date and the principal amount of all such
Loans of such Bank or (ii) another financial institution that is an
Eligible Assignee, shall purchase for cash such Loans of such Bank and
become a Bank for all purposes under this Agreement and assume all
obligations of such Bank pursuant to an Assignment and Acceptance that
shall have become effective pursuant to Section 11.05.
2.08 USE OF PROCEEDS.
(a) LOANS. The proceeds of the Loans shall be applied by the
Borrower (i) to repay all outstanding indebtedness under the Existing Credit
Agreement; (ii) for the general corporate purposes of the Borrower and its
Subsidiaries, which may include, without limitation, (x) the reimbursement of
the Issuing Bank of any amounts drawn under any Letter of Credit as provided in
Section 2.10(c), (y) the reimbursement of the Swing Line Bank of any Swing Line
Loans as provided in Section 2.02(c) and (z) payment of any fees and expenses
associated with the Loans; and (iii) for making Acquisitions.
(b) LETTERS OF CREDIT. The Letters of Credit shall be used for the
purpose of supporting (i) workers' compensation liabilities of the Borrower or
its Subsidiaries, (ii) the obligations of the Borrower or its Subsidiaries to
third party insurers arising (x) by virtue of the laws of any jurisdiction
requiring third party insurers and (y) in lieu of payments in cash of insurance
obligations or (iii) performance, payment, deposit or surety obligations of the
Borrower or its Subsidiaries, in any case if required by law or governmental
rule or regulation, by any landlord under any real estate lease, or by custom
and practice in the business of the Borrower and its Subsidiaries.
(c) MARGIN REGULATIONS. No portion of the proceeds of any borrowing
under this Agreement shall be used by the Borrower to purchase or carry any
Margin Stock in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation T, Regulation U or Regulation
X of the Board of Governors of the Federal Reserve System or any other
regulation of the Board or to violate the Securities Exchange Act of 1934, in
each case as in effect on the date or dates of such borrowing and such use of
proceeds.
2.09 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement, the following
provisions shall govern with respect to Eurodollar Rate Loans as to the matters
covered:
<PAGE> 34
(a) DETERMINATION OF INTEREST RATE. As soon as practicable after 10:00
A.M. (New York time) on each Interest Rate Determination Date, the Agent shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the interest rate that shall apply to
the Eurodollar Rate Loans for which an interest rate is then being determined
for the applicable Interest Period and shall promptly give notice thereof (in
writing or by telephone confirmed in writing) to the Borrower and each Bank.
(b) SUBSTITUTED RATE OF BORROWING. If on any Interest Rate Determination
Date any Bank (including the Agent) shall have determined (which determination
shall be final and conclusive and binding upon all parties but, with respect to
the following clauses (i) and (ii)(B), shall be made only after consultation
with the Borrower and the Agent) that:
(i) by reason of any changes arising after the date of this Agreement
affecting the Eurodollar market or affecting the position of that Bank in
such market, adequate and fair means do not exist for ascertaining the
applicable interest rate by reference to the Eurodollar Rate with respect to
the Eurodollar Rate Loans as to which an interest rate determination is then
being made; or
(ii) by reason of (A) any change after the date hereof in any applicable
law or governmental rule, regulation or order (or any interpretation thereof
and including the introduction of any new law or governmental rule,
regulation or order) or (B) other circumstances affecting that Bank or the
Eurodollar market or the position of that Bank in such market (such as for
example, but not limited to, official reserve requirements required by
Regulation D of the Board of Governors of the Federal Reserve System to the
extent not given effect in the Eurodollar Rate), the Eurodollar Rate shall
not represent the effective pricing to that Bank for Dollar deposits of
comparable amounts for the relevant period;
then, and in any such event, that Bank shall be an Affected Bank and it shall
promptly (and in any event as soon as possible after being notified of a
borrowing, conversion or continuation) give notice (by telephone promptly
confirmed in writing) to the Borrower and the Agent (which notice the Agent
shall promptly transmit to each other Bank) of such determination. Thereafter,
the Borrower shall pay to the Affected Bank, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as the Affected Bank in its sole
discretion shall reasonably determine) as shall be required to cause the
Affected Bank to receive interest with respect to its Eurodollar Rate Loans for
the Interest Period following that Interest Rate Determination Date at a rate
per annum equal to 1.00% per annum in excess of the effective pricing to the
Affected Bank for Dollar deposits to make or maintain its Eurodollar Rate Loans.
A certificate as to additional amounts owed the Affected Bank, showing in
reasonable detail the basis for the calculation thereof, submitted in good faith
to the Borrower and the Agent by the Affected Bank shall be presumed to be
correct.
(c) REQUIRED TERMINATION AND PREPAYMENT. If on any date any Bank
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
Eurodollar Rate Loans has
<PAGE> 35
become unlawful or impossible by reason of compliance by that Bank in good faith
with any law, governmental rule, regulation or order (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful),
then, and in any such event, that Bank shall be an Affected Bank and it shall
promptly give notice (by telephone promptly confirmed in writing) to the
Borrower and the Agent (which notice the Agent shall promptly transmit to each
other Bank) of that determination. Subject to the prior withdrawal of a Notice
of Revolver Borrowing or a Notice of Conversion/Continuation or prepayment of
the Eurodollar Rate Loans of the Affected Bank as contemplated by the following
Section 2.09(d), the obligation of the Affected Bank to make or maintain its
Eurodollar Rate Loans during any such period shall be terminated at the earlier
of the termination of the Interest Period then in effect or when required by law
and the Borrower shall no later than the termination of the Interest Period in
effect at the time any such determination pursuant to this Section 2.09(c) is
made or, earlier, when required by law, repay or prepay the Eurodollar Rate
Loans of the Affected Bank, together with all interest accrued thereon.
(d) OPTIONS OF THE BORROWER. In lieu of paying an Affected Bank such
additional moneys as are required by Section 2.09(b) or the prepayment of an
Affected Bank required by Section 2.09(c), the Borrower may exercise any one of
the following options:
(i) If the determination by an Affected Bank relates only to Eurodollar
Rate Loans then being requested by the Borrower pursuant to a Notice of
Revolver Borrowing or a Notice of Conversion/Continuation, the Borrower may
by giving notice (by telephone promptly confirmed in writing) to the Agent
(who shall promptly give similar notice to each other Bank) no later than
the date immediately prior to the date on which such Eurodollar Rate Loans
are to be made, withdraw that Notice of Revolver Borrowing or Notice of
Conversion/Continuation and the Eurodollar Rate Loans then being requested
shall be made by the Banks as Base Rate Loans; or
(ii) Upon written notice to the Agent and each Bank, the Borrower may
terminate the obligations of the Banks to make or maintain Loans as, and to
convert Loans into, Eurodollar Rate Loans and in such event, the Borrower
shall, prior to the time any payment pursuant to Section 2.09(c) is required
to be made or, if the provisions of Section 2.09(b) are applicable, at the
end of the then current Interest Period, convert all of the Eurodollar Rate
Loans into Base Rate Loans in the manner contemplated by Section 2.06(d) but
without satisfying the advance notice requirements therein.
(e) COMPENSATION. The Borrower shall compensate each Bank, upon
written request by that Bank (which request shall set forth in reasonable detail
the basis for requesting such amounts), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss (including interest paid)
sustained by that Bank in connection with the re-employment of such funds), that
such Bank may sustain: (i) if for any reason (other than a default by that Bank)
a borrowing of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Revolver Borrowing, a Notice of Conversion/Continuation
or a telephonic request for borrowing or conversion/continuation or a successive
Interest Period does not commence after notice therefor is given pursuant to
Section 2.06(d), (ii) if any prepayment of any of its Eurodollar Rate Loans
occurs on a date that is not the last day of an Interest Period applicable to
that Loan, (iii) if any
<PAGE> 36
prepayment of any of its Eurodollar Rate Loans is not made on any date specified
in a notice of prepayment given by the Borrower, or (iv) as a consequence of any
other default by the Borrower to repay its Eurodollar Rate Loans when required
by the terms of this Agreement.
(f) QUOTATION OF EURODOLLAR RATE. Anything herein to the contrary
notwithstanding, if on any Interest Rate Determination Date the Agent is as a
matter of general practice not quoting rates to first class banks in the
Eurodollar market for the offering of Dollars for deposit with maturities
comparable to the Interest Period and in amounts comparable to the Eurodollar
Rate Loans requested, the Agent shall contact the other Banks, if any, for their
quotes for rates to first class banks in the Eurodollar market with respect to
the requested Eurodollar Rate Loan, such other Banks to be contacted in
decreasing order of their respective Pro Rata Shares (and in alphabetical order
in the case of two or more Banks having the same Pro Rata Shares). In the event
that none of the Banks are making Eurodollar quotes in the applicable amount and
with the applicable maturity, the Agent shall give the Borrower and each Bank
prompt notice thereof and the Loans requested shall be made as Base Rate Loans.
(g) EURODOLLAR RATE TAXES. The Borrower agrees that:
(i) Promptly upon notice from any Bank to the Borrower, the Borrower
will pay, prior to the date on which penalties attach thereto, all present
and future income, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of a Loan
solely as a result of the interest rate being determined by reference to the
Eurodollar Rate and/or the provisions of this Agreement relating to the
Eurodollar Rate and/or the recording, registration, notarization or other
formalization of any thereof and/or any payments of principal, interest or
other amounts made on or in respect of a Loan when the interest rate is
determined by reference to the Eurodollar Rate (all such taxes, levies, costs
and charges being herein collectively called "EURODOLLAR RATE TAXES");
provided, however, that Eurodollar Rate Taxes shall not include any other
Taxes. The Borrower shall also pay such additional amounts equal to increases
in Taxes payable by that Bank which increases are attributable to payments
made by the Borrower described in the immediately preceding sentence or this
sentence. A certificate as to additional amounts owed by the Borrower
pursuant to this clause (i), showing in reasonable detail the basis for the
calculation thereof, submitted in good faith to the Borrower and the Agent by
any Bank shall be presumed to be correct. Promptly after the date on which
payment of any such Eurodollar Rate Tax is due pursuant to applicable law,
the Borrower will, at the request of that Bank, furnish to that Bank
evidence, in form and substance satisfactory to that Bank, that the Borrower
has met its obligations under this Section 2.09(g).
(ii) The Borrower will indemnify each Bank against, and reimburse
each Bank on demand for, any Eurodollar Rate Taxes, as determined by that
Bank in its good faith discretion; provided that such Bank shall provide the
Borrower with appropriate receipts for any payments or reimbursements made by
the Borrower pursuant to this clause (ii) of Section 2.09(g).
(iii) Each Bank organized under the laws of a jurisdiction outside of
the
<PAGE> 37
United States (referred to in this Section 2.09(g) as a "FOREIGN BANK") as to
which payments to be made hereunder or under the Notes are exempt from United
States withholding tax or are subject to such tax at a reduced rate under an
applicable statute or tax treaty shall provide to the Borrower and the Agent
(x) a properly completed and executed Internal Revenue Service Form 4224 or
Form 1001 or other applicable form, certificate or document prescribed by the
Internal Revenue Service of the United States certifying as to such Foreign
Bank's entitlement to such exemption or reduced rate with respect to payments
to be made to such Foreign Bank hereunder and under the Notes (referred to in
this Section 2.09(g) as a "CERTIFICATE OF EXEMPTION") or (y) a letter from
such Foreign Bank stating that it is not entitled to any such exemption or
reduced rate (referred to in this Section 2.09(g) as a "LETTER OF
NON-EXEMPTION"). Each Foreign Bank shall provide such a Certificate of
Exemption or a Letter of Non-Exemption before the Closing Date. Each Foreign
Bank that becomes a Bank pursuant to an Assignment and Acceptance that has
become effective pursuant to Section 11.05 shall provide a Certificate of
Exemption or a Letter of Non-Exemption on the date such Foreign Bank becomes
a Bank. Until the Borrower and the Agent have received from such Foreign Bank
a Certificate of Exemption, the accuracy of which shall be reasonably
satisfactory to the Borrower, the Borrower shall, subject to its obligations
under Sections 2.09(g)(i), 2.09(g)(ii) and 2.09(i), be entitled to withhold
taxes from such payments to such Foreign Bank at the statutory rate
applicable to amounts to be paid hereunder to such Foreign Bank.
(iv) Notwithstanding anything to the contrary contained in this
Section 2.09(g), the Borrower shall not be required to pay any amounts
pursuant to this Section 2.09(g) to any Foreign Bank unless such Foreign Bank
has provided to the Borrower, within 60 days after the receipt by such
Foreign Bank of a written request therefor, either a Certificate of Exemption
or a Letter of Non-Exemption.
(h) BOOKING OF EURODOLLAR RATE LOANS. Any Bank may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch
offices or the office of an Affiliate of that Bank.
(i) INCREASED COSTS. Except as provided in Section 2.09(b) with
respect to certain determinations on Interest Rate Determination Dates, if,
after the date hereof by reason of, (x) the introduction of or any change
(including, without limitation, any change by way of imposition or increase of
reserve requirements) in, or in the interpretation of, any law or regulation, or
(y) the compliance with any guideline or request from any central bank or other
governmental authority or quasi-governmental authority exercising control over
banks or financial institutions generally (whether or not having the force of
law):
(i) any Bank (or its applicable lending office) shall be subject to
any tax, duty or other charge with respect to its Eurodollar Rate Loans or
its obligation to make Eurodollar Rate Loans, or shall change the basis of
taxation of payments to any Bank of the principal of or interest on its
Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans (except
for changes in the rate of tax on the overall net income of such Bank or its
applicable lending office imposed by the jurisdiction (whether local, state,
federal or foreign) in which such Bank's principal executive office or
applicable lending office is located); or
<PAGE> 38
(ii) any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Bank's applicable lending office shall be imposed or deemed
applicable or any other condition affecting its Eurodollar Rate Loans or its
obligation to make Eurodollar Rate Loans shall be imposed on any Bank or its
applicable lending office or the interbank Eurodollar market,
and as a result thereof there shall be any increase in the cost to such Bank of
agreeing to make or making, funding or maintaining Eurodollar Rate Loans, or
there shall be a reduction in the amount received or receivable by that Bank or
its applicable lending office, then the Borrower shall from time to time, upon
written notice from and demand by that Bank (with a copy of such notice and
demand to the Agent), pay to the Agent for the account of that Bank, within five
Business Days after receipt of such notice and demand, additional amounts
sufficient to indemnify that Bank against such increased cost or reduced amount.
A certificate as to the amount of such increased cost or reduced amount,
submitted to the Borrower and the Agent by that Bank, shall be presumed to be
correct. Any payments to be made by the Borrower under Sections 2.09(b), 2.09(g)
or 2.09(i) are to be without duplication.
(j) ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to a Bank under this Section 2.09 shall be
made as though that Bank had actually funded its relevant Eurodollar Rate Loan
through the purchase of a Eurodollar deposit bearing interest at the Eurodollar
Rate in an amount equal to the amount of that Eurodollar Rate Loan and having a
maturity comparable to the relevant Interest Period and through the transfer of
such Eurodollar deposit from an offshore office of that Bank to a domestic
office of that Bank in the United States of America; provided, however, that
each Bank may fund each of its Eurodollar Rate Loans in any manner it sees fit
and the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section 2.09.
(k) EURODOLLAR RATE LOANS AFTER DEFAULT. Unless the Agent and the
Required Banks shall otherwise agree, after the occurrence of and during the
continuance of a Default or an Event of Default, the Borrower may not elect to
have a Revolving Loan be made or maintained as, or converted to, a Eurodollar
Rate Loan after the expiration of any Interest Period then in effect for that
Revolving Loan.
(l) AFFECTED BANKS' OBLIGATION TO MITIGATE. Each Bank agrees that,
as promptly as practicable after it becomes aware of the occurrence of an event
or the existence of a condition that would cause it to be an Affected Bank under
Section 2.09(b) or 2.09(c) or that would entitle such Bank to receive payments
under Section 2.09(g) or 2.09(i), it will, to the extent not inconsistent with
such Bank's internal policies, use reasonable efforts to make, fund or maintain
the affected Eurodollar Rate Loans of such Bank through another lending office
of such Bank if as a result thereof the additional moneys which would otherwise
be required to be paid to such Bank pursuant to Section 2.09(b), 2.09(g) or
2.09(i) would be materially reduced or the illegality or other adverse
circumstances which would otherwise require prepayment of such Loans pursuant to
Section 2.09(c) would cease to exist, and if, as determined by such Bank in its
sole discretion, the making, funding or
<PAGE> 39
maintaining of such Loans through such other lending office would not otherwise
materially adversely affect such Loans or such Bank. The Borrower hereby agrees
to pay all reasonable expenses incurred by any Bank in utilizing another lending
office of such Bank pursuant to this Section 2.09(l).
2.10 LETTERS OF CREDIT.
(a) LETTERS OF CREDIT. In addition to the Borrower requesting that
the Banks make Revolving Loans pursuant to Section 2.01(a) and that Swing Line
Bank make Swing Line Loans pursuant to Section 2.01(b), the Borrower may
request, in accordance with the provisions of this Section 2.10, on and after
the Closing Date to and excluding the Termination Date, that the Issuing Bank
issue Letters of Credit for the account of the Borrower for the purposes
specified in Section 2.08(b); provided that the Borrower shall not request that
the Issuing Bank issue (and the Issuing Bank shall not issue):
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed the Total
Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed $10,000,000; or
(iii) any Letter of Credit if, after giving effect to the issuance,
the Total Utilization of Revolving Loan Commitments would violate the
limitation that for 30 consecutive days during any twelve-month period the
Revolving Loan Commitments must exceed the Total Utilization of Revolving
Loan Commitments by at least $10,000,000.
In no event shall the Issuing Bank issue any Letter of Credit having an
expiration date later than the Termination Date or the date that is one year
after the issuance thereof except as expressly provided herein; provided,
however, that the Issuing Bank may agree to extend any Letter of Credit
automatically annually for a period not to exceed one year. If the Issuing Bank,
in its sole discretion, determines to issue a Letter of Credit expiring after
the scheduled Termination Date, the Borrower shall be required on the third
Business Day immediately preceding the Termination Date to deposit with the
Issuing Bank cash collateral for the repayment of any drawings under such Letter
of Credit, such deposit to be in an amount equal to the maximum amount that may
be drawn under such Letter of Credit and to be upon such terms and conditions as
such Bank may require. The issuance of any Letter of Credit in accordance with
the provisions of this Section 2.10 shall require the satisfaction of each
condition set forth in Section 5.02; provided, however, that the obligation of
the Issuing Bank to issue any Letter of Credit is subject to the condition that
(i) the Issuing Bank believed in good faith that all conditions under this
Section 2.10(a) and Section 5.02 to the issuing of such Letter of Credit were
satisfied at the time such Letter of Credit was issued or (ii) the satisfaction
of any such condition not satisfied had been waived by the Required Banks prior
to or at the time such Letter of Credit was issued; provided further that the
Issuing Bank shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons,
including, without limitation, an Officers' Certificate from the Borrower as to
the satisfaction of the conditions
<PAGE> 40
under Section 5.02 in determining the satisfaction of any conditions to the
issuance of any Letter of Credit or the Total Utilization of Revolving Loan
Commitments or Letter of Credit Usage then in effect.
Immediately upon the issuance of each Letter of Credit, each Bank shall
be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing
Bank a participation in such Letter of Credit and drawings thereunder in an
amount equal to such Bank's Pro Rata Share of the maximum amount that is or at
any time may become available to be drawn thereunder. If the Issuing Bank issues
a Letter of Credit having an expiration date after the scheduled Termination
Date, such participations shall expire without further action by any Bank on the
scheduled Termination Date.
Each Letter of Credit supporting the payment of Indebtedness may provide
that the Issuing Bank may (but shall not be required to) pay the beneficiary
thereof upon the occurrence of a Default or an Event of Default and the
acceleration of the maturity of the Loans or, if payment is not then due to the
beneficiary, provide for the deposit of funds in an account in the name of the
Issuing Bank to secure payment to the beneficiary and that any funds so
deposited shall be paid to the beneficiary of the Letter of Credit if conditions
to such payment are satisfied or returned to the Agent for distribution to the
Banks (or, if all Obligations shall have been indefeasibly paid in full, to the
Borrower) if no payment to the beneficiary has been made and the final date
available for drawings under the Letter of Credit has passed. Each payment or
deposit of funds by the Issuing Bank as provided in this paragraph shall be
treated for all purposes of this Agreement as a drawing duly honored by the
Issuing Bank under the related Letter of Credit.
(b) NOTICE OF ISSUANCE. Whenever the Borrower desires to cause the
Issuing Bank to issue a Letter of Credit, it shall deliver to the Issuing Bank
and the Agent a Notice of Issuance of Letter of Credit in the form of EXHIBIT D
no later than 1:00 P.M. (New York time) at least four Business Days in advance
of the proposed date of issuance or such shorter time as may be acceptable to
the Issuing Bank. The Notice of Issuance of Letter of Credit shall specify (i)
the proposed date of issuance (which shall be a Business Day), (ii) the face
amount of the Letter of Credit, (iii) the expiration date of the Letter of
Credit, (iv) the name and address of the beneficiary, (v) such other documents
or materials as the Issuing Bank may reasonably request, and (vi) a precise
description of the documents and the verbatim text of any certificate to be
presented by the beneficiary which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require the Issuing Bank to make
payment under the Letter of Credit; provided that the Issuing Bank, in its sole
judgment, may require changes in any such documents and certificates. In
determining whether to pay any Letter of Credit, the Issuing Bank shall be
responsible only to use reasonable care to determine that the documents and
certificates required to be delivered under that Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit. Promptly upon the issuance of a Letter of Credit, the Issuing
Bank shall notify each other Bank of the issuance and the amount of each such
other Bank's respective participation therein determined in accordance with
Section 2.10(a) and such notice shall be accompanied by a copy of such issued
Letter of Credit.
(c) PAYMENT OF AMOUNTS DRAWN UNDER OR NECESSARY TO COLLATERALIZE
LETTERS OF CREDIT. In the event (i) the beneficiary of any Letter of Credit
makes a drawing
<PAGE> 41
thereunder or (ii) the Borrower is required under Section 2.10(a) to cash
collateralize any Letter of Credit, the Issuing Bank immediately shall notify
the Borrower and the Agent, and the Borrower shall reimburse the Issuing Bank or
make a deposit with the Issuing Bank, as appropriate, on the day on which such
drawing is honored or such cash collateral deposit is required in an amount in
same day funds equal to the amount of such drawing or, in the case of such a
deposit, the maximum amount that may be drawn under the applicable Letter of
Credit; provided that, anything contained in this Agreement to the contrary
notwithstanding, (i) unless prior to 1:00 P.M. (New York time) on the date such
drawing is honored or the date the Borrower is required to make such required
deposit of cash collateral, as applicable, (A) the Borrower shall have notified
the Issuing Bank and the Agent that the Borrower intends to reimburse the
Issuing Bank for the amount of such drawing or to make such deposit with funds
other than the proceeds of Revolving Loans or (B) the Borrower shall have
delivered a Notice of Revolver Borrowing requesting Revolving Loans that are
Base Rate Loans in an amount equal to the amount of such drawing or deposit, the
Borrower shall be deemed to have given a Notice of Revolver Borrowing to the
Agent requesting the Banks to make Revolving Loans that are Base Rate Loans on
the date on which such drawing is honored or on which such deposit is required
in an amount equal to the amount of such drawing or deposit, and (ii) if so
requested by the Agent, the Banks shall, on the date of such drawing or required
deposit, make Revolving Loans that are Base Rate Loans in the amount of such
drawing or required deposit, the proceeds of which shall be applied directly by
the Agent to reimburse the Issuing Bank for the amount of such drawing or to
make a deposit with the Issuing Bank in the amount of such required deposit; and
provided further that, if for any reason proceeds of Revolving Loans are not
received by the Issuing Bank on such date in an amount equal to the amount of
such drawing or deposit, the Borrower shall reimburse or make a deposit with the
Issuing Bank, on the Business Day immediately following the date of such drawing
or such deposit, in an amount in same day funds equal to the excess of the
amount of such drawing or deposit over the amount of such Revolving Loans, if
any, that are so received, plus accrued interest on such amount at the rate set
forth in Section 2.10(e)(ii).
(d) PAYMENT BY THE BANKS. If the Borrower shall fail to reimburse
the Issuing Bank, for any reason, as provided in Section 2.10(c) (including,
without limitation, reimbursement by the making of Revolving Loans by the Banks
pursuant to the terms of Section 2.10(c)) in an amount equal to the amount of
any drawing honored by the Issuing Bank under a Letter of Credit issued by it,
the Issuing Bank promptly shall notify each Bank of the unreimbursed amount of
such drawing and of such Bank's respective participation therein based on such
Bank's Pro Rata Share. Each Bank shall make available to the Issuing Bank an
amount equal to its respective participation, in same day funds, at the office
of the Issuing Bank specified in such notice, not later than 1:00 P.M. (New York
time) on the Business Day after the date notified by the Issuing Bank. If any
Bank fails to make available to the Issuing Bank the amount of such Bank's
participation in such Letter of Credit as provided in this Section 2.10(d), the
Issuing Bank shall be entitled to recover such amount on demand from such Bank
together with interest at the customary rate set by the Issuing Bank for the
correction of errors among banks for one Business Day and thereafter at the Base
Lending Rate. Nothing in this Section 2.10 shall be deemed to prejudice the
right of any Bank to recover from the Issuing Bank any amounts made available by
such Bank to the Issuing Bank pursuant to this Section 2.10(d) if it is
determined in a final judgment by a court of competent jurisdiction that the
payment with respect to a Letter of Credit by the Issuing Bank in respect of
which payment was made by such Bank constituted
<PAGE> 42
gross negligence or willful misconduct on the part of the Issuing Bank. The
Issuing Bank shall distribute to each other Bank that has paid all amounts
payable by it under this Section 2.10(d) with respect to any Letter of Credit
issued by the Issuing Bank such other Bank's Pro Rata Share of all payments
received by the Issuing Bank from the Borrower or pursuant to the last paragraph
of Section 2.10(a), in each case, in reimbursement of drawings honored by the
Issuing Bank under such Letter of Credit when such payments are received.
(e) COMPENSATION. The Borrower agrees to pay the following amounts
to the Issuing Bank with respect to each Letter of Credit issued by it:
(i) a letter of credit fee equal to: (x) the Applicable Eurodollar
Margin per annum (to be distributed to all the Banks according to their
respective Pro Rata Shares) plus (y) the greater of (A) 0.25% per annum
(calculated on the basis of a 360-day year and the actual number of days
elapsed) of the maximum amount available from time to time to be drawn under
such Letter of Credit and (B) $500, which amounts payable under clauses (A)
and (B) shall be payable to the Issuing Bank quarterly in arrears on and to
the first Business Day of each March, June, September and December;
(ii) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by the Issuing Bank in
respect of each such drawing from the date of the drawing through the date
such amount is reimbursed by the Borrower (including any such reimbursement
out of the proceeds of Revolving Loans pursuant to Section 2.10(c)) at a rate
that is equal to the sum of the Base Lending Rate and the Applicable Base
Margin; provided that if such amount is not paid on demand, such amount shall
bear interest thereafter at a rate that is equal to 2.00% per annum in excess
of the interest rate otherwise payable under this Agreement for Base Rate
Loans which such rate shall not thereafter be increased pursuant to Section
2.06(e); and
(iii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each drawing made thereunder, documentary and processing
charges in accordance with the Issuing Bank's standard schedule for such
charges in effect at the time of such issuance, amendment, transfer or
drawing, as the case may be, or as otherwise agreed to by the Issuing Bank.
Promptly upon receipt by the Issuing Bank of any amount described in
clauses (i) or (ii) of this Section 2.10(e) (other than amounts specifically
designated for distribution to the Issuing Bank) with respect to a Letter of
Credit, the Issuing Bank shall distribute to each Bank its Pro Rata Share of
such amount.
(f) OBLIGATIONS ABSOLUTE. The obligation of the Borrower to
reimburse the Issuing Bank for drawings made under the Letters of Credit issued
by it and to repay any Revolving Loans made by the Banks pursuant to Section
2.10(c) and the obligations by the Banks under Section 2.10(d) shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
<PAGE> 43
(ii) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against a beneficiary or any transferee of
any Letter of Credit (or any persons or entities for whom any such transferee
may be acting), the Agent, any Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between the
Borrower and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; provided that the Issuing Bank shall use
reasonable care to determine that the documents and certificates required to
be delivered under any Letter of Credit have been delivered and that they
comply on their face with the requirements of that Letter of Credit;
(iv) payment by the Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document that does
not comply with the terms of such Letter of Credit; provided that the Issuing
Bank shall use reasonable care to determine that the documents and
certificates required to be delivered under any Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit;
(v) any adverse change in the business, operations, property,
assets, condition (financial or otherwise) or prospects of the Borrower or
any of its Subsidiaries;
(vi) any breach of this Agreement or any other Credit Document by the
Borrower or any of its Subsidiaries, the Agent or any Bank (other than the
Issuing Bank);
(vii) any other circumstance or happening whatsoever, that is similar
to any of the foregoing; or
(viii) the fact that a Default or an Event of Default shall have
occurred and be continuing;
provided that the Borrower shall not be required to pay any such amounts to the
extent they arise from the gross negligence or willful misconduct of the Issuing
Bank (as determined by a court of competent jurisdiction).
(g) ADDITIONAL PAYMENTS. IF by reason of:
(i) any change in any applicable law, regulation, rule, decree or
regulatory requirement or any change in the interpretation or application by
any judicial or regulatory authority of any law, regulation, rule, decree or
regulatory requirement, in each case occurring after the Closing Date; or
<PAGE> 44
(ii) compliance by the Issuing Bank or any Bank with any direction,
request or requirement (whether or not having the force of law) announced or
issued after the Closing Date by any governmental or monetary authority,
including, without limitation, any announcements or issuances under
Regulation D of the Board of Governors of the Federal Reserve System;
THEN:
(i) the Issuing Bank or any Bank shall be subject to any tax, levy,
charge or withholding of any nature or to any variation thereof or to any
penalty with respect to the maintenance or fulfillment of its obligations
under this Section 2.10, whether directly or by such being imposed on or
suffered by the Issuing Bank or any Bank;
(ii) any reserve, special deposit, premium, FDIC assessment, capital
adequacy or similar requirement is or shall be applicable, imposed or
modified in respect of any Letters of Credit issued by the Issuing Bank or
participations therein purchased by any Bank; or
(iii) there shall be imposed on the Issuing Bank or any Bank any other
condition regarding this Section 2.10, any Letter of Credit or any
participation therein;
AND the result of the foregoing is to directly or indirectly increase the cost
to the Issuing Bank or any Bank of issuing, making or maintaining any Letter of
Credit or of purchasing or maintaining any participation therein, or to reduce
the amount receivable in respect thereof by the Issuing Bank or any Bank, THEN
and in any such case the Issuing Bank or such Bank may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify the Borrower and the Agent, and the Borrower shall pay within
five Business Days of the date of such notice such amounts as the Issuing Bank
or such Bank may specify to be necessary to compensate the Issuing Bank or such
Bank for such additional cost or reduced receipt, together with interest on such
amount from the date demanded until payment in full thereof at a rate equal at
all times to the Base Lending Rate plus 2.00% per annum. The determination by
the Issuing Bank or any Bank, as the case may be, of any amount due pursuant to
this Section 2.10(g) as set forth in a certificate setting forth the calculation
thereof in reasonable detail, shall be presumed to be correct.
(h) INDEMNIFICATION; NATURE OF THE ISSUING BANK'S DUTIES. In
addition to amounts payable as elsewhere provided in this Section 2.10, the
Borrower hereby agrees to protect, indemnify, pay and save harmless the Issuing
Bank from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable attorneys' fees and reasonable
allocated costs of internal counsel) that the Issuing Bank may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit, other than as a result of gross negligence or willful
misconduct of the Issuing Bank or the Issuing Bank's failure to use reasonable
care to determine that the documents and certificates required to be delivered
under such Letter of Credit had been delivered and that they complied on their
face with the requirements of that Letter of Credit as determined by a court of
competent jurisdiction or (ii) the failure of the Issuing Bank to honor a
drawing under any Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called
<PAGE> 45
"GOVERNMENT ACTS"). Each Bank, proportionately to its Pro Rata Share, severally
agrees to indemnify the Issuing Bank to the extent the Issuing Bank shall not
have been reimbursed by the Borrower or its Subsidiaries, for and against any of
the foregoing claims, demands, liabilities, damages, losses, costs, charges and
expenses to which the Issuing Bank is entitled to reimbursement from the
Borrower.
As between the Borrower and the Issuing Bank, the Borrower assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit issued by
the Issuing Bank by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Issuing Bank shall not
be responsible (absent gross negligence or willful misconduct (as determined by
a court of competent jurisdiction)): (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of such Letters of Credit, even
if it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) for failure of the beneficiary of any such Letter of Credit to
comply fully with conditions required in order to draw upon such Letter of
Credit; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (vii) for the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Issuing Bank, including, without limitation, any Government Acts. None of the
above shall affect, impair, or prevent the vesting of any of the Issuing Bank's
rights or powers hereunder; provided that, notwithstanding the foregoing, the
Issuing Bank shall use reasonable care to determine that the documents and
certificates required to be delivered under such Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Issuing
Bank under or in connection with the Letters of Credit issued by it or the
related certificates, if taken or omitted in good faith and absent gross
negligence or willful misconduct of the Issuing Bank (as determined by a court
of competent jurisdiction), shall not put the Issuing Bank under any resulting
liability to the Borrower.
Notwithstanding anything to the contrary contained in this Section
2.10(h), the Borrower shall have no obligation to indemnify the Issuing Bank in
respect of any liability incurred by the Issuing Bank arising solely out of the
gross negligence or willful misconduct of the Issuing Bank as determined by a
court of competent jurisdiction, or out of the wrongful dishonor by the Issuing
Bank of a proper demand for payment made under the Letters of Credit; provided
that the Issuing Bank shall use reasonable care to determine that the documents
and certificates required to be delivered under any Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit.
<PAGE> 46
(i) COMPUTATION OF INTEREST. Interest payable pursuant to this
Section 2.10 shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it accrues.
SECTION 3. FEES.
3.01 FEES.
(a) COMMITMENT FEE. The Borrower agrees to pay to the Agent, for
distribution to each Bank in proportion to its Pro Rata Share, commitment fees
for the period from and including the Closing Date to but excluding the
Termination Date equal to the average of the daily unused portion of the
Revolving Loan Commitments multiplied by the Commitment Fee Percentage per
annum, such commitment fees to be calculated on the basis of a 360-day year and
the actual number of days elapsed and to be payable quarterly in arrears on and
to the first Business Day of each March, June, September and December commencing
on March 1, 1997 and upon the termination of the Revolving Loan Commitments.
Anything contained in this Agreement to the contrary notwithstanding,
for the purposes of calculating the commitment fees payable by the Borrower
pursuant to this Section 3.01(b), the "UNUSED PORTION OF THE REVOLVING LOAN
COMMITMENTS," as of any date of determination, after giving effect to any
scheduled principal reduction made on such date, shall be an amount equal to the
aggregate amount of the Revolving Loan Commitments as of such date minus the
aggregate principal amount of all outstanding Revolving Loans and the Letter of
Credit Usage on such date, and the unused portion of the Revolving Loan
Commitments shall not be reduced by (i) reason of the Borrower's inability to
satisfy the conditions precedent set forth in Section 5 and consequent inability
to borrow Loans hereunder or (ii) the aggregate principal amount of all
outstanding Swing Line Loans.
(b) OTHER FEES. The Borrower agrees to pay to the Agent such other
fees in the amounts and at the times separately agreed upon between the Borrower
and the Agent.
SECTION 4. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; PAYMENTS.
4.01 SCHEDULED REDUCTIONS IN REVOLVING LOAN COMMITMENTS. The
Revolving Loan Commitments shall be permanently reduced on the dates and in the
amounts set forth below:
<PAGE> 47
<TABLE>
<CAPTION>
Scheduled Reduction of
Date Revolving Loan Commitments
---- --------------------------
<S> <C>
December 1, 1998 $10,000,000
March 1, 1999 $8,750,000
June 1, 1999 $8,750,000
September 1, 1999 $8,750,000
December 1, 1999 $8,750,000
March 1, 2000 $10,000,000
June 1, 2000 $10,000,000
September 1, 2000 $10,000,000
December 1, 2000 $10,000,000
March 1, 2001 $10,000,000
June 1, 2001 $10,000,000
September 1, 2001 $10,000,000
December 1, 2001 $10,000,000
</TABLE>
The scheduled reductions of the Revolving Loan Commitments set forth in
this Section 4.01 shall be reduced in connection with any voluntary or mandatory
reductions of the Revolving Loan Commitments in accordance with Section 4.03(e).
4.02 PREPAYMENTS; VOLUNTARY AND MANDATORY REDUCTIONS IN REVOLVING
LOAN COMMITMENTS.
(a) VOLUNTARY PREPAYMENTS. The Borrower shall have the right to
prepay the Loans, without premium or penalty, in whole or in part from time to
time on the following terms and conditions: (i) the Borrower shall deliver to
the Agent at its Notice Office prior notice of its intent to prepay the Loans
and the amount of such prepayment no later than 12:00 Noon (New York time) one
Business Day in advance of the proposed prepayment date (in the case of a Base
Rate Loan) and three Business Days in advance of the proposed prepayment date
(in the case of a Eurodollar Rate Loan), which notice the Agent shall promptly
transmit to each of the Banks, (ii) Eurodollar Rate Loans may be prepaid only on
the expiration of the Interest Period applicable thereto and (iii) the Borrower
may prepay Swing Line Loans at any time in full or in part without notice or
penalty (Swing Line Loans prepaid after 12:00 Noon (New York time) shall be
charged interest through and including the date of such prepayment). Any such
voluntary prepayment shall be applied as specified in Section 4.03(a).
(b) VOLUNTARY REDUCTIONS OF REVOLVING LOAN COMMITMENTS. The Borrower
shall have the right, at any time and from time to time, to terminate in whole
or permanently reduce in part, without premium or penalty, the Revolving Loan
Commitments in an amount up to the amount by which the Total Revolving Loan
Commitments exceed the Total Utilization of Revolving Loan Commitments. The
Borrower shall give not less than three Business Days' prior written notice to
the Agent designating the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction. Promptly after
receipt of a notice of such termination or partial reduction, the Agent shall
notify each Bank of the proposed termination or reduction. Such termination or
partial reduction of the Revolving Loan
<PAGE> 48
Commitments shall be effective on the date specified in the Borrower's notice
and shall reduce the Revolving Loan Commitment of each Bank proportionately to
its Pro Rata Share. Any such partial reduction of the Revolving Loan Commitments
shall be in an aggregate minimum amount of $1,000,000 and integral multiples of
$100,000 in excess of that amount unless the remaining amount of the Revolving
Loan Commitments is less than $1,000,000 in which case such reduction shall be
in the amount of the then remaining Revolving Loan Commitments.
(c) MANDATORY PREPAYMENTS AND MANDATORY REDUCTIONS OF REVOLVING LOAN
COMMITMENTS. The Loans shall be prepaid and/or the Revolving Loan Commitments
shall be permanently reduced in the amounts and under the circumstances set
forth below, all such prepayments and/or reductions to be applied as set forth
below or as more specifically provided in Section 4.03:
(i) Prepayments and Reductions Due to Issuance of Debt
Securities. No later than the first Business Day following the date of
receipt by the Borrower or any of its Wholly-Owned Subsidiaries of the
cash proceeds (net of underwriting discounts and commissions and other
reasonable costs associated therewith) from the issuance of any debt
Securities of the Borrower or any of its Wholly-Owned Subsidiaries,
respectively, the Borrower shall prepay the Loans and/or the Revolving
Loan Commitments shall be permanently reduced in an aggregate amount
equal to 100% of such net cash proceeds. Concurrently with any
prepayment of the Loans and/or reduction of the Revolving Loan
Commitments pursuant to this Section 4.02(c)(i), the Borrower shall
deliver to Agent an Officers' Certificate demonstrating the calculation
of the net cash proceeds that gave rise to such prepayment and/or
reduction. In the event that the Borrower shall subsequently determine
that the actual net cash proceeds were greater than the amount set forth
in such Officers' Certificate, the Borrower shall promptly make an
additional prepayment of the Loans (and/or, if applicable, the Revolving
Loan Commitments shall be permanently reduced) in an amount equal to the
amount of such excess, and the Borrower shall concurrently therewith
deliver to Agent an Officers' Certificate demonstrating the derivation
of the additional net cash proceeds resulting in such excess.
(ii) Prepayments Due to Reductions or Restrictions of
Revolving Loan Commitments. The Borrower shall from time to time prepay
first the Swing Line Loans and second the Revolving Loans to the extent
necessary to give effect to the limitations set forth in Sections
2.01(a) and 2.02(a).
4.03 APPLICATION OF PREPAYMENTS.
(a) APPLICATION OF VOLUNTARY PREPAYMENTS BY TYPE OF LOANS AND
<PAGE> 49
ORDER OF MATURITY. Any voluntary prepayments pursuant to Section 4.02(a) shall
be applied as specified by the Borrower in the applicable notice of prepayment;
provided that in the event the Borrower fails to specify the Loans to which any
such prepayment shall be applied, such prepayment shall be applied first to
repay outstanding Swing Line Loans to the full extent thereof and second to
repay outstanding Revolving Loans to the full extent thereof.
(b) APPLICATION OF MANDATORY PREPAYMENTS BY TYPE OF LOANS. Any
amount (the "APPLIED AMOUNT") required to be applied as a mandatory prepayment
of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to
Section 4.02(c)(i) shall be applied first to prepay the Swing Line Loans to the
full extent thereof and to permanently reduce the Revolving Loan Commitments by
the amount of such prepayment and second, to the extent of any remaining portion
of the Applied Amount, to prepay the Revolving Loans to the full extent thereof
and to further permanently reduce the Revolving Loan Commitments by the amount
of such prepayment, and third, to the extent of any remaining portion of the
Applied Amount, to further permanently reduce the Revolving Loan Commitments to
the full extent thereof.
(c) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND EURODOLLAR
RATE LOANS. Any prepayment of the Revolving Loans shall be applied first to Base
Rate Loans to the full extent thereof before application to Eurodollar Rate
Loans, in each case in a manner which minimizes the amount of any payments
required to be made by the Borrower pursuant to Section 2.09(e).
(d) APPLICATION OF PREPAYMENTS TO PRINCIPAL AND INTEREST. All
payments in respect of the principal amount of any Loan shall include payment of
accrued interest on the principal amount being repaid or prepaid, and all such
payments (and, in any event, any payments in respect of any Loan on a date when
interest is due and payable with respect to such Loan) shall be applied to the
payment of interest before application to principal.
(e) APPLICATION OF UNSCHEDULED REDUCTIONS OF REVOLVING LOAN
COMMITMENTS. Any reductions of the Revolving Loan Commitments pursuant to
Section 4.02(b) and Section 4.02(c) shall be applied to reduce on a pro rata
basis each scheduled reduction in the Revolving Loan Commitments set forth in
Section 4.01 that is remaining at the time of such reduction in the Revolving
Loan Commitments; provided that each such scheduled reduction in the Revolving
Loan Commitments shall be reduced in a minimum amount of $100,000 and in
integral multiples of $10,000 in excess thereof and any remaining amount to be
applied to the scheduled reductions in the Revolving Loan Commitments shall be
applied to the last scheduled reduction.
4.04 GENERAL PROVISIONS REGARDING PAYMENTS.
(a) METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made (i)
subject to the second paragraph of Section 4.04(c), in the case of any Swing
Line
<PAGE> 50
Loan to the Swing Line Bank, and (ii) to the Agent for the account of the Bank
or the Banks entitled thereto not later than 1:00 P.M. (New York time), on the
date when due and shall be made in Dollars in immediately available funds at the
Payment Office of the Agent. Whenever any payment to be made hereunder or under
any Note shall be stated to be due on a day that is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or under any Note or of the commitment or other fees
hereunder, as the case may be; provided, however, that if the day on which
payment relating to a Eurodollar Rate Loan is due is not a Business Day but is a
day of the month after which no further Business Day occurs in that month, then
the due date thereof shall be the next preceding Business Day. The Borrower and
the Swing Line Bank shall give the Agent prompt notice of each Swing Line Loan
and any payment thereof. All voluntary prepayments shall be made in an aggregate
minimum amount of $100,000 and integral multiples of $10,000 in excess of that
amount.
(b) NET PAYMENTS. All payments made by the Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
(c) APPORTIONMENT OF PAYMENTS. Aggregate principal and interest
payments shall be apportioned among all outstanding Loans to which such payments
relate, and such payments shall be apportioned ratably to the Banks,
proportionately to the Banks' respective Pro Rata Shares, except in the case of
payments with respect to a Swing Line Loan, which shall be paid only to the
Swing Line Bank. The Agent promptly shall distribute to each Bank at its primary
address set forth below its name on the appropriate signature page hereof or
such other address as any Bank may request its share of all such payments
received by the Agent and the commitment and loan fees of such Bank when
received by the Agent pursuant to Section 3.01.
Anything contained in this agreement to the contrary notwithstanding,
upon the occurrence and during the continuance of any Event of Default specified
in Section 9 or after the acceleration of the maturity of the Loans and the
other amounts referred to in Section 9 or termination of the Revolving Loan
Commitments, all payments relating to the Loans and the other Obligations shall
be made to the Agent for the account of the Banks and all amounts received by
the Agent that are to be applied to the payment of the Obligations shall be
distributed first to the Swing Line Bank to the extent of the unpaid principal
of, and accrued interest on, Swing Line Loans and second to the Banks in such a
manner that each Bank receives its Pro Rata Share of such amounts based on the
outstanding principal amounts of all Revolving Loans then outstanding and the
amount of all other Obligations then payable.
SECTION 5. CONDITIONS PRECEDENT.
5.01 CONDITIONS TO EFFECTIVENESS. This Agreement shall become effective
only upon satisfaction of all of the following conditions:
<PAGE> 51
(a) EXECUTION OF AGREEMENT; CREDIT DOCUMENTS; NOTES. The Agent shall
have received: (i) an original of this Agreement (whether the same or different
copies) duly executed by the Borrower, each Bank and the Agent, (ii) an original
Revolving Note made to the order of each Bank duly executed by the Borrower in
the amount, maturity and as otherwise provided herein, (iii) an original Swing
Line Note made to the order of the Swing Line Bank duly executed by the
Borrower, and (iv) to the extent not already received, signed copies of the
other Credit Documents (whether the same or different copies) duly executed by
the parties thereto.
(b) NO DEFAULT; REPRESENTATION AND WARRANTIES; MATERIAL ADVERSE
CHANGES. All representations and warranties of the Borrower and its Subsidiaries
set forth in this Agreement and in each of the other Credit Documents shall be
true, correct and complete in all material respects on and as of the Closing
Date and after giving effect to the transactions contemplated to occur on such
date, and the Borrower shall have delivered to the Agent an Officer's
Certificate, dated as of the Closing Date, signed by the President or Vice
President of the Borrower, and attested to by the Secretary or any Assistant
Secretary of the Borrower, in form and substance satisfactory to the Agent, to
the effect that on and as of the Closing Date and after giving effect to the
transactions contemplated to occur on such date, (i) no Default or Event of
Default shall have occurred and be continuing, (ii) all representations and
warranties contained herein and in the other Credit Documents are true, correct
and complete in all material respects and (iii) no material adverse change has
occurred in the business, operations, properties, assets or condition (financial
or otherwise) or prospects of any of the Borrower and its Subsidiaries taken as
whole since December 31, 1995.
(c) CORPORATE DOCUMENTS; PROCEEDINGS.
(i) On the Closing Date, the Agent shall have received a
certificate, dated the Closing Date, signed by the President or Vice President
of the Borrower, and attested to by the Secretary or any Assistant Secretary of
the Borrower, in form and substance satisfactory to the Agent, certifying (A)
resolutions of the Board of Directors of the Borrower authorizing and approving
this Agreement, the Notes, the other Credit Documents and the transactions
contemplated hereby, (B) the signatures and incumbency of the Borrower's
officers executing this Agreement, the Notes, any other Credit Documents to
which the Borrower is a party and the documents, instruments or other
certificates to be delivered in connection with this Agreement and the other
Credit Documents, and (C) the Certificate of Incorporation and By-Laws of the
Borrower together with copies of the Certificate of Incorporation and By-Laws of
the Borrower and the resolutions of the Borrower referred to in such
certificate.
(ii) On the Closing Date, the Agent shall have received a
<PAGE> 52
certificate, dated the Closing Date, signed by the President or Vice President
of each of the Borrower's Subsidiaries party to any Credit Document, and
attested to by the Secretary or any Assistant Secretary of such Subsidiary, in
form and substance satisfactory to the Agent, certifying (A) the resolutions
adopted by the Board of Directors of such Subsidiary approving and authorizing
the Subsidiary Guaranty, the Subsidiary Security Agreement, the Subsidiary
Pledge Agreement, the Trademark Security Agreement and the transactions
contemplated thereby and by this Agreement, (B) the signatures and incumbency of
the officers of such Subsidiary executing the Credit Documents to which such
Subsidiary is a party and the documents, instruments or other certificates to be
delivered in connection with this Agreement and the other Credit Documents, and
(C) the Articles or Certificate of Incorporation or other charter documents and
By-Laws of such Subsidiary, together with copies of the Articles or Certificate
of Incorporation or other charter documents and By-Laws of such Subsidiary and
the resolutions of such Subsidiary referred to in such certificate.
(iii) On the Closing Date, the Agent shall have received
copies of the Articles or Certificate of Incorporation or other charter
documents of each of the Borrower and each of the Borrower's Subsidiaries party
to any Credit Document, certified as of a recent date prior to delivery by the
Secretary of State of its jurisdiction of incorporation, together with a good
standing certificate from its jurisdiction of incorporation dated a recent date
prior to delivery.
(iv) All corporate, partnership and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement and the other Credit Documents shall be satisfactory in form and
substance to the Banks, and the Agent shall have received all information and
copies of all documents and papers, including records of corporate proceedings
and governmental approvals, if any, that any Bank reasonably may have requested
in connection therewith, such documents and papers as appropriate to be
certified by proper corporate, partnership or governmental authorities.
(d) PERFECTION OF SECURITY INTERESTS. The Borrower and the Active
Subsidiaries shall have taken or caused to be taken such actions in such a
manner so that the Agent has or maintains a valid and perfected first priority
security interest in all Collateral (subject to Liens consented to by the
Required Banks with respect to such Collateral and other Liens permitted by
Section 8.01) encumbered or to be encumbered under the Credit Documents. Such
actions shall include, without limitation: (i) the delivery, to the extent not
theretofore delivered, pursuant to the applicable Credit Documents by the
Borrower and the Active Subsidiaries of such certificates (which certificates
shall be registered in the name of the Agent or properly endorsed in blank for
transfer or accompanied by irrevocable undated stock powers duly endorsed in
blank, all in form and substance satisfactory to the Agent) representing all of
the capital stock required to be pledged pursuant to the Credit Documents; (ii)
the delivery, to the extent not theretofore delivered, pursuant to the
applicable Credit Documents by the
<PAGE> 53
Borrower and the Active Subsidiaries of such promissory notes (which promissory
notes shall be endorsed to the order of the Agent, all in form and substance
satisfactory to the Agent) representing all of the pledged debt required to be
pledged pursuant to the Credit Documents; (iii) the delivery, to the extent not
theretofore delivered, to the Agent of Uniform Commercial Code financing
statements executed by the Borrower and the Active Subsidiaries as to the
Collateral granted by the Borrower and the Active Subsidiaries for all
jurisdictions as may be necessary or desirable to perfect the Agent's security
interest in such Collateral; and (iv) evidence reasonably satisfactory to the
Agent that all other filings (including, without limitation, filings with the
United States Patent and Trademark Office), recordings and other actions the
Agent deems necessary or advisable to establish, preserve and perfect the first
priority Liens (subject to Liens permitted under this Agreement or consented to
by the Required Banks with respect to such Collateral) granted to the Agent in
personal and mixed property shall have been made.
(e) MARGIN RATE DETERMINATION CERTIFICATE. The Borrower shall have
delivered a Margin Rate Determination Certificate calculated using consolidated
financial statements of the Borrower dated September 30, 1996.
(f) PAYMENT OF FEES. The Borrower shall have paid the Fees required
by Section 3.01 to be paid on or prior to the Closing Date.
(g) FINANCIAL STATEMENTS. The Agent and the Banks shall have
received (i) audited consolidated balance sheets (and the related consolidated
statements of operations and statements of changes in stockholders' equity) of
(x) the Borrower and its Consolidated Subsidiaries for the fiscal years ended
February 28, 1994 and 1995 and the ten-month period ended December 31, 1995 and
(y) Symphony for the fiscal years ended December 31, 1994 and 1995; and (ii)
unaudited consolidated balance sheets (and the related consolidated statements
of operations and statements of changes in stockholders' equity) of the Borrower
and its Consolidated Subsidiaries for the nine-month period ended September 30,
1996.
(h) EXISTING AND CONTINUING INDEBTEDNESS.
(i) The Agent shall have received evidence, in form and substance
satisfactory to it, of (x) the termination of the Existing Credit Agreement and
(y) the payment by Borrower of all amounts and obligations due under the
Existing Credit Agreement.
(ii) The Existing Indebtedness that shall remain outstanding after
the Closing Date shall be as set forth on SCHEDULE 8.04(II) annexed hereto, and
the Borrower shall have delivered to the Agent an Officers' Certificate to such
effect.
(i) SATISFACTION OF CONDITIONS TO FUNDING. All conditions precedent
to the making of Loans and the issuance of Letters of Credit described in
Section
<PAGE> 54
5.02 shall be satisfied on and as of the Closing Date with respect to
the Revolving Loans and Swing Line Loans, if any, to be made, and the
Letters of Credit to be issued, on such date.
(j) OPINIONS OF COUNSEL. On the Closing Date, the Agent
shall have received from: (i) Harwell Howard Hyne Gabbert & Manner,
P.C., counsel to the Borrower, an opinion substantially in the form
annexed hereto as EXHIBIT Q; and (ii) Kronish, Lieb, Weiner & Hellman
LLP, counsel to Borrower, an opinion substantially in the form annexed
hereto as EXHIBIT R; in each case addressed to each of the Banks and
dated the date of delivery, covering such matters incident to the
transactions contemplated herein as the Agent may reasonably request.
(k) ENVIRONMENTAL MATTERS. The Agent and the Banks shall
have received reports and other information, in form, scope and
substance satisfactory to the Agent and the Banks, concerning any
environmental liabilities of Borrower and its Subsidiaries.
All the Notes, certificates, legal opinions and other documents
and papers referred to in this Section 5, unless otherwise specified, shall be
delivered to the Agent for the account of each of the Banks and, except for the
Notes, in sufficient counterparts for each of the Banks and shall be
satisfactory in form and substance to the Banks.
5.02 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The
obligations of the Banks to make Revolving Loans, the Swing Line Bank to make
Swing Line Loans and the Issuing Bank to issue Letters of Credit on each Funding
Date are subject to the following further conditions precedent:
(a) The Agent or Issuing Bank shall have received, in
accordance with the provisions of Sections 2.01(b) or 2.10(b), as the
case may be, before that Funding Date, an originally executed Notice of
Revolver Borrowing or Notice of Issuance of Letter of Credit, as the
case may be (or, in the case of a Swing Line Loan, the Swing Line Bank
shall have received an executed Notice of Swing Line Borrowing), in each
case signed by the Chief Executive Officer, the Chief Financial Officer
or the Treasurer of the Borrower or by any officer of the Borrower
designated by the Board of Directors of the Borrower or any of the
above-described officers on behalf of the Borrower in writing delivered
to the Agent. The obligation of the Issuing Bank to issue any Letter of
Credit is subject to the further condition precedent that on or before
the date of issuance of such Letter of Credit, the Issuing Bank shall
have received, in accordance with the provisions of Section 2.10(b), all
other information specified in Section 2.10(b) and such other documents
as the Issuing Bank reasonably may require in connection with the
issuance of such Letter of Credit.
(b) As of the Funding Date:
<PAGE> 55
(i) The representations and warranties contained herein
shall be true, correct and complete in all material respects on and as
of that Funding Date to the same extent as though made on and as of that
date taking into account any amendments to the Schedules or Exhibits
hereto as a result of any disclosures made by the Borrower to the Agent
and the Banks after the Closing Date approved by the Agent and the
Required Banks in their reasonable discretion;
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Revolver Borrowing or the issuance of such Letter of Credit
that would constitute a Default or an Event of Default;
(iii) The Borrower shall have performed in all material
respects all agreements and satisfied all conditions that this Agreement
provides shall be performed by it on or before that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Bank (or,
in the case of a Swing Line Loan, the Swing Line Bank) from making the
Revolving Loans or the Issuing Bank from issuing the Letter of Credit
(or, in the case of a Swing Line Loan, making a Swing Line Loan); and
(v) The making of the Loans or the issuing of the Letter of
Credit requested on such Funding Date shall not violate any law,
including, without limitation, Regulation G, Regulation T, Regulation U
or Regulation X of the Board of Governors of the Federal Reserve System.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to
induce the Banks to enter into this Agreement and to maintain and make the
Loans, the Borrower makes the following representations, warranties and
agreements, which shall survive the execution and delivery of this Agreement and
the Notes and the making of the Loans:
6.01 CORPORATE STATUS. Each of the Borrower and the Active
Subsidiaries (i) is a duly organized and validly existing corporation,
partnership or association, as the case may be, in good standing under the laws
of the jurisdiction of its incorporation, (ii) has the power and authority to
own its property and assets and to transact the business in which it is engaged
and (iii) is duly qualified as a foreign corporation, partnership or
association, as the case may be, and in good standing in each jurisdiction where
its ownership, leasing or operation of property or the conduct of its business
requires such qualification, except if the failure to be so qualified could not
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrower and its Subsidiaries taken as a whole. None of the Inactive
Subsidiaries conducts any
<PAGE> 56
business or owns any assets that are, in the aggregate, material to the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole. None of the
Borrower and any of the Subsidiaries owns, actively uses or claims any rights to
any registered service mark, trademark or tradename (other than those listed in
Schedule I to the Trademark Security Agreement).
6.02 CORPORATE POWER AND AUTHORITY. The Borrower and each of its
Subsidiaries has the corporate, partnership or other power to execute, deliver
and perform the terms and provisions of each of the Credit Documents to which it
is a party and has taken all necessary corporate, partnership or other action to
authorize the execution, delivery and performance by it of each of such Credit
Documents. The Borrower and each of its Subsidiaries has duly executed and
delivered each of the Credit Documents to which it is party, and each of such
Credit Documents constitutes the legal, valid and binding obligation of the
Borrower or such Subsidiary, as the case may be, enforceable against the
Borrower or such Subsidiary, as the case may be, in accordance with its terms
except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally and by general equitable principles (regardless of whether the issue
of enforceability is considered in a proceeding in equity or at law). The
Borrower and each Subsidiary making any Acquisition shall have the corporate,
partnership or other power to consummate such Acquisition upon the consummation
thereof, on the terms set forth in any applicable purchase agreement, agreement
of merger or other operative agreement. Upon the consummation of any
Acquisition, such Acquisition shall have been duly authorized by all necessary
action of the Borrower and any of its Subsidiaries participating therein.
6.03 NO VIOLATION. Neither the execution, delivery or performance by
the Borrower or a Subsidiary of the Borrower of the Credit Documents to which it
is a party, nor compliance by it with the terms and provisions of any such
Credit Documents, nor the consummation of any Acquisition, upon the consummation
thereof, (i) will contravene any provision of any law, statute, rule or
regulation or any order, writ, injunction or decree of any court or governmental
instrumentality (except, in the case of the consummation of any Acquisition, as
could not reasonably be expected to have a material adverse effect on the
business, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole), (ii) will
conflict or be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under (except,
in the case of the consummation of any Acquisition, as could not reasonably be
expected to have a material adverse effect on the business, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole), or result in the creation or imposition of
(or the obligation to create or impose) any Lien (other than Liens permitted
under Section 8.01) upon any of the property or assets of the Borrower or any of
its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, credit agreement, loan agreement or any other agreement, contract or
instrument to which the Borrower or any of its Subsidiaries is a party or by
which it or
<PAGE> 57
any of its property or assets is bound or to which it may be subject or (iii)
will violate any provision of the Certificate of Incorporation or By-Laws (or
other documents of formation and governance, as the case may be) of the Borrower
or any of its Subsidiaries.
6.04 GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Closing Date), or exemption
by, any governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance by the Borrower or any of its Subsidiaries of any
Credit Document to which the Borrower or any of such Subsidiaries is a party,
(ii) the legality, validity, binding effect or enforceability of any such Credit
Document or (iii) any Acquisition, except filings, approvals and authorizations
that shall have been made or obtained prior to the consummation of such
Acquisition or for which arrangements shall have been made for the subsequent
issuance thereof within four weeks of the closing of such Acquisition (or, if an
additional period is necessary such additional period as is satisfactory to the
Agent) except, in any case, filings, approvals and authorizations that could not
reasonably be expected to have a material adverse effect on the business,
operations, properties, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole.
6.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED
LIABILITIES; ETC.
(a) The financial statements delivered to the Banks pursuant to
Section 5.01(g) present fairly the consolidated financial condition of the
Borrower and its Consolidated Subsidiaries and, to Borrower's knowledge, of
Symphony as at the respective dates thereof and the consolidated results of
operations and changes in financial condition of the Borrower and its
Consolidated Subsidiaries and, to Borrower's knowledge, of Symphony for each of
the periods covered thereby, subject (in the case of any unaudited interim
financial statements) to changes resulting from normal year-end adjustments. All
such consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently applied
(subject, in the case of such unaudited consolidated financial statements, to
ordinary year-end adjustments and footnotes).
(b) Except as fully reflected in the financial statements described
in Section 6.05(a) or in SCHEDULE 6.05, there were as of the Closing Date no
liabilities or obligations with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) that, either individually or in aggregate,
would be material to the Borrower and its Subsidiaries taken as a whole. Except
as set forth in SCHEDULE 6.05, as of the Closing Date the Borrower does not know
of any basis for the assertion against the Borrower or any of its Subsidiaries
of any liability or obligation of any nature whatsoever that is not fully
reflected in the financial statements described in Section 6.05(a) that, either
<PAGE> 58
individually or in the aggregate, would be material to the Borrower and its
Subsidiaries taken as a whole.
6.06 LITIGATION. Except as set forth on SCHEDULE 6.06, there is no
action, suit or arbitration or other proceeding pending or, to the best
knowledge of the Borrower, threatened with respect to (i) any Credit Document,
(ii) any tax return, (iii) any Acquisition that has been consummated, if any, or
(iv) any other matter that, if adversely determined, is reasonably likely to
materially and adversely affect the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole.
6.07 TRUE AND COMPLETE DISCLOSURE. All factual information (taken as
a whole) heretofore or contemporaneously furnished by the Borrower or on behalf
of the Borrower with its knowledge in writing to any Bank (including, without
limitation, all information contained in the Credit Documents) for purposes of
or in connection with this Agreement or any transaction contemplated herein
(including, without limitation, any Acquisition) is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of the
Borrower in writing to any Bank will be, true and accurate in all material
respects on the date as of which such information is dated and not incomplete by
omitting to state any fact necessary to make such information (taken as a whole)
not materially misleading at such time in light of the circumstances under which
such information was provided.
6.08 USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds of the Loans
and any Letters of Credit have been and will be used by the Borrower for the
purposes set forth in Section 2.08; provided that no part of the proceeds of any
Loan or any Letter of Credit was or will be used by the Borrower to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock. Neither the making of any Loan or the
issuance of any Letter of Credit nor the use of the proceeds thereof will
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System.
6.09 TAX RETURNS AND PAYMENTS. Each of the Borrower and its
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it that have become due pursuant to such tax returns
and all other taxes and assessments payable by it that have become due, other
than those not yet delinquent, those being contested in good faith and those
listed on SCHEDULE 6.06.
6.10 COMPLIANCE WITH ERISA. Each Plan is in substantial compliance
with ERISA; no Plan is insolvent or in reorganization; no Plan has an Unfunded
Current Liability, no Plan has an accumulated or waived funding deficiency or
permitted decreases in its funding standard account within the meaning of
Section 412 of the Code; neither the Borrower nor any Subsidiary of the Borrower
nor ERISA Affiliate has incurred any material liability to or on account of a
Plan pursuant to Sections 502(c), (i) or (l), 515, 4062, 4063, 4064, 4071, 4201
or 4204 of ERISA or Chapter 43 of the Code or expects to incur any liability
under any of the foregoing sections; no
<PAGE> 59
proceedings have been instituted to terminate any Plan; no condition exists that
presents a material risk to the Borrower or any of its Subsidiaries of incurring
a liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code; no Lien imposed under the Code or ERISA on the assets of the
Borrower or any of its Subsidiaries exists or is likely to arise on account of
any Plan; the Borrower and its Subsidiaries may terminate contributions to any
other employee benefit plans maintained by them without incurring any material
liability to any Person interested therein; and no Plan has received notice from
the Internal Revenue Service of the failure of such Plan to qualify under
Section 401(a) of the Code.
6.11 CAPITALIZATION. The authorized capital stock of the Borrower
consists of 50 million shares of common stock, $0.01 par value per share, of
which 31,104,889 shares were issued and outstanding as of November 4, 1996 and
500,000 shares of preferred stock, $0.01 par value per share, of which none are
issued and outstanding. All such outstanding shares have been duly and validly
issued, are fully paid and non-assessable. The Borrower does not have
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock except as described on SCHEDULE 6.11 or as issued under any
employee stock option plan of the Borrower and reported to the Agent each fiscal
quarter.
6.12 SUBSIDIARIES. On the Closing Date, the corporations listed on
SCHEDULE 6.12 and the associations or joint ventures listed on SCHEDULE 6.21 are
the only Subsidiaries of the Borrower. SCHEDULE 6.12 and SCHEDULE 6.21 correctly
set forth, as of the Closing Date, the percentage ownership (direct and
indirect) of the Borrower in each class of capital stock or partnership
interests of each of its Subsidiaries and also identify the direct owner
thereof.
6.13 COMPLIANCE WITH STATUTES, ETC. Except as disclosed on SCHEDULE
6.13, each of the Borrower and its Subsidiaries is in compliance with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls and the delivery of and payment for pharmaceutical and
healthcare goods and services of the type provided by the Borrower and its
Subsidiaries), except such noncompliances as could not, in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrower and its Subsidiaries taken as a whole.
6.14 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
<PAGE> 60
6.15 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
6.16 LABOR RELATIONS. Neither the Borrower nor any of its
Subsidiaries nor, to the best of the Borrower's knowledge at the time of any
Acquisition, the Target of such Acquisition, is engaged in any unfair labor
practice that would (upon giving effect to such Acquisition) have a material
adverse effect on the Borrower and its Subsidiaries taken as a whole. There is
(i) no significant unfair labor practice complaint pending or, to the best
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries or, to the best knowledge of the Borrower at the time of any
Acquisition, the Target of such Acquisition, before the National Labor Relations
Board, and no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is so pending or, to
the best knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries or, to the best of knowledge of the Borrower at the time of any
Acquisition, the Target of such Acquisition, (ii) no significant strike, labor
dispute, slowdown or stoppage pending or, to the best knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower at the time of any Acquisition, the Target of such
Acquisition, and (iii) to the best knowledge of the Borrower, no union
representation question existing with respect to the employees of the Borrower
or any of its Subsidiaries and, to the best knowledge of the Borrower, no union
organizing activities are taking place, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as would not (upon giving effect to such Acquisition) have a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole.
6.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Except as set forth
on SCHEDULE 6.17, each of the Borrower and the Active Subsidiaries owns all the
patents, trademarks, permits, service marks, trade names, copyrights, licenses,
franchises and formulas, or rights with respect to the foregoing, and has
obtained assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business. Except as set forth on
SCHEDULE 6.17, no proceedings, claims, actions or oppositions have been
instituted or are pending or, to the best of the Borrower's and its
Subsidiaries' knowledge, after due inquiry, are threatened that challenge the
validity of the Borrower's or its Subsidiaries' use of such patents, trademarks,
permits, service marks, trade names, copyrights, licenses, franchises and
formulas, or rights with respect to the foregoing, that would result in a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole.
6.18 NO MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE
6.18, since December 31, 1995, there has been no material adverse change in the
<PAGE> 61
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole other than
change due to action expressly permitted by the terms of this Agreement.
6.19 FRAUD AND ABUSE. Except as disclosed on SCHEDULE 6.13, the
Borrower and its Subsidiaries, and, to the knowledge of the Borrower and its
Subsidiaries after reasonable inquiry, their respective officers and directors,
and persons who provide professional services under agreements with the Borrower
or any of its Subsidiaries have been and are in material compliance with federal
Medicare and Medicaid statutes, 42 U.S.C. ss.ss. 1320a-7, 1320a-7(a), 1320a-7b
and 1395nn, as amended, and the regulations promulgated thereunder or related
state and local statutes and regulations and rules of professional conduct, and
have not at anytime:
(i) knowingly and willfully made or caused to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(ii) knowingly and willfully made or caused to be made any false
statement or representation of a material fact for use in determining rights
to any benefit or payment;
(iii) presented or caused to be presented a claim for reimbursement
for services under Medicare or Medicaid, or other state health care programs
that is for an item or service that is known or should be known to be (a) not
provided as claimed, or (b) false or fraudulent;
(iv) failed to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment
on its own behalf or on behalf of another, with intent fraudulently to secure
such benefit or payment;
(v) knowingly and willfully illegally offered, paid, solicited or
received any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (a) in return
for referring an individual to a person for the furnishing or arranging for
the furnishing of any item or service for which payment may be made in whole
or in part by Medicare or Medicaid, or other state health care programs, or
(b) in return for purchasing, leasing or ordering or arranging for or
recommending purchasing, leasing or ordering any good, facility, service, or
item for which payment may be made in whole or in part by Medicare or
Medicaid or other state health care programs;
(vi) knowingly made a payment, directly or indirectly, to a physician
as an inducement to reduce or limit services to individuals who are under the
direct care of the physician and who are entitled to benefits under Medicare
or Medicaid, or other state health care programs;
<PAGE> 62
(vii) provided to any person information that is known or should be
known to be false or misleading that could reasonably be expected to
influence the decision when to discharge a hospital in-patient from the
hospital;
(viii) knowingly and willfully made or caused to be made or induced or
sought to induce the made of any false statement or representation (or
omitted to state a fact required to be stated therein or necessary to make
the statements contained therein not misleading) of a material fact with
respect to (a) the conditions or operations of a facility in order that the
facility may qualify for Medicare or Medicaid or other state health care
program certification, or (b) information required to be provided under ss.
1124A of the Social Security Act (42 U.S.C. ss.1320a-3);
(ix) knowingly and willfully (a) charged for any Medicaid service,
money or other consideration at a rate in excess of the rates established by
the state, or (b) for services covered (in whole or in part) by Medicaid,
charged, solicited, accepted or received, in addition to amounts paid by
Medicaid, any gift, money, donation or other consideration (other than a
charitable, religious or philanthropic contribution from an organization or
from a person unrelated to the patient) (y) as a precondition of treating the
patient, or (z) as a requirement for the patient's continued treatment;
(x) completed Certificates of Medical Necessity on behalf of
physicians in violation of the Health Care Financing Administration's
carrier directives prohibiting home health care providers from so doing;
(xi) violated the federal Food, Drug and Cosmetic Act and the
so-called "pharmacy exemption" contained therein and the FDA's Compliance
Policy Guide Number 7132.16 entitled "Manufacture, Distribution, and
Promotion of Adulterated, Misbranded, or Unapproved New Drugs for Human Use
by State-Licensed Pharmacies;" or
(xii) violated the FDA's guidelines or OSHA regulations including
those in connection with any oxygen filling stations maintained or operated
by the Borrower or any of its Subsidiaries and 29 C.F.R. 1910, 1030
Occupational Exposure to Bloodborne Pathogens;
such that the actions or inactions in the foregoing clauses (i) through (xii),
individually or in the aggregate, would have a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole.
6.20 TITLE TO PROPERTIES; LIENS. The Borrower and its Subsidiaries
have good, sufficient and legal title to all of their respective properties and
assets reflected in the most recent financial statements delivered pursuant to
Section 5.01(g), except for assets disposed of since the date of such financial
statements in the Ordinary Course
<PAGE> 63
of Business or as otherwise permitted under Section 8.02. Except as permitted by
this Agreement, all such properties and assets are free and clear of Liens.
6.21 JOINT VENTURES. Except as set forth on SCHEDULE 6.21, the
Borrower and its Subsidiaries are not party to any Joint Venture other than
Joint Ventures permitted under Section 8.05(vi).
6.22 ACCOUNTS RECEIVABLE COLLATERAL. The Accounts Receivable and any
related reimbursement contracts with the payor of such Accounts Receivable have
not been satisfied, subordinated or rescinded in any manner (other than
settlements in the Ordinary Course of Business with payors of such Accounts
Receivable reached to facilitate collection); such Accounts Receivable were
created through the provision of services or merchandise supplied by either (a)
the Borrower and its Subsidiaries and the related charges were usual, customary
and reasonable, or (b) a Target of an Acquisition prior to such Acquisition and
the Borrower believes, after due investigation, that the related charges were
usual, customary and reasonable; such Accounts Receivable are owned by the
Borrower and its Subsidiaries free and clear of any adverse claim and the
Borrower and its Subsidiaries have the right to assign and transfer such
Accounts Receivable except as such assignment or transfer would be prohibited by
Section 1815(c) of the Social Security Act, 42 U.S.C. ss. 1395g(c) and the
regulations promulgated thereunder; and there are no procedures or
investigations pending or threatened before any Governmental Authority seeking a
determination or ruling that might affect the validity or enforceability of a
material portion of such Accounts Receivable subject to the review or
jurisdiction of such Governmental Authority.
SECTION 7. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that
on and after the Closing Date and until the Loans and the Notes, together with
interest, Fees and all other Obligations incurred hereunder and thereunder, are
paid in full and all Letters of Credit are cancelled, expired or otherwise
provided for to the satisfaction of the Issuing Bank:
7.01 INFORMATION COVENANTS. The Borrower will furnish to each Bank:
(a) QUARTERLY FINANCIAL STATEMENTS. Within 60 days (or 105 days in
the case of the fourth fiscal quarter) after the close of each quarterly
accounting period in each Fiscal Year, the consolidated balance sheets of the
Borrower and its Consolidated Subsidiaries as at the end of such quarterly
period and the related consolidated statements of operations and statements
of changes in stockholders' equity for the elapsed portion of the Fiscal Year
ended with the last day of such quarterly period and for such quarterly
period and setting forth comparative figures for the related periods in the
prior Fiscal Year for the statements of operations and cash flows, all of
which shall be certified by the Chief Executive Officer or the Chief
Financial Officer of the Borrower, subject to
<PAGE> 64
normal year-end audit adjustments and, promptly, commencing with the quarter
ended December 31, 1996, the financial review provided quarterly to the Board
of Directors of the Borrower.
(b) ANNUAL FINANCIAL STATEMENTS. Within 105 days after the close of
each Fiscal Year, the consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of such Fiscal Year and the related
consolidated statements of operations and statements of changes in
stockholders' equity for such Fiscal Year, in each case setting forth
comparative figures for the preceding fiscal year and certified, in the case
of the consolidated financial statements, without qualification by
independent certified public accountants of recognized national standing
reasonably acceptable to the Required Banks (initially Arthur Andersen LLP),
together with a report of such accounting firm stating that in the course of
its regular audit of the financial statements of the Borrower, which audit
was conducted in accordance with generally accepted auditing standards, such
accounting firm obtained no knowledge of any Default or Event of Default
related to accounting or financial reporting matters that has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof.
(c) MANAGEMENT LETTERS. Promptly after the Borrower's receipt
thereof, a copy of any "management letter" received by the Borrower from its
certified public accountants.
(d) PERFORMANCE PLAN. On or before February 15 of each year
(beginning February 15, 1997), a performance plan (a "PERFORMANCE PLAN") for
such year (in each case including forecast consolidated statements of income
and sources and uses of cash and balance sheets) prepared by the Borrower for
each quarter of each Fiscal Year beginning with the quarter ending March 31,
1997 and for the elapsed portion of such Fiscal Year ended with the last day
of each quarter accompanied by the statement of the Chief Executive Officer
or the Chief Financial Officer of the Borrower to the effect that, to the
best of such officer's knowledge, the Performance Plan is a reasonable
estimate and forecast for the period covered thereby.
(e) PERFORMANCE REPORTS. Within 60 days after the end of each fiscal
quarter (or 105 days after the end of the Fiscal Year), a performance report,
in a form reasonably satisfactory to the Banks, containing consolidated
balance sheets for the Borrower and its Subsidaries as a whole as at the end
of that quarter and the related consolidated statements of operations and
cash flows for the quarter and the elasped portion of the Fiscal Year ended,
and comparing actual results of operations and financial position to that
forecast in the Performance Plan for the quarter and for the elasped portion
of the Fiscal Year ended with the last day of that quarter, as the case may
be, setting forth comparative figures for related periods in the prior Fiscal
Year and stating the
<PAGE> 65
reasons for any variance between the actual results of operations, financial
position and cash flows and forecasted results of operations, financial
position and cash flows and explanations of the variances that are adverse
to the Borrower or any of its Subsidiaries. Such performance report shall
also contain a statement of receivables (including an aging report) held by
the Borrower and its Subsidiaries as a whole.
(f) COMPLIANCE CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 7.01(a) and (b) and the
quarterly performance reports provided for in Section 7.01(e), a Compliance
Certificate of the Chief Executive Officer or the Chief Financial Officer of
the Borrower to the effect that, to the best of such officer's knowledge, no
Default or Event of Default has occurred and is continuing or, if any Default
or Event of Default has occurred and is continuing, specifying the nature and
extent thereof, which Compliance Certificate also shall set forth the
calculations required to establish whether the Borrower was in compliance
with those provisions of Section 8 identified on the Compliance Certificate
at the end of such quarter, fiscal quarter or Fiscal Year, as the case may
be.
(g) NOTICE OF DEFAULT, LITIGATION OR HEALTH CARE COMPLIANCE.
Promptly, and in any event within three Business Days after any of the Chief
Executive Officer, Chief Financial Officer or Chief Operating Officer of the
Borrower obtains knowledge thereof, notice of (i) the occurrence of any event
that constitutes a Default or an Event of Default, (ii) any litigation or
governmental or arbitration proceeding pending (x) against the Borrower or
any of its Subsidiaries that could reasonably be expected to materially and
adversely affect the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries,
taken as a whole, or (y) with respect to any Credit Document or any
Acquisition then contemplated or already consummated by the Borrower or its
Subsidiaries, (iii) any material adverse changes in the status of any
litigation or other proceeding reported by the Borrower pursuant to Section
6.06 or this Section 7.01(g), (iv) any material claim, complaint, notice or
request for information received by the Borrower or any of its Subsidiaries
with respect to compliance with health care regulatory requirements relating
to the delivery of health care services of the type provided by the Borrower
and payment therefor (excluding malpractice claims), including, but not
limited to, any violation or alleged violation of any federal, state or local
statute, regulation, or ordinance relating to the delivery of medical
services and payment therefor, including, but not limited to, the
requirements set forth under federal Medicare and Medicaid statutes, 42
U.S.C. ss.ss. 1320a-7, 1320a-7a, 1320a-7b and 1395nn, and the regulations
promulgated thereunder and related state or local statutes or regulations and
(v) any other event that could reasonably be expected to materially and
adversely affect the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries,
taken as a whole.
<PAGE> 66
(h) OTHER REPORTS AND FILINGS. Promptly, copies of all financial
information, proxy materials and other information and reports, if any, that
the Borrower or any of its Subsidiaries shall file with the Securities and
Exchange Commission or any governmental agencies substituted therefor (the
"SEC").
(i) REPORTS OF ASSET TRANSFERS TO SUBSIDIARIES OR FORMATION OF JOINT
VENTURES. No later than 5 Business Days after (A) any transfer to any Joint
Venture or Subsidiary that is not a Guarantor Subsidiary of (i) any assets of
the Borrower or any of its Subsidiaries having a fair market value exceeding
$1,000,000 in the aggregate or (ii) any intangible assets material to the
business, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries and (B) the formation of any
Joint Venture or Subsidiary, the Borrower shall notify the Agent of the
nature of such transaction and the business purpose therefor.
(j) MARGIN RATE DETERMINATION CERTIFICATE. Concurrently with the
delivery of the financial statements required under Sections 7.01(a) and (b),
the Borrower shall deliver a Margin Rate Determination Certificate.
(k) ACQUISITION FINANCIALS. Within ten Business Days of any
Acquisition, an Officers' Certificate: (i) setting forth (w) the aggregate
consideration paid in such Acquisition, (x) any anticipated Divestitures, (y)
the amount of any notes representing Unsecured Seller Debt and (z) the amount
of Consolidated EBITDA of the Target and its Subsidiaries for each of the
immediately preceding four fiscal quarters that will be included by the
Borrower in its calculation of Consolidated Adjusted EBITDA under this
Agreement, which historical Consolidated EBITDA of the Target and its
Subsidiaries shall be based upon audited financial statements or shall be
otherwise reasonably satisfactory in substance to the Agent and the Required
Banks; and (ii) demonstrating compliance with the requirements of Section
8.02(iv); and (iii) attaching copies of the documentation regarding any
Unsecured Seller Debt.
(l) OTHER INFORMATION. From time to time, such other information or
documents (financial or otherwise) as any Bank reasonably may request.
7.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with generally accepted
accounting principles consistently applied and all requirements of law shall be
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit officers and designated representatives of the Agent or any Bank to visit
and inspect, under guidance of officers of the Borrower or such Subsidiary, any
of the properties of the Borrower or such Subsidiary, and to examine the books
of record and account of the Borrower or such Subsidiary and discuss the
affairs, finances and accounts of the Borrower or such Subsidiary with, and be
advised as to the same by, its and their officers and independent accountants,
all at such
<PAGE> 67
reasonable times and intervals, with such reasonable notice and to such
reasonable extent as the Agent or such Bank may request.
7.03 MAINTENANCE OF PROPERTY, INSURANCE. SCHEDULE 7.03 sets forth a
true and complete listing of all insurance maintained by the Borrower and its
Subsidiaries as of the Closing Date and the amounts of such insurance. The
Borrower will, and will cause each of its Subsidiaries to, (i) keep all property
useful and necessary in its business in good working order and condition, (ii)
maintain with financially sound and reputable insurance companies insurance on
all its property and its directors and officers in at least such amounts and
against at least such risks as are described in SCHEDULE 7.03; provided that the
Borrower and its Subsidiaries may self-insure against risks consistent with
standard industry practices for companies in the same or similar businesses, and
(iii) furnish to each Bank, within 45 days after the end of each Fiscal Year and
otherwise, upon written request, full information as to the insurance carried.
7.04 CORPORATE FRANCHISES. Except as permitted by Section 8.02, the
Borrower will, and will cause each of its Subsidiaries to, do or cause to be
done, all things necessary to preserve and keep in full force and effect its
existence and its material rights, franchises, licenses and patents; provided,
however, that nothing in this Section 7.04 shall prevent (a) the withdrawal by
the Borrower or any of its Subsidiaries of its qualification as a foreign
corporation, association or joint venture in any jurisdiction where such
withdrawal would not have a material adverse effect on the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (b) the discontinuance of any
Subsidiary of the Borrower if such discontinuance would not have a material
adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole.
7.05 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business,
including, without limitation, the laws and regulations referred to in Section
6.19, and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not, in the aggregate, reasonably
be expected to have a material adverse effect on the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole.
7.06 ERISA. (a) As soon as possible and, in any event, within 10 days
after the Borrower or any of its Subsidiaries or ERISA Affiliates knows or has
reason to know any of the following, the Borrower will deliver to each of the
Banks a certificate of the Chief Executive Officer or the Chief Financial
Officer of the Borrower setting forth details as to such occurrence and such
action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices required or proposed to
be given to or filed with or by the Borrower, the
<PAGE> 68
Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that
an accumulated funding deficiency has been incurred or an application may be or
has been made to the Secretary of the Treasury for a waiver or modification of
the minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code with respect
to a Plan; that a Plan has been or may be terminated, reorganized, partitioned
or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded
Current Liability giving rise to a Lien under ERISA or the Code; that
proceedings may be or have been instituted to terminate a Plan; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that the Borrower, any of its Subsidiaries or
ERISA Affiliates will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; that the Borrower,
any of its Subsidiaries or ERISA Affiliates will or may incur any liability
under Chapter 43 of the Code or under Sections 502(c), (i) or (1) or 4071 of
ERISA; that there exists a condition that presents a material risk to the
Borrower, any of its Subsidiaries or ERISA Affiliates of incurring a liability
to or on account of a Plan pursuant to the assertion of a material claim (other
than a routine claim for benefits) against any such Plan; or that any Plan has
been determined by the Internal Revenue Service to fail to qualify under Section
401(a) of the Code.
(b) The Borrower will deliver to each of the Banks a complete copy
of the annual report (Form 5500) of each Plan required to be filed with the
Internal Revenue Service.
(c) In addition to any certificates or notices delivered to the
Banks pursuant to the clause (a) of this Section 7.06, copies of annual reports
and any other notices received by the Borrower or any of its Subsidiaries
required to be delivered to the Banks hereunder shall be delivered to the Banks
no later than 10 days after the later of the date such report or notice has been
filed with the Internal Revenue Service or the PBGC, given to Plan participants
or received by the Borrower or such Subsidiary.
7.07 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower shall cause
(i) each of its fiscal years, and the fiscal years of each of its Subsidiaries
other than Joint Ventures, to end on December 31 and (ii) each of its, and each
of its Subsidiaries', fiscal quarters to end on March 31, June 30, September 30
and December 31; provided that any Subsidiary acquired subsequent to the Closing
Date that has different fiscal year ends, fiscal quarter ends or both than those
set forth in this Section 7.07 shall conform such periods to those set forth
herein in the ordinary course consistent with past practice.
7.08 PERFORMANCE OF OBLIGATIONS. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non-performances as could not in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property,
<PAGE> 69
assets, condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole.
7.09 PAYMENT OF TAXES AND CLAIMS. The Borrower will, and will cause
each of its Subsidiaries to, pay or cause to be paid all taxes, assessments and
other governmental charges imposed upon it or any of its properties or assets or
in respect of any of its franchises, business, income or property before any
material penalty accrues thereon, and all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a material Lien upon any of
its properties or assets, prior to the time when any material penalty or fine
shall be incurred with respect thereto; provided that so long as no property or
assets (other than money for such charge or claim and the interest or penalty
accruing thereof) of the Borrower or any of its Subsidiaries is in danger of
being lost or forfeited as a result thereof, no such charge or claim need be
paid if it is being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if such reserve or other appropriate
provision, if any, as shall be required in conformity with generally accepted
accounting principles consistently applied shall have been made therefor.
7.10 LICENSING. The Borrower will and will cause each of its
Subsidiaries to be operated at all times in compliance in all material respects
with all federal, state and local statutes, regulations and ordinances relating
to the licensing of pharmaceutical and healthcare services of the type provided
by the Borrower.
7.11 FURTHER ASSURANCES; NEW SUBSIDIARIES.
(a) At any time and from time to time upon the request of the Agent,
the Borrower shall and shall cause each of its Wholly-Owned Subsidiaries to
execute and deliver such further documents and do such other acts and things as
the Agent reasonably may request in order to effect fully the purposes of this
Agreement and the other Credit Documents and to provide for payment of the
Obligations in accordance with the terms of this Agreement and the other Credit
Documents.
(b) In the event a Person becomes a Subsidiary of the Borrower
(other than as a Joint Venture) after the Closing Date, the Borrower shall,
within 10 Business Days of such event, cause such Subsidiary to execute and
deliver the Subsidiary Guaranty, the Subsidiary Security Agreement, the
Subsidiary Pledge Agreement, Collection Bank Agreements (to the extent required
by Section 8.16), the Trademark Security Agreement and such other agreements,
pledges, assignments, documents and certificates (including, without limitation,
any amendments to the Credit Documents) as may be necessary or desirable or as
the Agent may request and do such other acts and things as the Agent reasonably
may request in order to have such domestic Subsidiary guaranty and/or secure the
Obligations and effect fully the purposes of this Agreement and the other Credit
Documents and to provide for payment of the Obligations in accordance with the
terms of this Agreement and the other Credit Documents.
<PAGE> 70
7.12 ACCOUNTS RECEIVABLE. The Borrower and its Subsidiaries will
submit all necessary documentation and supply all necessary information for
payment of all Accounts Receivable (other than settlements in the Ordinary
Course of Business with payors of such Accounts Receivable reached to facilitate
collection to the payor for each of such Accounts Receivable); will not
subordinate or rescind any of the Accounts Receivable; and will notify Agent
promptly if any procedures or investigations are pending or threatened before
any Governmental Authority seeking a determination or ruling that might
materially and adversely affect the validity or enforceability of a material
portion of such Accounts Receivable subject to the review or jurisdiction of
such Governmental Authority.
SECTION 8. NEGATIVE COVENANTS. The Borrower covenants and agrees that on
and after the Closing Date and until the Loans and the Notes, together with
interest, Fees and all other Obligations incurred hereunder and thereunder, are
paid in full and all Letters of Credit are cancelled, expired or otherwise
provided for to the satisfaction of the Issuing Bank:
8.01 LIENS. The Borrower will not, and will not permit any of the
Active Subsidiaries to, create, incur, assume or permit to exist any Lien upon
or with respect to any property or assets (real or personal, tangible or
intangible) of the Borrower or any of the Active Subsidiaries, whether now owned
or hereafter acquired; provided that the provisions of this Section 8.01 shall
not prevent the creation, incurrence, assumption or existence of:
(i) Liens for taxes not yet due, or Liens for taxes being contested
in good faith and by appropriate proceedings for which adequate reserves have
been established the failure to pay which would not have a material adverse
effect on the business, operations, property, assets, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a
whole;
(ii) Liens in respect of property or assets of the Borrower or any of
its Subsidiaries imposed by law, that were incurred in the Ordinary Course of
Business, such as carriers', warehousemen's and mechanics' liens and other
similar Liens arising in the Ordinary Course of Business and (x) that do not
in the aggregate materially detract from the value of property or assets
having a value individually or in the aggregate in excess of $50,000, or
materially impair the use thereof in the operation of the business of the
Borrower or any of its Subsidiaries or (y) that are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any
such Lien;
(iii) Liens in existence on the Closing Date that are listed, and the
property subject thereto described, in SCHEDULE 8.01(III) (Liens described in
this clause (iii), "PERMITTED LIENS");
<PAGE> 71
(iv) Liens in favor of the Agent;
(v) Liens relating to leases and subleases granted to others not
interfering in any material respect with the business of the Borrower or any
of the Active Subsidiaries;
(vi) Easements, rights-of-way, restrictions, minor defects or
irregularities of title and other similar charges or encumbrances not
interfering in any material respect with the Ordinary Course of Business of
the Borrower or any of the Active Subsidiaries;
(vii) Liens relating to any interest or title of a lessor under any
lease;
(viii) Liens relating to Interest Rate Agreements permitted under
Section 8.04(xi);
(ix) Liens relating to bankers' liens and other rights of setoff;
(x) Pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(xi) Liens on assets purchased using the proceeds of non-recourse
purchase money Indebtedness permitted by Section 8.04(ix);
(xii) Any attachment or judgment Lien not constituting an Event of
Default under Section 9.09;
(xiii) Any deposit arrangement, made in connection with a transaction
to secure performance of obligations in connection with such transaction, not
in excess (either individually or in the aggregate) of $2,000,000; provided
that such deposit arrangement terminated on the date upon which such
performance obligations are required to be discharged under the terms of the
document creating such deposit arrangement;
(xiv) Liens created to secure Indebtedness of the Borrower and the
Active Subsidiaries incurred after the Closing Date as permitted in
8.04(xiii);
(xv) Liens created to secure Indebtedness of the Target of any
Acquisition outstanding on the date of such Acquisition; provided that such
Liens were created prior to the date of such Acquisition and were not created
in contemplation of such Acquisition and provided that the aggregate amount
of such secured Indebtedness outstanding at any time shall not exceed
$10,000,000; and
<PAGE> 72
(xvi) Liens consisting of (A) those Uniform Commercial Code financing
statements listed on SCHEDULE 8.01(XVI) annexed hereto; provided that (1)
none of such financing statements shall secure any outstanding Indebtedness
and (2) as soon as practicable but in any event within sixty days after the
Closing Date, the Borrower shall take all action (including without
limitation the filing of termination statements with the appropriate filing
offices) necessary to terminate such financing statements, or (B) Uniform
Commercial Code financing statements relating to property or assets acquired
(whether in Acquisitions or otherwise) after the Closing Date, so long as (1)
none of such financing statements shall secure any outstanding Indebtedness
other than Indebtedness permitted by Section 8.04(x) and (2) as soon as
practicable but in any event within 30 days of the date of any such
acquisition, the Borrower shall take all action (including without limitation
the filing of termination statements with the appropriate filing offices)
necessary to terminate all such financing statements relating to property or
assets acquired in such acquisition unless such financing statement relates
to Indebtedness permitted by Section 8.04(x).
8.02 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.; ACQUISITIONS. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or purchase or otherwise acquire (in one or a series of related
transactions) any part of the property or assets (other than purchases or other
acquisitions of inventory, materials and equipment in the Ordinary Course of
Business) of any Person, or permit any of its Subsidiaries to do any of the
foregoing, except that:
(i) the Borrower and its Subsidiaries may, in the Ordinary Course of
Business, make sales of inventory, dispose of equipment and capital assets
that are obsolete or in need of replacement and make Divestitures of
equipment and capital assets;
(ii) the Borrower and its Subsidiaries may, in addition to any sales
permitted in clause (i) above, sell (by way of merger or otherwise) for cash
and/or promissory notes permitted under Section 8.05(viii), the stock,
property or assets of any of its Subsidiaries having an aggregate fair
market value (as reasonably determined by the board of directors of the
Person making the sale) not to exceed $5,000,000 in any calendar year
(without regard to clause (vi) of this Section 8.02);
(iii) any Subsidiary of the Borrower may sell, lease, transfer or
otherwise dispose of any of its property, business or assets to, or merge or
consolidate with or into (a) the Borrower or (b) any other domestic
Wholly-Owned Subsidiary of the Borrower, so long as such Wholly-Owed
Subsidiary is the surviving corporation, association or joint venture, and
in the case of any such
<PAGE> 73
sale, lease transfer, disposition, merger or consolidation involving a
Guarantor Subsidiary, the Guarantor Subsidiary (or a Subsidiary of the
Borrower that is or will become a Guarantor Subsidiary on or before
consummation of such merger) is the surviving corporation;
(iv) the Borrower and its Wholly-Owned Subsidiaries may (without
regard to the limitations set forth in Section 8.07) acquire property and
assets of other Persons (including any assets or property acquired in any
Acquisition) if:
(a) the aggregate consideration paid by the Borrower or such
Subsidiaries consisting of cash or any assets of the Borrower or such
Subsidiaries (excluding any common stock of the Borrower issued, and the
proceeds of any Divestiture made, in connection with such Acquisition, but
including the principal amount of any Indebtedness described in Section
8.04(xii) incurred in connection with such Acquisition) does not exceed (if
valued at fair market value at the time of such Acquisition, as reasonably
determined by the board of directors of the Person making such Acquisition)
$20,000,000 per transaction (or series of related transactions) and
$40,000,000 in the aggregate over any twelve month period commencing with the
Closing Date (including in such calculation any consideration paid by the
Borrower to acquire any interest in a Joint Venture) when added to the
aggregate amount of all investments made pursuant to this Section 8.02(iv) in
such twelve-month period;
(b) the ratio of Total Debt to Consolidated Adjusted EBITDA,
calculated on a pro forma basis to give effect to such Acquisition, does not
exceed 2.75:1.00; and
(c) if such acquisition of property and assets is an
acquisition of stock, then such acquisition shall, except with respect to
Joint Ventures, result in the ownership by the Borrower or a Wholly-Owned
Subsidiary of a majority interest in the capital stock of the entity whose
stock is being acquired;
(v) the Borrower and its Subsidiaries may make capital expenditures
to the extent not in violation of Section 8.07; and
(vi) any Subsidiary of the Borrower may be dissolved if such
dissolution will not have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole.
8.03 DIVIDENDS.
(a) The Borrower will not declare or pay any dividends (other than
dividends that are payable solely to the holders of any class of stock of the
Borrower in shares of that class of stock), or return any capital, to its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders
<PAGE> 74
as such, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its capital stock
now or hereafter outstanding (or any options or warrants issued by the Borrower
with respect to its capital stock), or set aside any funds for any of the
foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise
acquire for a consideration any shares of any class of the capital stock of the
Borrower now or hereafter outstanding (or any options or warrants issued by the
Borrower with respect to its capital stock), except that the Borrower may
acquire stock options or restricted stock from its employees or former employees
in an aggregate amount not to exceed $100,000 in any calendar year.
(b) The Borrower will not permit any of its Subsidiaries to declare
or pay any dividends, or return any capital, to its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire, directly
or indirectly, for a consideration, any shares of any class of its capital stock
now or hereafter outstanding (or any options or warrants issued by such
Subsidiary with respect to its capital stock), or set aside any funds for any of
the foregoing purposes, or permit any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of such Subsidiary now or hereafter outstanding (or any options or
warrants issued by such Subsidiary with respect to its capital stock), except
that any Subsidiary of the Borrower may pay dividends to the Borrower or any
Wholly-Owned Subsidiary of the Borrower and any Joint Venture may pay dividends
or make distributions in proportion to the ownership interests therein.
8.04 INDEBTEDNESS. The Borrower will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness of the Borrower and its Subsidiaries incurred under
the Credit Documents;
(ii) Indebtedness listed on SCHEDULE 8.04(II) ("EXISTING
INDEBTEDNESS") and Indebtedness incurred by the Borrower or any of its
Subsidiaries to renew or refinance the Existing Indebtedness of the Borrower
or such Subsidiary; provided that the new Indebtedness shall not exceed the
principal amount of the Existing Indebtedness so renewed or refinanced and
shall not contain any terms or conditions, taken as a whole, less favorable
to the Borrower and the Banks than the Existing Indebtedness being renewed or
refinanced;
(iii) accrued expenses and current trade accounts payable incurred in
the Ordinary Course of Business and obligations under trade letters of credit
incurred by the Borrower or any of its Subsidiaries in the Ordinary Course of
Business, that are to be repaid in full not more than one year after the date
on which such Indebtedness is originally incurred to finance the purchase of
goods by the Borrower or such Subsidiary;
<PAGE> 75
(iv) obligations under letters of credit incurred by the Borrower or
any of its Subsidiaries in the Ordinary Course of Business in support of
obligations incurred in connection with worker's compensation, unemployment
insurance and other social security legislation;
(v) Indebtedness incurred as a result of loans and advances
permitted under Section 8.05(ii)-(iv);
(vi) obligations under letters of credit incurred by the Borrower or
any of its Subsidiaries in the Ordinary Course of Business and to the extent
consistent with past practice in support of obligations under leases, bonds
posted for judgments being appealed or as a condition to bringing any action,
suit or other proceeding not to exceed $500,000 other than letters of credit
listed on SCHEDULE 8.04(II);
(vii) nonrecourse Indebtedness payable solely from and secured solely
by life insurance policies and annuities maintained by the Borrower and its
Subsidiaries for their respective officers, employees and directors;
(viii) surety bonds, performance bonds and other completion bonds in
the Ordinary Course of Business and consistent with past practice or as
required by law;
(ix) non-recourse purchase money Indebtedness not exceeding the
purchase price of the asset so purchased and secured solely by such asset;
(x) capitalized leases;
(xi) Interest Rate Agreements (and guaranties thereof) entered into
by the Borrower and its Subsidiaries with respect to Indebtedness in an
aggregate notional principal amount not to exceed $100,000,000;
(xii) the Borrower or any Active Subsidiary may become and remain
liable with respect to Unsecured Seller Debt owed to the Person selling the
capital stock or assets of any Target in any Acquisition permitted under
Section 8.02(iv); provided such Indebtedness (A) is unsecured, (B) either (x)
does not exceed 25% of the purchase price paid for such Target or (y) is
subordinated to the Indebtedness created by this Agreement pursuant to the
terms of a Subordination Agreement substantially in the form of EXHIBIT L,
and, in either case, if guaranteed by Borrower or any Subsidiary of the
Borrower, is guaranteed by a guarantee that is subordinate to, and under
which such guarantor does not have any obligation prior to the indefeasible
payment in full of, the Obligations and (C) does not at any time exceed
$35,000,000 in the aggregate for all Unsecured Seller Debt outstanding at any
time. The covenants, default provisions, remedies provisions, subordination
provisions and all other terms of
<PAGE> 76
such Unsecured Seller Debt shall be reasonably satisfactory in form and
substance to the Agent; provided that if the subordination provisions in the
documentation representing such Unsecured Seller Debt are substantially in
the form of EXHIBIT L such subordination provisions shall be deemed
satisfactory to the Agent; provided further that if the documentation
representing such Unsecured Seller Debt contains no covenants and no default
provisions other than default provisions with respect to defaults that arise
because of the bankruptcy of the issuer or guarantor of such debt and default
provisions with respect to defaults that arise because of the failure to pay
such Unsecured Seller Debt when due, such covenant and default provisions
shall be deemed satisfactory to the Agent;
(xiii) Indebtedness of the Borrower and its Subsidiaries incurred after
the Closing Date in an aggregate amount outstanding at any time not in excess
of $5,000,000;
(xiv) Indebtedness of the Target of any Acquisition outstanding on the
date of such Acquisition; provided that such Indebtedness was not incurred in
contemplation of such Acquisition; and
(xv) Contingent Obligations in respect of any guaranty by the
Borrower or a Subsidiary of the leasehold obligations of a Subsidiary.
8.05 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not, and will
not permit any of its Subsidiaries to, lend money or credit or make advances to
any Person, or purchase or acquire any stock or other ownership interest (other
than stock or ownership interests issued as part of the formation of a
Subsidiary of the Borrower for consideration not to exceed $50,000 in the
aggregate with respect to all such Subsidiaries and provided such Subsidiary
becomes a Guarantor Subsidiary within a reasonable time after such formation),
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may each acquire and hold
receivables owing to it, if created or acquired in the Ordinary Course of
Business and payable or dischargeable in accordance with customary trade
terms to the extent consistent with past practice;
(ii) loans and advances by any Subsidiary of the Borrower to the
Borrower; provided such loans or advances are at all times subordinated to
the Obligations of the Borrower on terms satisfactory to the Required Banks;
(iii) loans and advances by the Borrower to any Guarantor Subsidiary
(or, in connection with any Acquisition, any Subsidiary of the Borrower that
becomes a Guarantor Subsidiary on or before consummation of such Acquisition)
in the Ordinary Course of Business so long as after giving effect tp
<PAGE> 77
such loan or advance there shall not have occurred a Default or an Event of
Default;
(iv) loans and advances by any Guarantor Subsidiary to any other
Guarantor Subsidiary in the Ordinary Course of Business so long as after
giving effect to such loan or advance there shall not have occurred a Default
or Event of Default;
(v) the Borrower and its Subsidiaries may make new loans and
advances to officers, employees and agents in the Ordinary Course of Business
(for purposes other than purchasing stock or stock options or exercising
stock options) equal, in the aggregate for the Borrower and its Subsidiaries,
to no more than $600,000 at any one time outstanding and may make loans to
officers, directors and employees in connection with the purchase or exercise
of options for the Borrower's common stock, provided that no cash is
advanced;
(vi) the Borrower and its Subsidiaries may make equity investments in
other Persons engaged in the businesses in which the Borrower and its
Subsidiaries are engaged as of the Closing Date, in an aggregate amount that,
when added to the aggregate consideration paid to acquire assets and property
pursuant to Section 8.02(iv), does not exceed the amount specified in Section
8.02(iv); provided that the Borrower shall provide notice to the Agent of all
such investments in accordance with Section 7.01(i) and the aggregate book
value of all investments in all Joint Ventures shall not at any time exceed
30% of the aggregate book value of the equity of the Borrower; provided
further, that such equity investments shall, except with respect to Joint
Ventures, result in the ownership by the Borrower or such Subsidiary of a
majority interest in the capital stock of the entity issuing such equity;
(vii) the Borrower and its Subsidiaries may make and own investments
in Cash Equivalents; provided that such Cash Equivalents are not subject to
setoff rights in favor of the financial institution (other than a Bank)
issuing or selling any such Cash Equivalents arising from any banking
relationship of the Borrower and its Subsidiaries; and
(viii) investments consisting of promissory notes, in an aggregate
principal amount not to exceed $250,000 at any time outstanding, received as
part of the consideration in connection with sales of stock, property or
assets of any of its Subsidiaries permitted under Section 8.02(ii).
8.06 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the Ordinary Course of Business, with
any Affiliate of the Borrower, other than on terms and conditions substantially
as favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arm's-length transaction
with a Person other than an Affiliate.
<PAGE> 78
8.07 CAPITAL EXPENDITURES. Except for expenditures made by the
Borrower and its Subsidiaries during any Fiscal Year to acquire assets in
Acquisitions, the Borrower will not, and will not permit any of its Subsidiaries
to, make any expenditure for fixed or capital assets (including, without
limitation, expenditures for product development and maintenance and repairs
that should be capitalized in accordance with generally accepted accounting
principles consistently applied and including capitalized lease obligations but
excluding any asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations) during any Fiscal
Year set forth below that would cause the aggregate amount of all such
expenditures for the Borrower and its Subsidiaries to exceed the correlative
amount set forth below opposite such Fiscal Year:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT ($)
<S> <C>
1996 2,500,000
1997 5,000,000
1998 8,000,000
1999 12,000,000
2000 14,000,000
2001 14,000,000
</TABLE>
8.08 LEVERAGE RATIO. The Borrower shall not permit the ratio of Total
Debt to Consolidated Adjusted EBITDA for any consecutive four-fiscal quarter
period ending as of the last day of any fiscal quarter of the Borrower to be
more than 2.75:1.00.
8.09 MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit
Consolidated Net Worth of the Borrower and its Subsidiaries at any time to be
less than the sum of $150,000,000, plus 75% of Consolidated Net Income of the
Borrower and its Subsidiaries for each fiscal quarter in which Consolidated Net
Income is a positive number and which ends during the period from the Closing
Date to and including the end of the then most recently ended fiscal quarter of
the Borrower, plus 100% of any additions to Net Worth from any issuance of, or
any exercise of an option to purchase, or any conversion of any debt Securities
into, any equity Securities of the Borrower on or after the Closing Date.
8.10 MINIMUM INTEREST COVERAGE RATIO. The Borrower shall not permit
the ratio of (i) Consolidated EBITDA of the Borrower and its Subsidiaries to
(ii) Consolidated Interest Expense for any consecutive four-fiscal quarter
period ending
<PAGE> 79
as of the last day of any fiscal quarter of the Borrower occurring during any of
the periods set forth below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM
QUARTER ENDED INTEREST COVERAGE
RATIO
<S> <C>
December 31, 1996 through September 30, 1998 4.00:1.00
December 31, 1998 through September 30, 2000 4.50:1.00
December 31, 2000 and thereafter 5.00:1.00
</TABLE>
8.11 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF
INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND CERTAIN
OTHER AGREEMENTS; ETC. The Borrower will not, and will not permit any of its
Subsidiaries to, (i) make any voluntary or optional payment or prepayment on or
redemption or acquisition for value of (including, without limitation, by way of
depositing with the trustee with respect thereto money or securities before due
for the purpose of paying when due) any Indebtedness on which it is an obligor
which payment, prepayment or redemption or acquisition for value is in excess of
$100,000 per year in the aggregate except with respect to payments or
prepayments on or redemptions or acquisitions for value of the (A) Obligations
under the terms of this Agreement or (B) any Indebtedness for which failure to
make such payment, prepayment, redemption or acquisition for value would
constitute a violation of a law or regulation enacted, adopted or becoming
effective after the Closing Date, (C) any trade payables prepaid in the Ordinary
Course of Business to take advantage of favorable prepayment terms, or (D)
Indebtedness of the Target of any Acquisition permitted pursuant to Section
8.04(xiv), (ii) amend or modify, or permit the amendment or modification of, any
provision of any Indebtedness or of any agreement (including, without
limitation, any purchase agreement, indenture, loan agreement or security
agreement) relating to any of the foregoing other than amendments that (A) only
extend the maturity of or lower the interest rate on Indebtedness and amendments
of this Agreement permitted by its terms or (B) are immaterial and would not
have a material adverse effect on the business, operations, property, assets,
liabilities (contingent or otherwise), condition (financial or otherwise) or
prospects of the Borrower or and its Subsidiaries taken as a whole, or (iii)
amend, modify or change the Certificate or Articles of Incorporation (including,
without limitation, by the filing or modification of any certificate of
designation) or the By-Laws (or any other documents of formation and governance,
as the case may be) of the Borrower or any Subsidiary party to any of the Credit
Documents (except to reflect a name change previously noticed to the Agent,
except to amend the Certificate or Articles of Incorporation or the By-Laws of a
Target or a Subsidiary as the Borrower deems reasonably necessary, provided that
such amendment shall not adversely affect the Banks' position as creditors
hereunder).
<PAGE> 80
8.12 RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS.
The Borrower will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction, other than as set forth in this Agreement, on
the ability of any such Subsidiary to (a) pay dividends or make any other
distributions on its capital stock or any other interest or participation in its
profits owned by the Borrower or any Subsidiary of the Borrower, or pay any
Indebtedness owed to the Borrower or a Subsidiary of the Borrower, (b) make
loans or advances to the Borrower or (c) transfer any of its properties or
assets to the Borrower, except for such encumbrances or restrictions existing
under or by reasons of (i) applicable law, (ii) this Agreement, (iii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Borrower or a Subsidiary of the Borrower that exists
on the Closing Date and (iv) customary provisions restricting transactions with
affiliates of Persons party to a Joint Venture.
8.13 BUSINESS. The Borrower will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
business in which it or any Subsidiary was engaged on the Closing Date and any
business directly related to such business.
8.14 TRANSFER OF COPYRIGHTS, PATENTS AND TRADEMARKS. The Borrower
will not, and will not permit any of its Subsidiaries to, transfer any of their
respective copyrights, licenses, patents, trademarks, permits, service marks,
trade names, franchises and formulas, or rights with respect to the foregoing,
except transfers to the Borrower or a Guarantor Subsidiary pursuant to licenses
granted in the Ordinary Course of Business that would not have a material
adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole.
8.15 JOINT VENTURES. The Borrower shall not, and shall not suffer or
permit any of its Subsidiaries to enter into any Joint Venture, other than in
the Ordinary Course of Business.
8.16 COLLECTION BANK AGREEMENTS. The Borrower shall not, and shall
not suffer nor permit any of its Subsidiaries that are not Joint Ventures to,
maintain any Deposit Account with an average daily balance in excess of $100,000
in any given month, with any financial institution that has not executed and
delivered to the Agent a Collection Bank Agreement. The Borrower shall not, and
shall not permit any of its Subsidiaries that are not Joint Ventures to,
maintain amounts in excess of $3,000,000 in the aggregate at any time
outstanding in Deposit Accounts that are not subject to Collection Bank
Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries
that are not Joint Ventures to, deposit any amount into a Deposit Account that
is the subject of a Collection Bank Agreement that does not represent proceeds
of Collateral.
<PAGE> 81
8.17 INACTIVE SUBSIDIARIES. The Borrower shall not, and shall not
permit any of its Subsidiaries to, transfer any asset to any Inactive Subsidiary
or permit any Inactive Subsidiary to conduct business unless and until such
Inactive Subsidiary becomes a Guarantor Subsidiary and executes a Subsidiary
Guaranty, Subsidiary Security Agreement, Subsidiary Pledge Agreement and
Collection Bank Agreements (to the extent required by Section 8.16).
SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "EVENT OF DEFAULT");
9.01 PAYMENTS. The Borrower shall (i) default in the payment when due
ofany principal of any Loan or any Note, (ii) default in the payment when due of
any amount payable to the Issuing Bank in reimbursement of any drawing under a
Letter of Credit, or (iii) default, and such default shall continue unremedied
for two Business Days, in the payment when due of interest on any Loan, any Fees
or any other amounts owing hereunder or under any Note; or
9.02 REPRESENTATIONS, ETC. Any representation, warranty or statement
made by the Borrower or any of its Subsidiaries herein or in any other Credit
Document or in any certificate delivered pursuant hereto or thereto shall prove
to be untrue in any material respect on the date as of which made or deemed
made; or
9.03 COVENANTS. The Borrower shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Sections
2.01(a)(iii), 2.10(a)(iii), 7.01(g)(i) or Section 8 or (ii) default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in Sections 9.01 and 9.02 and clause (i) of this Section 9.03)
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to the Borrower by the Agent; or
9.04 DEFAULT UNDER OTHER AGREEMENTS. The Borrower or any of its
Subsidiaries shall (i) default in any payment of Indebtedness in an aggregate
principal amount equal to or exceeding $1,000,000 (other than the Notes and the
Premier Notes) beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement or
condition relating to Indebtedness in an aggregate principal amount equal to or
exceeding $2,500,000 (other than the Notes) or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice is required), any such Indebtedness to
become due prior to its stated maturity; or Indebtedness of the Borrower or any
of its Subsidiaries, in an aggregate principal amount equal to or exceeding
$2,500,000, shall be declared to be due and payable, or required to be prepaid
other than by a regularly scheduled required
<PAGE> 82
prepayment, prior to the stated maturity thereof; or
9.05 BANKRUPTCY, ETC. The Borrower or any of the Active Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "BANKRUPTCY," as now or hereafter in effect, or any
successor thereto (the "BANKRUPTCY CODE"); or an involuntary case is commenced
against the Borrower or any of the Active Subsidiaries, and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case (provided that the Borrower expressly authorizes the
Agent and each Bank to appear in any court conducting any such proceeding during
such 60 day period to preserve, protect and defend their rights under this
Agreement and the other Credit Documents); or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of the Borrower or any of the Active Subsidiaries; or the
Borrower or any of the Active Subsidiaries commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Borrower or any of the Active
Subsidiaries; or there is commenced against the Borrower or any of the Active
Subsidiaries any such proceeding that remains undismissed for a period of 60
days; or the Borrower or any of the Active Subsidiaries is adjudicated insolvent
or bankrupt, or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower or any of the Active Subsidiaries suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 30 days; or
the Borrower or any of the Active Subsidiaries makes a general assignment for
the benefit of creditors; or any corporate, partnership or other action is taken
by the Borrower or any of the Active Subsidiaries for the purpose of effecting
any of the foregoing; or
9.06 ERISA. Any Plan shall fail to maintain the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code; any Plan is, shall have been or is likely to be terminated or the
subject of a termination proceeding under ERISA; any Plan shall have an Unfunded
Current Liability, or the Borrower or any of its Subsidiaries or ERISA
Affiliates has incurred or is likely to incur a liability to or on account of a
Plan under Sections 502(c), (i) or (l), 515, 4062, 4063, 4064, 4071, 4201 or
4204 of ERISA or Chapter 43 of the Code; and there shall result from any such
event or events the imposition of a Lien upon or the granting of a security
interest in the assets of the Borrower or any of its Subsidiaries, or a
liability or a material risk of incurring a liability to the PBGC or a Plan or a
trustee appointed under ERISA, that will have a material adverse effect upon the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole; or
9.07 CREDIT DOCUMENTS. Any of the Credit Documents or any provision
thereof shall cease to be in full force and effect for any reason, other than
the satisfaction in full of all Obligations and the termination of this
Agreement, or is declared
<PAGE> 83
to be null and void, or any Guarantor Subsidiary shall default in the due
performance or observance of any material term, covenant or agreement on its
part to be performed or observed pursuant to any of the Credit Documents to
which it is a party, or any Guarantor Subsidiary denies that it has any further
liability under any of the Credit Documents to which it is a party or gives
notice to such effect, or any junior creditor claims or asserts the invalidity
or unenforceability of any subordination provisions of any Unsecured Seller
Debt; or
9.08 CHANGES OF CONTROL. (i) Other than Counsel Corporation and its
Affiliates, any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of the Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Borrower representing 20% or more of the combined voting power of all securities
of the Borrower entitled to vote in the election of directors; or (ii) during
any period of up to 12 consecutive months, commencing before or after the date
of this Agreement, individuals who at the beginning of such 12-month period were
directors of the Borrower (and individuals nominated by the vote of a majority
of the Board of Directors who either were members of the Board of Directors at
the beginning of such period or whose election was previously so approved) shall
cease for any reason to constitute a majority of the Board of Directors of the
Borrower; or (iii) any Person or two or more Persons acting in concert shall
have acquired by contract or otherwise, or shall have entered into a contract or
arrangement that upon consummation shall result in its or their acquisition of
or control over, securities of the Borrower representing 20% or more of the
combined voting power of all securities of the Borrower entitled to vote in the
election of directors; or
9.09 JUDGMENTS. One or more judgments, decrees or arbitration awards
shall be entered against the Borrower or any of its Subsidiaries involving in
the aggregate for the Borrower and its Subsidiaries a liability (not paid or
fully covered by insurance as to which the insurer has acknowledged coverage in
writing) of $2,000,000 or more, and all such judgments, decrees or awards shall
not have been vacated, discharged or stayed or bonded pending appeal within 30
days after the entry thereof; or
9.10 GOVERNMENTAL POLICIES. Any change shall occur in state or
federal laws, rules or governmental regulations or budgetary allocations that
reasonably could be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole; or
9.11 LOSS OF LICENSES. Any Governmental Authority shall finally
revoke or fail to renew any license, permit or franchise of the Borrower or the
Borrower shall for any reason lose any such license, permit or franchise or the
Borrower or any of the Active Subsidiaries shall suffer the imposition of any
restraining order, escrow, suspension or impound of funds in connection with any
proceeding (judicial or administrative) with respect to any license, permit or
franchise which event could reasonably be expected to have a material adverse
effect on the business, operations,
<PAGE> 84
properties, assets, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole;
THEN, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent, upon the written request of the Required
Banks, shall by written notice to the Borrower (provided, that, if an Event of
Default specified in Section 9.05 shall occur with respect to the Borrower, the
result which would occur upon the giving of written notice by the Agent to the
Borrower as hereafter shall occur automatically without the giving of any such
notice) declare the principal of and any accrued interest in respect of all
Loans and the Notes and all Obligations owing hereunder and thereunder to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, and the obligation of each Bank to make any Loan and the
obligation of the Issuing Bank to issue any Letter of Credit shall thereupon
terminate; provided, that the foregoing shall not affect in any way the
obligations of the Banks to purchase participations from the Swing Line Bank in
any unpaid Swing Line Loans as provided in Section 2.02(c), or to purchase
participations from the Issuing Bank in the unreimbursed amount of any drawings
under any Letters of Credit as provided in Section 2.10(d). So long as any
Letter of Credit shall remain outstanding, any amounts received by the Agent
shall be held by the Agent, pursuant to such documentation as the Agent shall
request, as cash collateral for the obligation of the Borrower to reimburse the
Issuing Bank in the event of any drawing under any outstanding Letters of
Credit, and so much of such funds shall at all times remain on deposit as cash
collateral as aforesaid as shall equal the maximum amount available at any time
for drawing under all Letters of Credit (the "MAXIMUM AVAILABLE AMOUNT");
provided that in the event of cancellation or expiration of any Letter of Credit
or any reduction in the Maximum Available Amount, the Agent shall apply the
difference between the cash collateral held by the Agent immediately prior to
such cancellation, expiration or reduction and the Maximum Available Amount
immediately after such cancellation, expiration or reduction first to the
payment of any outstanding Obligations, and second to the payment to whomsoever
shall be lawfully entitled to receive such funds.
SECTION 10. THE AGENT.
10.01 APPOINTMENT. The Banks hereby designate Bankers Trust Company as
the Agent (for purposes of this Section 10, the term "AGENT" shall include
Bankers Trust Company in its capacity as the Agent pursuant to the other Credit
Documents) to act as specified herein and in the other Credit Documents. Each
Bank hereby irrevocably authorizes, and each holder of any Note by the
acceptance of such Note shall be deemed irrevocably to authorize, the Agent to
take such action on its behalf under the provisions of this Agreement, the other
Credit Documents and any other instruments and agreements referred to herein or
therein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof and such other
<PAGE> 85
powers as are reasonably incidental thereto. The Agent may perform any of its
duties hereunder by or through its officers, directors, agents or employees.
10.02 NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. Neither the Agent nor any of its officers, directors,
agents or employees shall be liable for any action taken or omitted by it or
them hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Bank or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any obligations
in respect of this Agreement or any other Credit Document except as expressly
set forth herein.
10.03 LACK OF RELIANCE ON THE AGENT. Independently and without
reliance upon the Agent, each Bank and the holder of each Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrower in
connection with the making and the continuance of the Loans and the taking or
not taking of any action in connection herewith and (ii) its own appraisal of
the creditworthiness of the Borrower and, except as expressly provided in this
Agreement, the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank or the holder of any Note with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter.
The Agent shall not be responsible to any Bank or the holder of any Note for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of the Borrower or be required
to make any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement or any other Credit
Document, or the financial condition of the Borrower or the existence or
possible existence of any Default or Event of Default.
10.04 CERTAIN RIGHTS OF THE AGENT. If the Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Required Banks; and the Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, no Bank or the holder of any
Note shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Banks unless the
agreement of all Banks is required by the terms of this Agreement.
<PAGE> 86
10.05 RELIANCE. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Agent believed to be the proper Person, and, with respect to
all legal matters pertaining to this Agreement and any other Credit Document and
its duties hereunder and thereunder, upon advice of counsel selected by it.
10.06 INDEMNIFICATION. To the extent the Agent is not reimbursed and
indemnified by the Borrower, the Banks will reimburse and indemnify the Agent,
in proportion to their respective proportionate shares of the aggregate amount
of the Revolving Loan Commitments as of the date of determination, for and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses or disbursements of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by the Agent in performing its duties hereunder or under any other Credit
Document, or in any way relating to or arising out of this Agreement or any
other Credit Document; provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgment,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct.
10.07 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation to maintain and make Loans under this Agreement, the Agent shall have
the rights and powers specified herein for a "Bank" and may exercise the same
rights and powers as though it were not performing the duties specified herein;
and the term "BANKS," "REQUIRED BANKS," "HOLDERS OF NOTES" or any similar terms
shall, unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with the
Borrower or any Affiliate of the Borrower as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower for services in connection with this Agreement and otherwise without
having to account for the same to the Banks.
10.08 HOLDERS. The Agent may deem and treat the payee of any Note as
the owner thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person who,
at the time of making such request or giving such authority or consent, is the
holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
10.09 RESIGNATION BY THE AGENT AND THE SWING LINE BANK.
(a) The Agent may resign from the performance of all its functions
and duties hereunder and/or under the other Credit Documents at any time by
giving 15
<PAGE> 87
Business Days prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor the Agent
pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor to the Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower.
(c) If no successor to the Agent has been appointed pursuant to
clause (b) above by the 15th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Banks shall thereafter perform all the duties of the Agent
hereunder and/or under any other Credit Document until such time, if any, as the
Banks appoint a successor to the Agent as provided above.
(d) Any resignation of the Agent pursuant to Section 10.09(a) shall
also constitute the resignation of Bankers Trust Company or its successor as
Swing Line Bank, and any successor Agent appointed pursuant to Section 10.09(b)
shall, upon its acceptance of such appointment, become the successor Swing Line
Bank for all purposes hereunder. In such event (i) the Borrower shall prepay any
outstanding Swing Line Loans made by the retiring or removed Agent in its
capacity as the Swing Line Bank, (ii) upon such prepayment, the retiring or
removed Agent and the Swing Line Bank shall surrender the Swing Line Note held
by it to the Borrower for cancellation, and (iii) the Borrower shall issue a new
Swing Line Note to the successor Agent and the Swing Line Bank substantially in
the form of EXHIBIT E-2 annexed hereto, in the principal amount of the Swing
Line Loan Commitment then in effect and with other appropriate insertions.
10.10 RELEASE OF COLLATERAL. Without further written consent or
authorization from Banks, Agent may execute any documents or instruments
necessary to release any Lien encumbering any item of Collateral that is the
subject of a sale or other disposition of assets permitted by this Agreement or
to which the Required Banks have otherwise consented.
SECTION 11. MISCELLANEOUS.
11.01 PAYMENT OF EXPENSES, ETC. The Borrower shall: (i) whether or not
the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses (x) of the Agent (including, without
limitation, the reasonable fees and disbursements of O'Melveny & Myers LLP,
special counsel to the Agent) in connection with the preparation, execution,
delivery and syndication of this Agreement and the other Credit Documents and
the documents and instruments referred to herein and therein and any amendment,
waiver or consent relating hereto or thereto and (y) of the Agent and each of
the Banks in connection with the enforcement of this Agreement and the other
Credit Documents and the documents and instruments
<PAGE> 88
referred to herein and therein (including, without limitation, the reasonable
fees and disbursements of O'Melveny & Myers LLP, special counsel to the Agent,
and for each of the Banks whose counsel determines in good faith that joint
representation of such Bank along with the other Banks would or reasonably could
be expected to result in a conflict of interest under applicable laws or ethical
principles) and (z) of any consultants or accountants chosen by the Required
Banks, to investigate, test or review such matters relating to the Borrower and
its Subsidiaries as the Agent shall designate; provided that the fees of such
consultants or accountants shall be subject to the prior approval of the
Borrower, which approval shall not be unreasonably withheld; (ii) pay and hold
each of the Banks harmless from and against any and all present and future stamp
and other similar taxes with respect to the foregoing matters and save each of
the Banks harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
such Bank) to pay such taxes; and (iii) indemnify the Agent and each Bank, its
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and disbursements
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding (whether
or not the Agent or any Bank is a party thereto) related to the entering into
and/or performance of this Agreement or any other Credit Document or the use of
the proceeds of any Loans or Letters of Credit hereunder or the consummation of
any transactions contemplated herein or in any other Credit Document, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such liabilities, obligations, losses, etc., to the extent
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
11.02 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Bank is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Bank (including without limitation, by branches
and agencies of such Bank wherever located) to or for the credit or the account
of the Borrower against and on account of the Obligations and liabilities of the
Borrower to such Bank under this Agreement or under any of the other Credit
Documents, including, without limitation, all interests in Obligations purchased
by such Bank pursuant to Section 11.05(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
11.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including
<PAGE> 89
telegraphic, telex, telecopier or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered: if to the Borrower, at its address
specified opposite its signature below; if to any Bank, at its office specified
opposite its signature below; and if to the Agent, at its Notice Office; or, as
to the Borrower or the Agent, at such other address as shall be designated by
such party in a written notice to the other parties hereto and, as to each other
party, at such other address as shall be designated by such party in a written
notice to the Borrower and the Agent. In addition, a copy of all notices sent to
the Borrower or the Agent in accordance with Sections 7.01(g) or 9 shall also be
sent to Harwell Howard Hyne Gabbert & Manner, P.C., 1800 First American Center,
315 Deaderick Street, Nashville, Tennessee 37238, Attn: Mark Manner, Esq., and
to O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California 90071,
Attn: Michael Newman, Esq. All such notices and communications shall, when
mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective when deposited in the mails, delivered to the telegraph
company, cable company or overnight courier, as the case may be, or sent by
telex or telecopier, except that notices and communications to the Agent shall
not be effective until received by the Agent.
11.04 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of each Bank.
11.05 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
(a) GENERAL. Each Bank shall have the right at any time to (i) sell,
assign, transfer or negotiate to any Eligible Assignee, or (ii) sell
participations to any Eligible Assignee in, all or any part of any Loan or Loans
made by it or its Commitments or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; provided
that no such sale, assignment, transfer or participation shall, without the
consent of the Borrower, require the Borrower to file a registration statement
with the SEC, apply to qualify such assignment or participation of the Loans,
Letters of Credit or participations therein or the other Obligations under the
securities laws of any state or otherwise become subject to any federal or state
securities laws requirements with respect thereto; provided, further that no
such sale, assignment or transfer described in clause (i) above shall be
effective unless and until an Assignment and Acceptance effecting such sale,
assignment or transfer shall have been accepted by the Agent and recorded in the
Agent's records as provided in Section 11.05(b)(ii); provided, further that no
such sale, assignment, transfer or participation of any Letter of Credit or any
participation therein may be made separately from a sale, assignment, transfer
or participation of a corresponding interest in the Revolving Loans of the Bank
effecting such sale, assignment, transfer or participation; and provided,
further that, anything contained herein to the contrary notwithstanding, the
Swing Line Loan Commitment and the Swing Line Loans of the Swing Line Bank may
not be sold, assigned or transferred as described in clause (i) above to any
Person other than a successor Agent and the Swing Line Bank to the extent
contemplated by Section
<PAGE> 90
10.09(d). Except as otherwise provided in this Section 11.05, no Bank or the
Issuing Bank shall, as between the Borrower and such Bank or the Issuing Bank,
be relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or any granting of participations in,
all or any part of the Loans, the Commitments, Letters of Credit or
participations therein or the other Obligations owed to such Bank or the Issuing
Bank.
(b) ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Loan, Loan Commitment,
Letter of Credit or participation therein or other Obligation may (A) be
assigned in any amount (of a constant and not a varying percentage) to
another Bank, or to an Affiliate of the assigning Bank or another Bank, with
the giving of notice to the Borrower and the Agent or (B) be assigned in an
amount of not less than $5,000,000 (or such lesser amount as shall constitute
the aggregate amount of the Loans, Commitments, Letters of Credit or
participations therein and other Obligations of the assigning Bank), to any
other Eligible Assignee with the giving of notice to the Borrower and the
Agent and with the consent of the Borrower and the Agent, in the case of an
assignment made by a Bank other than the Agent, or with the consent of the
Borrower, in the case of an assignment made by the Agent (which consent of
the Borrower and the Agent shall not be unreasonably withheld). To the extent
of any such assignment in accordance with this Section 11.05, the assigning
Bank shall be relieved of its obligations with respect to its Loans,
Commitments, Letters of Credit or participations therein. The parties to each
such assignment shall execute and deliver to the Agent, for its acceptance
and recording in its records, an Assignment and Acceptance, together with,
with respect to assignments that occur following the Closing Date, a
processing and recordation fee of $3,500, and such certificates, documents or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment and Acceptance may
be required to deliver to the Agent pursuant to Section 2.09(g)(iii). Upon
such execution, delivery and acceptance, from and after the effective date
specified in such Assignment and Acceptance, (y) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Bank hereunder and (z)
the assigning Bank thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Bank's rights and
obligations under this Agreement, such Bank shall cease to be a party
hereto). The Commitments hereunder shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Bank and new Notes shall, upon surrender of the assigning Bank's Note, be
issued to the assignee and to the assigning Bank, substantially in the form
of EXHIBIT E-1 annexed hereto with
<PAGE> 91
appropriate insertions, to reflect the new Commitments of the assignee and
the assigning Bank.
(ii) Acceptance by the Agent; Recordation in Records. Upon its
receipt of an Assignment and Acceptance executed by an assigning Bank and an
assignee representing that it is an Eligible Assignee, together with the
processing and recordation fee referred to in Section 11.05(b)(i) and any
certificates, documents or other evidence with respect to United States
federal income tax withholding matters that such assignee may be required to
deliver to the Agent pursuant to Section 2.09(g)(iii), the Agent shall,
if such Assignment and Acceptance has been completed and is in the form of
EXHIBIT O hereto and if the Agent and the Borrower have consented to the
assignment evidenced thereby (in each case to the extent such consent is
required pursuant to Section 11.05(b)(i)), (a) accept such Assignment and
Acceptance by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of the Agent to such
assignment), (b) record the information contained therein in its records, and
(c) give prompt notice thereof to the Borrower. The Agent shall maintain a
copy of each Assignment and Acceptance delivered to and accepted by it as
provided in this Section 11.05(b)(ii).
(c) PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Bank granting such participation, shall not be entitled to
require such Bank to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity of any Loan
allocated to such participation, (ii) a reduction of the principal amount of or
the rate of interest payable on any Loan or payments due in repayment of draws
under Letters of Credit allocated to such participation, and all amounts payable
by the Borrower hereunder shall be determined as if such Bank had not sold such
participation, (iii) the release of the Liens held by Agent on behalf of the
Banks with respect to all or substantially all of the Collateral, or (iv) a
reduction of the amount of any fees payable hereunder to the extent subject to
such participation. The Borrower hereby acknowledges and agrees that, only for
purposes of Sections 2.07, 2.09, 11.02 and 11.07(b), any participation will give
rise to a direct obligation of the Borrower to the participant and the
participant shall be considered to be a "Bank"; provided that no participant
shall be entitled to receive any greater amount pursuant to Section 2.07 or 2.09
than the transferor Bank would have been entitled to receive in respect of the
amount of the participation effected by such transferor Bank to such participant
had no such participation occurred.
(d) ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the
assignments and participations permitted under the foregoing provisions of this
Section 11.05, any Bank may assign and pledge all or any portion of its Loans,
the other Obligations owed to such Bank, and its Notes to any Federal Reserve
Bank as collateral security pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any operating circular issued by such Federal
Reserve Bank; provided that (i) no Bank shall, as between the Borrower and such
Bank, be relieved of any of its obligations hereunder as a result of any such
assignment and pledge and
<PAGE> 92
(ii) in no event shall such Federal Reserve Bank be considered to be a "Bank" or
be entitled to require the assigning Bank to take or omit to take any action
hereunder.
(e) INFORMATION. Each Bank and the Issuing Bank may furnish any
information concerning the Borrower and its Subsidiaries in the possession of
that Bank or the Issuing Bank from time to time to assignees and participants
(including prospective assignees and participants).
11.06 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Agent or any Bank or the holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower and the Agent or any Bank or the holder of any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the Agent
or any Bank or the holder of any Note would otherwise have. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent or any Bank or the holder of any Note to any
other or further action in any circumstances without notice or demand.
11.07 PAYMENTS PRO RATA.
(a) The Agent agrees that promptly after its receipt of each payment
from or on behalf of the Borrower in respect of any Obligations of the Borrower
hereunder, it shall distribute by the next Business Day such payment to the
Banks pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.
(b) Each of the Banks agrees that (except as otherwise specifically
provided with respect to Swing Line Loans), if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), that is applicable to the payment of the principal of, or interest
on, the Loans, or under any Letter of Credit of a sum which with respect to the
related sum or sums received by other the Banks is in a greater proportion than
the total amount of such Obligation then owed and due to such Bank bears to the
total amount of such Obligation then owed and due to all of the Banks
immediately prior to such receipt, then such Bank receiving such excess payment
shall purchase for cash without recourse or warranty from the other the Banks an
interest in the Obligations of the Borrower to such the Banks in such amount as
shall result in a proportional participation by all the Banks in such amount;
provided, however, that if all or any portion of such excess amount is
thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such
<PAGE> 93
recovery, but without interest.
11.08 CALCULATIONS; COMPUTATIONS. The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles in the United States consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks).
11.09 GOVERNING LAW; WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE AGENT, THE BANKS AND THE
BORROWER HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT. The Borrower hereby agrees that service of all process in
any such proceeding in any such court may be made by registered or certified
mail, return receipt requested, to the Borrower at its address provided on the
signature pages hereto, such service being hereby acknowledged by the Borrower
to be sufficient for personal jurisdiction in any action against the Borrower in
any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of the Agent or any Bank to
bring proceedings against the Borrower in the courts of any other jurisdiction.
11.10 CONFIDENTIALITY. Each Bank shall hold all non-public information
obtained pursuant to the requirements of this Agreement which has been
identified as confidential by the Borrower in accordance with such Bank's
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, it being understood and agreed
by the Borrower that in any event a Bank may make disclosures to Affiliates of
such Bank or disclosures reasonably required by any bona fide assignee,
transferee or participant in connection with the contemplated assignment or
transfer by such Bank of any Loans or any participations therein or disclosures
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided that, unless specifically prohibited by
applicable law or court order, each Bank shall notify the Borrower of any
request by any governmental agency or representative thereof (other than any
such request in connection with any examination of the financial condition of
such Bank by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and provided, further that
in no event shall any Bank be obligated or required to return any materials
furnished by the Borrower or any of its Subsidiaries.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts by
facsimile or otherwise, each of which when so executed and delivered shall be an
original, but all
<PAGE> 94
of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Agent.
11.12 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.13 AMENDMENT OR WAIVER.
A. No approval, consent, amendment or waiver of this Agreement or
any of the Credit Documents shall be effective unless it is in writing signed by
the Agent and the Required Banks; provided, however, that any such approval,
consent, amendment or waiver that (a) reduces the amount of any interest,
principal, fees or other amounts owing to any Bank hereunder, including, without
limitation, amounts payable under Section 4 (but excluding any waiver of any
increase in the interest rate applicable to the Loans pursuant to Section
2.06(e)); (b) releases any Person (except pursuant to any Divestitures and as
set forth in Section 8.02(ii), (iii) and (vi)) from all or any portion of its
liabilities under the Subsidiary Guaranty; (c) amends any provisions of this
Section 11.13; (d) reduces the percentage specified in the definition of the
term "REQUIRED BANKS" or changes the definition of "PRO RATA SHARE" (it being
understood that, with the consent of Required Banks, additional extensions of
credit pursuant to this Agreement may be made on substantially the same basis as
the extensions of the Commitments); (e) postpones the scheduled final maturity
date (but not the date of any scheduled installment of principal) of any of the
Loans or the date on which any interest or any fees are payable under this
Agreement or any of the Credit Documents; (f) releases all or substantially all
of the Collateral (except as set forth in Sections 8.02(i) or (ii) or 8.14, or
if the sale or disposition of such Collateral is permitted under any of the
Credit Documents), or (g) by the terms of any provision of this Agreement
requires the approval of all the Banks shall be effective only if it is in
writing signed by all the Banks directly affected; provided, further, that no
such approval, consent, amendment or waiver shall increase the Commitments of
any Bank over the amount thereof then in effect without the consent of such Bank
(it being understood that approvals, consents, amendments or waivers of
conditions precedent, covenants, defaults or events of default or of a mandatory
prepayment or reduction in the aggregate Commitments shall not constitute an
increase of the Commitment of any Bank); provided further that no amendment,
modification or waiver of any provision of this Agreement relating to Swing Line
Loans or the Swing Line Commitment shall be effective without the written
concurrence of the Swing Line Bank; and provided, further, that no amendment,
modification or waiver of any provision of Section 10 or of any other provision
of this Agreement expressly requiring the approval or concurrence of the Agent
shall be effective without the written concurrence of the Agent.
B. If in connection with any proposed approval, consent, amendment
or waiver with respect to any of the provisions of this Agreement as
contemplated by clauses (a) through (g) of the first proviso of Section 11.13A,
the consent of the Required Banks is obtained but the consent of one or more of
the other Banks whose
<PAGE> 95
consent is also required is not obtained, then the Borrower shall have the
right, so long as all non-consenting Banks whose individual consent is required
are treated as described in either clause (i) or (ii) below, to either (i)
replace each such non-consenting Bank or Banks with one or more Replacement
Banks (as defined in Section 11.13C) pursuant to Section 11.13C so long as at
the time of such replacement, each such Replacement Bank consents to the
proposed approval, consent, amendment or waiver, or (ii) terminate such
non-consenting Bank's Commitment and repay each outstanding Loan of such Bank,
in accordance with Section 4.02(b); provided that unless the Commitments that
are terminated, and the Loans that are repaid pursuant to the preceding clause
(ii) are immediately replaced in full at such time through the addition of new
Banks or the increase of the Commitments and/or outstanding Loans of existing
Banks (who in each case must specifically consent thereto), then in the case of
any action pursuant to the preceding clause (ii) the Required Banks (determined
before giving effect to the proposed action) shall specifically consent thereto;
provided, further, that in any event the Borrower shall not have the right to
replace a Bank, terminate its Commitment or repay its Loans solely as a result
of the exercise of such Bank's right (and the withholding of any required
consent by such Bank) pursuant to the second proviso to Section 11.13A.
C. In the event of certain refusals by a Bank as provided in
Section 11.13B to consent to certain proposed approvals, amendments, consents or
waivers with respect to this Agreement which have been approved by the Required
Banks, the Borrower may, upon five Business Days' written notice to the Agent
(which notice the Agent shall promptly transmit to each of the Banks) repay all
Loans, together with accrued and unpaid interest, fees and other amounts owing
to such Bank (a "Replaced Bank") in accordance with, and subject to the
requirements of, said subsection 11.13B so long as (i) in the case of the
repayment of Revolving Loans of any Bank pursuant to this Section 11.13C the
Revolving Loan Commitment of such Bank is terminated concurrently with such
repayment (at which time SCHEDULE 1.01(A) shall be deemed modified to reflect
the changed Revolving Loan Commitments) and (ii) in the case of the repayment of
Loans of any Bank the consents required by Section 11.13B in connection with the
repayment pursuant to this Section 11.13C have been obtained.
(a) At the time of any replacement pursuant to this subsection
11.13C, the lender replacing such Replaced Bank (the "Replacement Bank")
shall enter into one or more assignment agreements, in form and substance
satisfactory to the Agent, pursuant to which the Replacement Bank shall
acquire all of the Commitments and outstanding Loans of, and participations
in Swing Line Loans and Letters of Credit by, the Replaced Bank and, in
connection therewith, shall pay to (x) the Replaced Bank in respect thereof
an amount equal to the sum of (A) an amount equal to the principal of, and
all accrued interest on, all outstanding Loans of the Replaced Bank, (B) an
amount equal to all unpaid drawings with respect to Letters of Credit that
have been funded by (and not reimbursed to) such Replaced Bank, together with
all then unpaid interest with respect thereto at such time, and (C) an amount
equal to all accrued, but theretofore unpaid, fees owing to the Replaced Bank
and (y) the appropriate
<PAGE> 96
Issuing Bank an amount equal to such Replaced Bank's Pro Rata Share of any
unpaid drawings with respect to Letters of Credit (which at such time remains
an unpaid drawing), to the extent such amount was not theretofore funded by
such Replaced Bank; and
(b) all obligations of the Borrower owing to the Replaced Bank
(excluding those specifically described in clause (a) above in respect of
which the assignment purchase price has been, or is concurrently being, paid)
shall be paid in full to such Replaced Bank concurrently with such
replacement.
Upon the execution of the respective assignment documentation, the
payment of amounts referred to in clauses (a) and (b) above and, if so requested
by the Replacement Bank, delivery to the Replacement Bank of the appropriate
Note or Notes executed by the Borrower, the Replacement Bank shall become a Bank
hereunder and the Replaced Bank shall cease to constitute a Bank hereunder,
except with respect to the Borrower's obligations regarding the indemnification
provisions under this Agreement, which shall survive for the benefit of such
Replaced Bank. Notwithstanding anything to the contrary contained above, no
Issuing Bank may be replaced hereunder at any time while it has Letters of
Credit outstanding hereunder unless arrangements satisfactory to such Issuing
Bank (including the furnishing of a standby letter of credit in form and
substance, and issued by an issuer satisfactory to such Issuing Bank or the
furnishing of cash collateral in amounts and pursuant to arrangements
satisfactory to such Issuing Bank) have been made with respect to such
outstanding Letters of Credit.
11.14 SURVIVAL. All indemnities set forth herein including, without
limitation, in Sections 2.07, 10.06 and 11.01 shall survive the execution and
delivery of this Agreement and the Notes and the making and repayment of the
Loans and the Letters of Credit.
11.15 DOMICILE OF LOANS. Each Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.
11.16 INTEGRATION. This Agreement, together with the exhibits to this
Agreement and the other documents described herein, is intended by the parties
hereto as a complete statement of the terms and conditions of their agreement.
11.17 SECURED OBLIGATIONS. The Borrower hereby agrees and confirms
that on and after the Closing Date each Credit Document to which the Borrower is
a party, including, as applicable, the Borrower Security Agreement, the Borrower
Pledge Agreement and the Trademark Security Agreement, and all collateral
encumbered thereby shall continue to secure to the fullest extent possible the
payment and performance of all "Secured Obligations" (as defined in each
applicable Credit Document), including without limitation the payment and
performance of all such "Secured Obligations" in respect of the Obligations of
the Borrower now or hereafter existing under or in respect of this Agreement and
the Notes. Without limiting the generality of the foregoing, the Borrower hereby
acknowledges and confirms its
<PAGE> 97
understanding and intent that, upon the Closing Date and as a result thereof,
the definition of "Obligations" contained in this Agreement includes the
obligations of the Borrower under the Notes.
The Borrower acknowledges and agrees that any of the Credit Documents to
which it is a party or otherwise bound shall continue in full force and effect
and that all of its respective obligations thereunder shall be valid and
enforceable and shall not be impaired, limited or otherwise affected by the
execution, delivery or effectiveness of this Agreement or any future amendment
or modification of this Agreement. The Borrower represents and warrants that all
representations and warranties contained in each Credit Document to which it is
a party, including the Borrower Security Agreement, the Borrower Pledge
Agreement and the Trademark Security Agreement, are true, correct and complete
in all material respects on and as of the Closing Date to the same extent as
though made on and as of that date, except to the extent any such representation
or warranty specifically relates to an earlier date, in which case such
representation or warranty shall have been true, correct and complete in all
material respects on and as of such earlier date.
[Remainder of page intentionally left blank]
<PAGE> 98
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
CAPSTONE PHARMACY SERVICES, INC.,
a Delaware corporation
By: __________________
Name:
Title:
Notice Address:
Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, MD 21230
Attn: Chief Financial Officer
Telecopy: (410) 646-7631
<PAGE> 99
BANKERS TRUST COMPANY,
Individually and as the Agent
By: ________________________________
Name: Mary Jo Jolly
Title: Assistant Vice President
Notice Address: One Bankers Trust Plaza, 14th Floor
New York, New York 10006
Attn: Ariana Boer
With a copy to: 300 S. Grand Ave., 41st Floor
Los Angeles, California 90071
Attn: Kate W. Cook
Lending Office: Bankers Trust Co.
One Bankers Trust Plaza, 14th Floor
New York, New York 10006
<PAGE> 100
BANK OF MONTREAL
By: _____________________
Name:
Title:
Notice Address
and Lending Office: 115 South LaSalle
12-West
Chicago, IL 60603
Attn: Peter Steelman
<PAGE> 101
CIBC INC.
By: _____________________
Name:
Title:
Notice Address
and Lending Office: 425 Lexington Avenue
6th Floor
New York, NY 10017
Attn: Liz Fischer
<PAGE> 102
CORESTATES BANK, N.A.
By: _____________________
Name:
Title:
Notice Address
and Lending Office: 401 E. Pratt Street
Suite 2524
Baltimore, MD 21201
Attn: Keith Harding
<PAGE> 103
CREDITANSTALT CORPORATE FINANCE, INC.
By: ___________________
Name:
Title:
By: ___________________
Name:
Title:
Notice Address
and Lending Office: Two Greenwich Plaza
Greenwich, CT 06830
Attn: Greg Mathis
<PAGE> 104
MELLON BANK, N.A.
By: ___________________
Name:
Title:
By: ___________________
Name:
Title:
Notice Address
and Lending Office: Room 230
2 Mellon Bank Center
Pittsburg, PA 15259
Attn: Keith Kuhn
<PAGE> 1
REVOLVING NOTE
CAPSTONE PHARMACY SERVICES, INC.
Los Angeles, California
December 6, 1996
FOR VALUE RECEIVED, CAPSTONE PHARMACY SERVICES, INC., a
Delaware corporation (the "BORROWER"), being liable hereunder, promises to pay
to the order of _______________________ (the "PAYEE"), on or before the
Termination Date, the lesser of (x) twenty two million dollars ($22,000,000)
and (y) the unpaid principal amount of all advances made by the Payee to the
Borrower as Revolving Loans under the Credit Agreement referred to below.
The Borrower also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid in full at the rates
and at the times that shall be determined, and to make principal prepayments on
this Note at the times that shall be determined, in accordance with the
provisions of that certain Credit Agreement dated as of even date herewith by
and among the Borrower, the financial institutions party thereto and Bankers
Trust Company, as the Agent (the "AGENT") (said Credit Agreement, as it may
hereafter be amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT").
This Note is one of the Borrower's "Revolving Notes" in the
aggregate principal amount of $125,000,000 and is issued pursuant to and
entitled to the benefits of the Credit Agreement to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Revolving Loans evidenced hereby were made and are to be repaid. Capitalized
terms used herein without definition shall have the meanings set forth in the
Credit Agreement.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in same day funds
at the office of the Agent located at One Bankers Trust Plaza, New York, New
York, or at such other place as shall be designated in writing for such purpose
in accordance with the terms of the Credit Agreement. Until notified in
writing of the transfer of this Note, the Borrower and the Agent shall be
entitled to deem the Payee or such person who has been so identified by the
transferor in writing to the Borrower and the Agent as the holder of this Note,
as the owner and holder of this Note. Each of the Payee and any subsequent
holder of this Note agrees, by its acceptance hereof, that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid; provided, however, that the failure to make a notation
1
<PAGE> 2
of any payment made on this Note shall not limit or otherwise affect the
obligation of the Borrower hereunder with respect to payments of principal or
interest on this Note.
Whenever any payment on this Note shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest on this Note; provided, however, that if
the day on which any payment relating to a Eurodollar Rate Loan is due is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, then the due date thereof shall be the next preceding
Business Day; provided further that if the date of any mandatory prepayment
required to be made under the Credit Agreement is not a Business Day such
payment shall be made on the immediately preceding Business Day.
This Note is subject to mandatory prepayment and prepayment at
the option of the Borrower, each as provided in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance
of the principal amount of this Note, together with all accrued but unpaid
interest thereon, may become, or may be declared to be, due and payable in the
manner, upon the conditions and with the effect provided in the Credit
Agreement.
The terms of this Note are subject to amendment only in the
manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision
of this Note or the Credit Agreement shall alter or impair the obligation of
the Borrower, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the
currency herein prescribed.
[Remainder of page intentionally left blank]
2
<PAGE> 3
The Borrower promises to pay all costs and expenses, including
reasonable attorneys' fees, all as provided in subsection 11.01 of the Credit
Agreement, incurred in the collection and enforcement of this Note. The
Borrower and endorsers of this Note hereby consent to renewals and extensions
of time at or after the maturity hereof, without notice, and hereby waive
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as
a defense to any demand hereunder. THE BORROWER IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDING RELATED TO THIS NOTE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by a duly authorized officer, as of the date and at the
place first above written.
CAPSTONE PHARMACY SERVICES,
INC.
By: ____________________________
Name:
Title:
3
<PAGE> 4
TRANSACTIONS ON REVOLVING NOTE
<TABLE>
Amount of Outstanding
Type of Amount of Principal Principal
Loan Made Loan Made Balance Balance Notation
Date This Date This Date This Date This Date Made By
- ---- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
4
<PAGE> 1
Exhibit 10.23
Capstone Pharmacy Services
June 25, 1996
Page 1
June 25, 1996
Mr. R. Dirk Allison
President and Chief Executive Officer
Capstone Pharmacy Services
2930 Washington Blvd.
Baltimore, MD 21230
Dear Dirk:
Pursuant to our recent discussion concerning Capstone's acquisition
program, I have outlined below my suggestion for a working relationship and fee
arrangements.
The overall objective of this project is to support Capstone's growth
through acquisition. To accomplish this we will undertake the following:
1. Work with management in identifying appropriate acquisition criteria
and formalizing an acquisition process.
2. Seek to identify potential candidates meeting these criteria.
3. Assist in contracting these targets and initiating discussions.
4. Provide support in the analysis and valuation of potential targets as
well as the development of suitable transaction structures for
potential targets initiated by us and other potential acquisitions
independently identified by the company (where requested).
5. Assist in the due diligence process, as appropriate for potential
targets.
6. Participate in the negotiations, as appropriate, with potential
targets.
<PAGE> 2
Capstone Pharmacy Services
June 25, 1996
Page 2
7. Provide an opinion as to the fairness of the transaction from a
financial point-of-view to Capstone's Board of Directors, if
requested.
8. Other services as mutually agreed upon.
Throughout, we will work closely with appropriate members of Capstone's
Management.
Upon completion of each transaction our fee will be composed of two parts.
1. A cash component determined by the formula:
3.0% of the first $10 million of Aggregate Transaction Value plus .7%
of all Aggregate Transaction Value thereafter. The term Aggregate
Transaction Value means the cash or the fair market value at closing
of any securities or notes paid to the target's shareholders, and
option holders (including the implied value in any options exchanges)
including any amount paid into escrow and any short-term notes,
current maturities of long-term debt, capital leases and long term
liabilities assumed by you. If any amount of the consideration is
related to future earnings or is subject to post closing adjustments
or other contingencies, that amount shall be included as part of
Aggregate Transaction Value for purposes of the formula and that
portion of our fee relating to these amounts shall be paid to
Adirondack Capital Advisors, LLC (ACA) at the times when these amounts
actually are paid to the target. Plus
2. The number of warrants (from the pool described in Attachment A)
determined by the following formula:
.25 times the cash component determined above.
In any event, it is our practice to be reimbursed for reasonable
out-of-pocket expenses incurred in an engagement. Such expenses will be billed
to you separately on a monthly basis.
Since we will be acting on your behalf, it is our practice to receive
indemnification. In this regard, Capstone will indemnify and hold harmless ACA
and its affiliates and each other person, if any, controlling ACA or any of its
affiliates from and against any losses, claims, damages or liabilities
(including reasonable counsel fees) or actions in respect thereof related to or
arising out
<PAGE> 3
Capstone Pharmacy Services
June 25, 1996
Page 3
of such engagement or ACA's role in connection therewith. Capstone will not,
however, be responsible for any claims, liabilities, losses, damage or expenses
that result from the bad faith or gross negligence of ACA or any other party
indemnified hereunder.
Capstone also agrees that neither ACA, nor any of its affiliates, nor any
person, director, employee or agent of ACA or any of its affiliates, nor any
person controlling ACA or any of its affiliates shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to Capstone or in
connection with such engagement except for any such liability for losses,
claims, damages, or liabilities or expenses incurred by Capstone that result
from bad faith or gross negligence of ACA or any other party indemnified
hereunder. ACA agrees to hold all information which it receives concerning the
Company in confidence and shall not disclose same to any other party except upon
the written authorization of the company. The foregoing shall not apply to
publicly available information.
This engagement may be terminated by Capstone or ACA at any time, with or
without cause, with thirty days of written notice to that effect without
liability or continuing obligation to ACA (except for compensation earned, if
any, up to the date of termination). We shall be entitled to full compensation
in the event that, any time prior to the expiration of one year after
termination of this engagement by Capstone, a Transaction of the types referred
to in this letter is consummated with a company with which contact was made
during our engagement.
Please initial if this proposal is acceptable to you.
Sincerely,
Joseph F. Furlong III
AGREED AND ACCEPTED:
CAPSTONE PHARMACY SERVICES
<PAGE> 4
Capstone Pharmacy Services
June 25, 1996
Page 4
__________________________________
Date:_____________________________
<PAGE> 1
EXHIBIT 21
LIST OF CAPSTONE PHARMACY SERVICES, INC.
SUBSIDIARIES
NAME OF COMPANY
---------------
J & J Drug & Medical Service, Inc.
J & J Institutional Pharmaceuticals, Inc.
Choice Drug Systems of Maryland, Inc.
Institutional Pharmacy Services, Inc.
Rombro's Drug Center, inc.
PremierPharmacy, Inc.
Innovative Pharmacy Services, Inc.
Compuscript, Inc.
Pharmacy Consulting Acquisition Corp.
Geri-Care Systems, Inc.
Scripts & Things, Inc.
Healthcare Pharmacy Chicago, Inc.
Choice Consulting Services, Inc.
Choice Care Inc.
Primary Medical Care, Inc.
My Choice Plan, Inc.
Choice Drug Systems of Missouri, Inc.
Capstone Pharmacy of Delaware, Inc.
f/k/a B.T. Smith, Inc.
Champ Software, Inc.
Rombro Holding Company
Professional Pharmacy Packing, Inc.
<PAGE> 2
LIST OF CAPSTONE PHARMACY SERVICES, INC.
SUBSIDIARIES
Diversified Home Therapies, Inc.
Innovative Pharmacy Services of Puerto
Rico, Inc.
Healthcare Pharmacy Services, Inc.
Pharmasource, Inc.
Capstone Med Inc. f/k/a DCMed Inc.
MediDyne Corp.
Capstone LTC, Inc. f/k/a Symphony
Acquisition Co.
Alger Health Services, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 033-21995,033-29317,033-62867, 033-62865,
033-62877, 033-62879, 033-62881, 033-62883, 333-03643, 333-18477 and 333-21927.
/s/ Arthur Andersen LLP
Baltimore, Maryland
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CAPSTONE PHARMACY SERVICES, INC. FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,407,354
<SECURITIES> 0
<RECEIVABLES> 56,281,619
<ALLOWANCES> 5,778,000
<INVENTORY> 13,541,511
<CURRENT-ASSETS> 80,384,059
<PP&E> 15,612,583
<DEPRECIATION> 5,143,620
<TOTAL-ASSETS> 271,001,166
<CURRENT-LIABILITIES> 24,202,530
<BONDS> 39,165,739
0
0
<COMMON> 307,957
<OTHER-SE> 204,437,872
<TOTAL-LIABILITY-AND-EQUITY> 271,001,166
<SALES> 144,397,836
<TOTAL-REVENUES> 144,397,836
<CGS> 85,531,996
<TOTAL-COSTS> 139,829,204
<OTHER-EXPENSES> 6,324,108
<LOSS-PROVISION> 1,222,355
<INTEREST-EXPENSE> 6,473,314
<INCOME-PRETAX> (1,755,476)
<INCOME-TAX> (5,120,857)
<INCOME-CONTINUING> 3,365,381
<DISCONTINUED> 0
<EXTRAORDINARY> (239,961)
<CHANGES> 0
<NET-INCOME> 3,125,420
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
