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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
January 31, 1997
CAPSTONE PHARMACY SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-20606 11-2310352
-------- ------- ----------
(State or other (Commission File (Employer
jurisdiction of Number) Identification
incorporation) Number)
2930 Washington Boulevard, Baltimore, Maryland 21230
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(Address of principal executive offices)
(410) 646-6987
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(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name or former address,
if changed since last report)
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ITEM 5. OTHER EVENTS.
Capstone Pharmacy Services, Inc. (the "Registrant") reports the following
two acquisitions, which the Registrant deems of importance to its security
holders:
(a) On January 3, 1997, pursuant to an Agreement and Plan of Merger dated
January 3, 1997, the Registrant acquired by merger, through its wholly-owned
subsidiary, Clinical Care-SNF Pharmacy, Inc., a California corporation that
operates an institutional pharmacy service business in San Diego, California,
and the surrounding areas. The aggregate consideration paid by the Registrant
for Clinical Care-SNF Pharmacy, Inc. was $20,000,000, consisting of $5,000,000
in cash and $15,000,000 in the Registrant's common stock, of which $2,000,000 of
stock has been placed in escrow to be delivered to the shareholders at the first
and second anniversary of the closing of the acquisition, subject to offset by
the Registrant and under certain circumstances.
(b) On January 3, 1997, pursuant to an Agreement and Plan of Merger dated
January 3, 1997, the Registrant acquired by merger, through its wholly-owned
subsidiary, Portaro Pharmacies, Inc., a California corporation that operates an
institutional pharmacy service business in Los Angeles, California, and the
surrounding areas. The aggregate consideration paid by the Registrant for
Portaro Pharmacies, Inc. was $20,000,000, consisting of $5,000,000 in cash and
$15,000,000 in the Registrant's common stock, of which $2,000,000 of stock has
been placed in escrow to be delivered to the shareholders at the first and
second anniversary of the closing of the acquisition, subject to offset by the
Registrant and under certain circumstances.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The exhibits filed as a part of this report are listed in
the Exhibit Index immediately following the signature page.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTONE PHARMACY SERVICES, INC.
By: /s/ James Shelton
-------------------------------
James Shelton
Senior Vice-President, Chief
Financial Officer and Secretary
Date: January 31, 1997
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Exhibit Index
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<CAPTION>
Exhibit No.
- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated January
3, 1997, by and among Clinical Care-SNF,
Inc., Ron Belville, the Registrant and
Institutional Pharmacy Services, Inc.*
2.2 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 Registrant and Institutional
Pharmacy Services, Inc.*
</TABLE>
* A copy of the schedule list to this exhibit has been included. The
schedules have been omitted but the Registrant shall furnish supplementally a
copy of any omitted exhibit to the Securities and Exchange Commission upon
request.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
CLINICAL CARE-SNF PHARMACY, INC
THE "COMPANY,"
RON BELVILLE
THE "SHAREHOLDER,"
CAPSTONE PHARMACY SERVICES, INC.
THE "PARENT"
AND
INSTITUTIONAL PHARMACY SERVICES, INC.
THE "CAPSTONE SUB"
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TABLE OF CONTENTS
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ARTICLE I. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effective Time and Transaction Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. STATUS AND CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Medicare, Medicaid and Other Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Compliance with Zoning, Land Use and Other Laws; Easements . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12 Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14 Miscellaneous Representations Relating to Real Estate . . . . . . . . . . . . . . . . . . . . . . . . 17
4.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.16 Company Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.17 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.19 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.20 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.21 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.22 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.23 Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.25 Compliance with Healthcare and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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4.26 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.27 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.28 Tax Returns; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.29 Asset Value; EBITDA and Net Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.30 No Omissions or Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Parent Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Capstone Common Stock and Merger Consideration Stock . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 S-3 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.7 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 No Omissions or Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Medicare and Medicaid Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Indebtedness; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Maintain Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.5 Excluded Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.14 Tax Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII. COMPANY'S AND SHAREHOLDER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . . 27
8.2 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Simultaneous Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IX. PARENT'S AND CAPSTONE SUB'S CONDITIONS TO CLOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . . 27
9.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Inspection of Assets; U.C.C. Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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9.7 Operating Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Value of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.9 Third Party Consents; Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.10 Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDER AT CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.4 Corporate Good Standing and Corporate Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8 Additionally Requested Documents; Post-Closing Assistance . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Confidentiality and Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.10 Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI. OBLIGATIONS OF PARENT AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Corporate Good Standing and Certified Board Resolutions . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.4 Opinion of Parent's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.5 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Registration Rights and Escrow Agreements; Post-Closing Assistance . . . . . . . . . . . . . . . . . . 32
ARTICLE XII. OPINION OF PARENT'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2 Indemnification by Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3 Indemnification by Surviving Corporation and Parent . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.4 Rules Regarding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.5 Indemnity Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.6 Limitation on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIV. PRESERVATION OF BUSINESSAND NONCOMPETE RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XV. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.2 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.4 Confidentiality; Prohibition on Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.5 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.7 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.8 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.11 Interpretation; Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.13 Further Assurance of Shareholder After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
15.14 Legal Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered
into on January 3, 1997, by and among CLINICAL CARE-SNF PHARMACY, INC., a
California corporation (the "Company"), RON BELVILLE, a resident of the State
of California (the "Shareholder"), CAPSTONE PHARMACY SERVICES, INC., a Delaware
corporation ("Parent") and INSTITUTIONAL PHARMACY SERVICES, INC., a Maryland
corporation (the "Capstone Sub").
R E C I T A L S:
WHEREAS, Shareholder owns and operates the Company, a corporation that
operates an institutional pharmacy service business in San Diego, 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, Shareholder owns all of the issued and outstanding capital
stock of the Company (the "Stock"); and
WHEREAS, the shareholders of Portaro Pharmacies, Inc. (the "Related
Sellers") have agreed to the acquisition by Parent of such company (the
"Related Company") in conjunction with this transaction (the "Related
Transaction") pursuant to an Agreement and Plan of Merger between the Related
Sellers, the Related Company, Parent and Capstone Sub (the "Related Merger
Agreement") regarding Related Sellers' institutional pharmacy service business
in Los Angeles, California and surrounding areas (the "Related Business"); and
WHEREAS, the Shareholder and the respective Boards of Directors of
Company, Parent and Capstone Sub consider the acquisition by Parent of Company
through a merger in accordance with this Agreement to be in the respective best
interests of the parties. To that end, Shareholder and each Board of Directors
has approved this Agreement and the form of Certificate of Merger attached
hereto as Exhibit B (the "Certificate of Merger"). The parties adopt this
Agreement, together with the form of Certificate of Merger, as a "plan of
reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1984, as amended (the "Code").
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:
<PAGE> 7
ARTICLE I. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3
hereof) and subject to and upon the terms and conditions of this Agreement,
Company shall be merged with and into Capstone Sub (the "Merger") in accordance
with provisions of the Maryland Business Corporation Law ("MBCL"). Following
the Merger, Capstone Sub shall continue as the surviving corporation under the
name "Institutional Pharmacy Services, Inc." (the "Surviving Corporation"), and
the separate corporate existence of Company will cease.
1.2 Effects of the Merger. At the Effective Time, the Surviving
Corporation shall, without any other action, possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties of each of
Company and Capstone Sub (Company and Capstone Sub are sometimes hereinafter
referred to as the "Constituent Corporations" of the Surviving Corporation);
and all rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, and shall be vested
in the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate vested by deed or otherwise, in
the Constituent Corporations, shall not revert or be in any way impaired by
reason of the Merger; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of either of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
1.3 Effective Time and Transaction Effective Date. The Merger
shall become effective at the time of the filing of the Certificate of Merger
with the office of the Secretary of State of the State of Maryland in
accordance with the applicable provisions of the MBCL, which Certificate of
Merger shall be so filed as soon as practicable after the Closing (as defined
in Section 8.1). The date and time when the Merger shall become effective for
the purposes of Maryland law are herein referred to as the "Effective Time";
upon consummation, the Closing shall be deemed to be effective for all other
purposes as of 12:01 a.m. local time on January 1, 1997 (the "Transaction
Effective Date").
1.4 Articles of Incorporation. The Articles of Incorporation of
the Capstone Sub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with the provisions of the applicable corporate law, except that at
the Effective Time the Certificate of Incorporation may be amended and restated
as may be provided for in the form of the Certificate of Merger.
1.5 Bylaws. The Bylaws of the Capstone Sub in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with the provisions of the applicable corporate
law, the Certificate of Incorporation of the Surviving Corporation and such
Bylaws.
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<PAGE> 8
1.6 Directors. The directors of the Capstone Sub immediately
prior to the Effective Time shall, after the Effective Time, be the directors
of the Surviving Corporation without change, until their successors have been
duly elected and qualified in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
1.7 Officers. The officers of the Capstone Sub immediately prior
to the Effective Time shall, after the Effective Time, be the officers of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation or until his or her
successor has been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II. STATUS AND CONVERSION OF SECURITIES
2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Capstone Sub, Company
or the Shareholder:
(1) Each share of common stock, par value $.01 per share,
of Capstone Sub issued and outstanding immediately prior to the Effective Time
shall continue without change and shall represent validly issued, fully paid
and nonassessable shares of common stock of the Surviving Corporation.
(2) Each share of Company Common Stock held by Company as
a treasury share shall be canceled and no payment shall be made with respect
thereto.
(3) Each outstanding share of Company Common Stock issued
and outstanding immediately prior to the Effective Time, shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be canceled and extinguished and converted into the right to
receive an aliquot portion of the Merger Consideration (as defined below) as
described below.
2.2 Merger Consideration. The aggregate merger consideration
payable pursuant hereto and to the Related Merger Agreement, subject to
adjustment as described herein and therein, is Forty Million Dollars
($40,000,000.00). The merger consideration payable by Parent to Shareholder in
consideration for the Merger and for the agreements contained herein, including
the agreements contained in Article XIV hereof, will be Twenty Million Dollars
($20,000,000.00) (the "Merger Consideration"). The Merger Consideration shall
be subject to adjustment as set forth in this Agreement and shall be payable in
the following manner:
(1) Five Million Dollars ($5,000,000.00) in immediately
available funds by wire transfer at Closing;
(2) the number of shares of Parent's common stock, par
value $.01 per share (the "Capstone Common Stock"), having an aggregate market
value of Thirteen Million Dollars ($13,000,000.00), based upon the average
closing bid price per share of the
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<PAGE> 9
Capstone Common Stock on the Nasdaq Stock Market for the fifteen (15)
consecutive trading days ending one day prior to the Closing (the "Average
Price"); and
(3) the number of shares of Capstone Common Stock having
an aggregate market value of Two Million Dollars ($2,000,000.00), based upon
the Average Price, to be held in escrow (the "Escrowed Shares"), from which 50%
of such shares then held by the escrow agent will be released on the first
anniversary of the Closing ("First Anniversary Shares") and the remainder of
which will be released on the second anniversary of the Closing ("Second
Anniversary Shares"), pursuant to the terms of an escrow agreement (the "Escrow
Agreement"), the form of which is attached hereto as Exhibit 2.2(3).
All such shares of Capstone Common Stock described in 2.2(2) and
2.2(3) herein shall be subject to a Registration Rights Agreement between
Parent and Shareholder (as described in Section 6.13 hereof) and shall be
collectively referred to herein as the "Merger Consideration Stock". Upon
effective registration of the Merger Consideration Stock described in Section
2.2(3) hereof, such shares may be sold by Shareholder and the proceeds of such
sale substituted for such sold shares in escrow, in accordance with the
provisions of the Escrow Agreement.
2.3 Offset. The Merger Consideration shall be subject to offset
in the following manner:
(1) The Merger Consideration shall be subject to
repayment (out of the Escrow Account, first, and then from Shareholder as
necessary) subsequent to Closing by, in the event that EBITDA falls below the
EBITDA Target (each as defined in Section 4.29 hereof and such shortfall being
herein referred to as the "EBITDA Shortfall"), an amount equal to the EBITDA
shortfall, multiplied by 6.5 (50% of which reduction is to be reflected in this
transaction and 50% in the Related Transaction) (the parties have agreed based
on information provided to date that EBITDA shortfall is zero); and
(2) Subject to the provisions of Article XIII, the
portion of the Merger Consideration reflected in Section 2.2(3) hereof shall be
offset by:
(a) the full extent of the Receivables Shortfall
(as defined in paragraph 3.1 herein), if any; and
(b) in the event of any losses, costs, and
expenses (including reasonable cost of investigation, court costs and
legal fees actually incurred) and other damages resulting from any
breach by either Company or Shareholder of any of the covenants,
obligations, representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this
Agreement (collectively, such damages being the "Breach Damages"), at
Parent's option, to the full extent of such losses, costs, expenses
and/or damages.
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Such claims under this Section 2.3(2) shall first be satisfied out of the First
Anniversary Shares until these are exhausted in full. To the extent such
claims are not satisfied in full by the First Anniversary Shares, they shall
then be satisfied out of the Second Anniversary Shares. The number of shares
to be offset shall be determined based upon the dollar amount to be offset
divided by the Average Price. To the extent claims under Section 3.2(2)(b) are
not satisfied in full by the Escrowed Shares, then cash payments shall be made
by the Shareholder in accordance with the indemnification provisions of Article
XIII hereof. To the extent the escrow account contains cash or assets other
than the Escrowed Shares, any claims shall be satisfied first from the Escrowed
Shares and then from such cash or other assets.
ARTICLE III. RECEIVABLES
3.1 Collection of Receivables. After Closing, Surviving
Corporation will proceed to collect the Receivables. Shareholder shall provide
such assistance in the collection process as Surviving Corporation or Parent
may reasonably request. If, within 180 days following Closing, Surviving
Corporation has 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 (such event being a
"Receivables Shortfall"), (a) the Merger Consideration shall be reduced by the
amount of such shortfall in accordance with Section 2.3 hereof, and (b) any
Receivables subject to a Receivables Shortfall shall be assigned to Shareholder
in the amount of each such Shortfall, provided that such Receivables relate to
facilities which are not ongoing clients of the Business or to private
(non-facility) payors.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER
As a material inducement to Parent and Capstone Sub to enter into this
Agreement and to consummate the transactions contemplated hereunder,
Shareholder hereby represents and warrants to Parent and Capstone Sub, which
representations and warranties shall be true and correct on the date of
Closing, as follows:
4.1 Organization, Qualification and Authority. Company is a
corporation duly organized and validly existing in the State of California,
and is not required to be qualified to do business as a foreign corporation in
any other jurisdiction. Since the date of its organization and incorporation,
Company has consistently observed and operated within the corporate formalities
of the jurisdiction in which it is incorporated, and has consistently observed
and complied with the general corporation law of such jurisdiction except where
the failure to do so would not have a material adverse effect on the Company.
Company 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 jurisdiction where the Business is conducted. Company owns no
capital stock, security, interest or other right, or any
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<PAGE> 11
option or warrant convertible into the same, of any corporation, partnership,
joint venture or other business enterprise. Company and Shareholder 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
Shareholder 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 Shareholder, have been 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 Shareholder, upon due execution and delivery thereof, shall
constitute the valid and binding obligations of Company and/or Shareholder, 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 Shareholder,
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 10,000 shares, no par value, 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 equity interest of any kind, or to transfer or
modify any right with respect to any capital stock, security or other equity
interest, and, except as set forth on Exhibit 4.2 attached hereto, no one has
any pre-emptive rights, right of first refusal or similar rights with respect
to the Stock or any equity interest in Company. Neither Company nor
Shareholder 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 has been issued in accordance with all applicable federal and state
securities laws.
4.3 Absence of Default. Except as set forth on Exhibit 4.3
attached hereto, the execution, delivery and consummation of this Agreement,
and all other agreements and documents executed in connection herewith by
Company and Shareholder 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 Parent,
Surviving Corporation or the Business under: (a) any term or provision of the
Charter or Bylaws of Company; (b) any material contract, lease, purchase
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<PAGE> 12
order, agreement, document, instrument, indenture, mortgage, pledge,
assignment, permit, license, approval or other commitment to which Company
and/or Shareholder is a party or by which Company, Shareholder, 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 Shareholder, Stock
and/or the Assets are subject.
4.4 Financial Statements.
(1) Attached hereto as Exhibit 4.4 are true and correct
copies of Company's unaudited balance sheets as of December 31, 1995, and its
unaudited income statements for the year then ending (the "Fiscal Year
Financial Statements"), and the internally prepared interim unaudited balance
sheet and income statement of Company for the nine (9) month period ended
September 30, 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 the
financial position of Company as of, and the results of its operations for, the
periods specified.
(2) Shareholder shall fully and readily cooperate with
Parent in Parent's attempt to perform an audit of Company for any period prior
to Closing not already audited.
4.5 Operations Since September 30, 1996 . Except as set forth on
Exhibit 4.3 attached hereto, since September 30, 1996, there has been no:
(1) material change in the condition, financial or
otherwise (including, without limitation, major loss of customers), which has,
or could reasonably be expected to have, a material adverse effect on any of
the Assets, the Business, or in the results of the operations of the Company;
(2) material loss, damage or destruction of or to any of
the Assets, whether or not covered by insurance;
(3) 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) increase in the compensation payable by Company to
Shareholder, employees, directors, independent contractors, agents, or, other
than in the ordinary course of business, employees, 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;
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(6) adjustment or write-off of Receivables or reduction
in reserves for Receivables except as made known to and agreed to by Parent;
(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 Shareholder 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 to Shareholder or his affiliates or
expenditure or intercompany payable in an aggregate amount greater than
$25,000.00;
(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, since November 22,
1996, solicitation by Shareholder or Company therefor;
(11) other than in the ordinary course of business,
security interest, guarantee or other encumbrance, 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) [RESERVED.]
(13) strike, work stoppage or other labor dispute of the
Company adversely affecting the Business; or
(14) other than in the ordinary course of business, any
termination, waiver or cancellation of any rights or claims of Company, under
any material contract or otherwise, it being understood that all contracts
pursuant to which Company provides goods and/or services are, without
limitation, material hereunder.
Further, since September 30, 1996, neither the Shareholder nor any of
his 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, as to Shareholder, amounts not greater
than the amount of compensation and benefits contemplated pursuant to the
agreement referenced in paragraph 9.7.
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 that are included in the Continuing
Liabilities.
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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 knowledge of the Company or
Shareholder, has threatened to assert, any claim for any action or proceeding,
against Company (or any officer, director, employee, agent or Shareholder 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 are part of the Excluded Items (as defined in section
6.11 hereof).
4.8 Licenses and Permits.
(1) Company has all material 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
material default on the part of Company or Shareholder under any of the
Licenses and Permits. Subject to the effect of this transaction, to the
knowledge of the Company or Shareholder, there exist no material 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 Shareholder 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 material 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. To the
knowledge of the Company or Shareholder, there is no default under, nor does
there exist any 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
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time of Closing, in full compliance with all of the material 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 Shareholder, nor, to the knowledge of Company or Shareholder, 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 Shareholder received notice of any pending, threatened or possible
decertification or other loss of participation in, any of the Programs.
(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 material 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, Parent or Surviving Corporation suffers any
offsets against any reimbursement under any third-party payor or reimbursement
programs due to Parent or Surviving Corporation relating to the periods on or
prior to the Closing, then Shareholder shall immediately pay to Parent the
amounts so offset, 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 Company or Shareholder, none of the Real Estate is in
violation of any material 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. To the knowledge of Company or Shareholder, the Company has all
material easements and permits necessary to continue operation of the Business,
copies of which are set forth in Exhibit 4.10 attached hereto.
4.11 Assets and Liabilities.
(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. The Assets are all the assets set forth on the Interim Financial
Statements or used in the operation of the Business.
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(2) Company does not own any real property. The
descriptions of the Real Estate (as defined herein) contained in Exhibit
4.11(3)(a) are accurate 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 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, subject to any
action required of Parent or its affiliates, the Merger as contemplated by the
terms of this Agreement once effected as contemplated hereunder, will vest in
the Parent, either directly or indirectly through Surviving Corporation, the
lawful right to possess and use the leased Real Estate, superior in right to
all others.
(3) At Closing the Company shall own or lease, as
specified, all assets, tangible and intangible, real and personal, that are
necessary or that it uses to operate the Business as currently conducted
(collectively, the "Assets"), free and clear of all encumbrances, mortgages,
pledges, liens, security interests, obligations and liabilities other than the
Continuing Liabilities (as defined in paragraph 4.11(4)), which Assets shall
include, without limitation, the following:
(a) All of the Company's 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
4.11(3)(a) 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");
(b) 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 4.11(3)(b) attached hereto
(collectively, the "Equipment and Furnishings");
(c) 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 (collectively, the
"Inventory");
(d) All accounts and notes receivables of the
Company (the "Receivables");
(e) All cash, bank accounts (as listed by name
and address of banking institution, account name and account and
routing numbers on Exhibit 4.11(3)(e) attached hereto), money market
accounts, other accounts, certificates
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of deposit and other investments of the Company (the "Cash and Cash
Equivalents");
(f) All patient, medical, personnel, corporate
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;
(g) 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 the Company currently has, if any, of any
requirements pertaining to such licenses, permits, registrations,
certificates, consents, accreditations, approvals and franchises;
(h) 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;
(i) All prepaid expenses including those
reflected on the Financial Statements except where used in the
ordinary course of business;
(j) 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 in
connection with the Business and that are approved by Parent (as such
term is defined herein);
(k) All intangible or intellectual property
owned, leased, licensed or possessed by either the Company or the
Shareholder and utilized in connection with the Business, including
without limitation, the name "Clinical Care" and derivatives thereof,
to the extent the Company or any Shareholder has rights in or to each
such name; and
(l) All equity interests in Company and all
corporate, fiscal and other records pertaining to Company or the
Business and all of Company's right, title and interest in any
partnerships, joint ventures or similar arrangements.
(4) At Closing, Surviving Corporation 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 and long-term and interest bearing debt which Surviving Corporation
expressly elects to retain as specifically set forth on Exhibit 4.11(4)
attached hereto, (b) those obligations constituting working capital liabilities
incurred in the ordinary course of business on and after the Transaction
Effective Date and (c) those obligations arising on and after the Transaction
Effective Date under those
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Leases and Contracts (as defined in paragraph 4.12) which Surviving Corporation
expressly elects to retain (collectively, the "Continuing Liabilities").
(5) Except for Continuing Liabilities, neither Parent nor
Surviving Corporation is assuming any debt, liability or obligation of the
Company or of any Shareholder and it is expressly agreed and understood by each
of the parties to this Agreement that after the Closing Surviving Corporation
shall not retain or be liable for, any debt, liability or obligation of Company
prior to the Closing or of Shareholder of any type or description whatsoever,
whether related or unrelated to the Stock, the Business or the transactions
contemplated under this Agreement and that Shareholder 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 Shareholder including, without limitation, recapture or prior
period adjustments under Medicare, Medicaid and Blue Cross, all impositions of
income tax and other taxes; all employee wages, salaries and benefits
including, without limitation, COBRA and WARN obligations, accrued vacation and
sick pay, and other accrued employee benefits including rights of Company's
retirees to participate in medical plans.
(6) Shareholder hereby represents and warrants that the
value of his aggregate "total assets," as such term is defined in Rules,
Regulations, Statements and Interpretations under the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976 (16 C.F.R. 801 et seq.), does not equal or
exceed $10,000,000.00.
4.12 Leases and Contracts.
(1) Exhibit 4.12(1) 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 either Company and/or Shareholder 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"). Accurate and complete copies of all written
Leases and Contracts have been made available to Parent and written summaries
of key terms of all oral Leases and Contracts are attached to Exhibit 4.12(1)
attached hereto.
(2) Since September 30, 1996, 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 against the Company
and, to the knowledge of Company or Shareholder, any other party thereto, 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.
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(3) Except as set forth on Exhibit 4.12(3) attached
hereto, 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 Company or, to Company's or
Shareholder's knowledge, 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 those set forth on Exhibit 4.11(4)).
(5) No purchase commitment by Company is in excess of
Company's ordinary business requirements as now projected.
(6) Except as set forth on Exhibit 4.3 attached hereto,
subject to any action required of Parent or its affiliates, the Merger will not
default, alter or terminate any of the Leases and Contracts, and Parent,
directly or through Surviving Corporation, will be entitled to all rights
thereunder.
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 of 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
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pursuant to Environmental Laws. To the knowledge of Company and Shareholder,
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) Except as set forth on Exhibit 4.13(2)(a)
attached hereto, 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 knowledge of Company or
Shareholder, has the Real Estate ever been used for any of the
foregoing.
(b) Neither Company nor its Affiliates or Agents
have installed or knowingly 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.
(c) Company has not at any time engaged in or
knowingly 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 Parent to
clean-up obligations imposed by governmental authorities.
(d) To the knowledge of Company or Shareholder,
none of the Real Estate, nor any part thereof, nor Company (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 knowledge of Company or Shareholder,
threatened investigation or inquiry by any governmental authority for
noncompliance with, or any remedial obligations under Environmental
Law and, except as set forth on Exhibit 4.13(2)(a) attached hereto,
there are no circumstances known to Company or Shareholder which is
likely to serve as a basis therefor. The Company has not explicitly
assumed any liability of a third party for clean-up under or
noncompliance with Environmental Law.
(e) 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
knowledge of Company and Shareholder, 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 knowledge of
Company and Shareholder, there are no underground storage tanks on any portion
of the Real Estate,
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and the Real Estate is free of dangerous levels of naturally-emitted radon. To
the knowledge of Company and Shareholder, no portion of the Real Estate has
ever been used as a landfill. Company has furnished to Parent 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) Notice. Company and Shareholder shall promptly
notify Parent in writing of any order, receipt of any notice of violation or
noncompliance with any Environmental Law, any threatened or pending action or
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 Parent 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 Parent or the Assets, Parent 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. Parent shall
give Shareholder prior or simultaneous notice of such notification.
4.14 Miscellaneous Representations Relating to Real Estate.
(1) To the knowledge of Company and Shareholder, no part
of the Real Estate is currently subject to condemnation proceedings and no
condemnation or taking is threatened or contemplated. To the knowledge of
Company and Shareholder, 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 Shareholder 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
Shareholder within the last five (5) years relating to any of the Assets.
(3) To the knowledge of Company and Shareholder, all
utilities serving the Real Estate are adequate to operate the Real Estate in
the manner it is currently operated and 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 knowledge of Company and Shareholder, there
are no encroachments upon the Real Estate and no encroachment of any
improvements to the Real Estate onto adjacent property. To the knowledge of
Company and Shareholder, 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) To the knowledge of Company and Shareholder, 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
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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. In the last twelve (12) months, neither Company
nor Shareholder has received written 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 neither Parent nor Surviving Corporation assumes any liability),
there are no lawsuits, proceedings, actions, arbitrations, governmental
investigations, claims, inquiries or proceedings pending or, to the knowledge
of Company and Shareholder, threatened involving Company, Shareholder, 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
(which policies have been made available to Parent in lieu of attachment
hereto), (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
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. Section 2102 et
seq. Except as provided in Exhibit 4.12, Company has no employment agreements
with its employees and all such employees are employed on an "at will" basis.
Exhibit 4.16 lists all ex-employees of Company utilizing or eligible to utilize
COBRA (health insurance). Shareholder agrees to indemnify and hold Parent and
Surviving Corporation harmless from and against any and all claims of
employees, whenever made, relating to their employment by Company through
Closing. As of the Closing, Company has adequately accrued all salaries and
wages, related payroll taxes and all sick leave, holiday, 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. Except as set forth on Exhibit 4.7 attached
hereto, there is no pending or, to the knowledge of Company and Shareholder,
threatened labor dispute, work stoppage, unfair labor practice complaint,
strike, administrative or court
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proceeding or order between Company and any present or former employee(s) of
Company. There is no pending or, to the knowledge of Company and Shareholder,
threatened suit, action, investigation or claim between Company and any present
or former employee(s) of Company. To Shareholder's and Company's knowledge,
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.
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 in reasonable types and amounts for its
type of business. A complete and accurate list of all such insurance policies
is included in Exhibit 4.12. Exhibit 4.18 attached hereto includes a
certificate of insurance provided by the Company's insurance company depicting
Company's current insurance coverage (listing type, carrier and limits),
Exhibit 4.18 also includes a list of any pending insurance claims relating to
Company. Shareholder agrees to indemnify and hold Parent and Surviving
Corporation harmless from and against such pending insurance claims to the
extent such claims are not satisfied by Company's insurance policies. Company
is not in material 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 the Geneva Corporate
Finance, Inc., to which the Shareholder shall be solely responsible for payment
of any and all fees and expenses, neither Company nor Shareholder 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. 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 Shareholder, (b) any director or officer of
Company, or (c) any entity under common control with Company or controlled by
or related to Shareholder.
4.21 Intellectual Property. All material trademarks, service
marks, trade names, patents, inventions, processes, copyrights and applications
therefor, whether registered or at common law (collectively, the "Intellectual
Property"), owned by Company are listed and described in Exhibit 4.21 attached
hereto. No proceedings have been instituted or are pending or, to the
knowledge of Company and Shareholder, threatened which challenge the validity
of the ownership by Company of any such Intellectual Property. Company has not
licensed anyone to use any such Intellectual Property, and neither Company nor
Shareholder have any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. To Company's and Shareholder's
knowledge, Company owns or possesses adequate and enforceable licenses or other
rights to use all Intellectual Property now used in the conduct of its Business
as and where currently operated.
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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
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
Interim Financial Statements, Company has not decreased or substituted its
items of Inventory other than in the ordinary course of business. Company 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.
4.23 Motor Vehicles. All motor vehicles used in the Business,
whether owned or leased, are listed in Exhibit 4.11(3)(b) 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
Parent.
(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 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 Parent.
(3) Liabilities. Except to the extent accrued as a
Continuing Liability, there are no unfunded liabilities under any Welfare
Benefit Plan or Pension Benefit Plan. Neither Parent nor Surviving Corporation
shall be liable or responsible for any debt, obligation, responsibility or
liability under any such plans related to periods prior to Closing. However,
such benefit plans for Company's employees as in effect immediately prior to
Closing shall be continued by Parent and Surviving Corporation for a minimum of
three (3) months following Closing and, at Shareholder's option, for a period
of an additional three (3) months for those key employees identified on Exhibit
4.24(3) attached hereto (the "Key Employees"). Except to the extent accrued as
a Continuing Liability, Shareholder hereby assumes 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.
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(4) Termination of Participation. Subject to the
provisions of Section 4.24(3), 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 Shareholder's obligations to Parent and Surviving Corporation.
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. No bulk sales or similar statute applies to the transactions
contemplated under this Agreement. 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 prior to Closing 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
filing 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. Shareholder shall retain and be responsible, for any liability
incurred, and Shareholder 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. 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. All components of
all of the Equipment and Furnishings material to the Business (a) perform the
functions they are supposed to perform, and (b) except for ordinary wear and
tear, are otherwise in good working order. Within the last 24 months, 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
September 30,1996, the Business has been operated in conformity with the
methods and procedures observed and utilized during the two year period
immediately preceding September 30, 1996, and, since September 30, 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
Shareholder.
4.27 WARN Act. Since ninety (90) days prior to Transaction
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.
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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 and Shareholder have 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 required to
be 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 knowledge of Company and Shareholder, threatened against Company or
Shareholder by any federal, state or local authority; and Company and/or
Shareholder have not been granted any extension of the limitation period
applicable to any tax claims.
4.29 Asset Value; EBITDA and Net Revenues. At closing, the
aggregate Net Equity of the Company and the Related Company (being the
aggregate net book value of the Assets of the Company and the Related Company,
as "Assets" is defined herein and in the Related Merger Agreement and as such
Assets are recast in the Geneva Companies' Confidential Business Review of the
Companies (the "Geneva Review"), minus the aggregate Continuing Liabilities of
the Company and the Related Company, as "Continuing Liabilities" is defined
herein and in the Related Merger Agreement) shall be no less than Three Million
Four Hundred Fifty-Two Thousand Dollars ($3,452,000.00). Shareholder makes no
representations or warranties other than those contained in this Agreement and
the Exhibits attached hereto and the Closing Documents (as defined in Section
13.2 hereof). Other than as expressly provided herein, Shareholder makes no
representations or warranties in connection with any materials furnished or
statements made in, in connection with, or related to the Geneva Review. For
the nine (9) month period ended at September 30, 1996 with respect to the
Company and August 31, 1996 with respect to the Related Company, Company and
the Related Company shall have achieved aggregate earnings before interest,
taxes, depreciation and amortization (EBITDA"), recast to include the expense
assumptions found in the Geneva Review, of no less than One Million Six Hundred
Seventy Seven Thousand Dollars ($1,677,000.00) (the "EBITDA Target"), and net
revenues of no less than Twenty One Million One Hundred Sixty Four Thousand
Dollars ($21,164,000.00). Capstone accepts the Geneva adjustments and as of
Closing has no knowledge of any basis for an EBITDA shortfall.
4.30 No Omissions or Misstatements. None of the representations,
warranties, covenants or other information in this Agreement and Exhibits
hereto, 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.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT
As an inducement to Shareholder and Company to enter into this
Agreement and to consummate the transactions contemplated herein, Parent hereby
represents and
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warrants to Shareholder and Company, which representations and warranties shall
be true and correct on the date of Closing, as follows:
5.1 Organization, Qualification and Authority. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Capstone Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
Each of Parent and Capstone Sub 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. Each of
Parent and Capstone Sub has the full right, power and authority to execute,
deliver and carry out the Merger and the terms of the Merger and 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
Parent and Capstone Sub, respectively, hereby. The execution, delivery and
consummation of this Agreement and all other agreements and documents executed
in connection herewith by Parent and/or Capstone Sub has been duly authorized
by all necessary corporate action on the part of Parent and/or Capstone Sub.
No other action on the part of Parent or Capstone Sub 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 Parent and/or Capstone Sub, upon due execution and
delivery thereof, shall constitute the valid binding obligations of Parent and
or Capstone Sub, 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. No shareholder approval is required to effectuate the transactions
contemplated hereunder. Parent and Capstone Sub have all material licenses,
permits and governmental approvals necessary to operate their businesses.
5.2 Parent Reports. Parent has delivered to the Shareholder those
filings with the Securities and Exchange Commission (collectively, the "Parent
Reports") listed on Exhibit 5.2 hereto. The Parent Reports were complete,
accurate and correct, in all material respects, when filed. The Parent
Reports, when filed, did not contain any untrue statement of material fact or
omit to state any material fact necessary in order to make any of the
statements therein not misleading in light of the circumstances in which they
were made.
5.3 Capstone Common Stock and Merger Consideration Stock. At
Closing, the Capstone Common Stock, of which the Merger Consideration Stock is
a part, being 33,843,025 shares, $.01 par value, will constitute all issued and
outstanding common stock of Parent. At Closing, there will be outstanding no
shares of preferred stock in Parent, warrants to purchase 1,668,158 shares of
Capstone Common Stock, and options to purchase 3,013,500 shares of Capstone
Common Stock. Upon issuance of the Merger Consideration Stock, all the
Capstone Common Stock will be duly authorized, validly issued, fully paid and
non assessable, and the Merger Consideration Stock will be free and clear of
any liens, charges, encumbrances, security interests, pledges or any other
restrictions whatsoever.
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5.4 S-3 Requirements. Parent meets all the eligibility
requirements under the Federal Securities Laws necessary to enable it to use a
Registration Statement on Form S-3 for the Merger Consideration Stock.
5.5 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Parent and/or Capstone Sub 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 Parent's or Capstone Sub's assets
(except in the ordinary course pursuant to Parent's existing credit agreement)
under: (a) any term or provision of the Certificate of Incorporation or Bylaws
of Parent and/or Capstone Sub; (b) any contract, lease, agreement, indenture,
mortgage, pledge, assignment, permit, license, approval or other commitment to
which Parent and/or Capstone Sub is a party or by which Parent and/or Capstone
Sub 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 Parent and/or Capstone Sub is subject.
5.6 Financial Statements. Attached hereto as Exhibit 5.6 are true
and correct copies of Parent's unaudited balance sheets as of September 30,
1996 and its unaudited income statements for the nine (9) months then ending
(collectively, "Parent Financial Statements"). Since September 30, 1996, there
has been no material change, financial or otherwise, in Parent's operations,
which has had, or could reasonably be expected to have, a material adverse
effect on the value of the Capstone Common Stock. The Parent Financial
Statements are based on the books and records of Parent and present fairly the
financial position of Parent for the periods specified.
5.7 Broker's or Finder's Fee. Except as to Adirondack Capital
Advisors, LLC, to which Parent shall be solely responsible for payment of any
and all fees and expenses, Parent 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.
5.8 No Omissions or Misstatements. None of the representations,
warranties, covenants or other information in this Agreement and Exhibits
hereto, 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.
ARTICLE VI. COVENANTS OF PARTIES
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6.1 Access to Books and Records.
(1) Following the Closing, Parent and Surviving
Corporation shall permit Shareholder' representatives (including, without
limitation, its 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 Shareholder.
(2) Shareholder shall use his best efforts to cause
Company's accounting firm to consent to 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 Parent or
its affiliates to comply with any applicable registration or reporting
requirements of federal or state securities laws.
(3) After Closing, Shareholder shall make the books and
records of Company available to Parent and Surviving Corporation (and, without
limitation, to Parent's and Surviving Corporation's auditors and other agents)
and shall otherwise cooperate with Parent in order to permit Parent to conduct
an audit of Company's financial statements for any period prior to Closing not
already audited. Shareholder agrees to cooperate with Parent in Parent's
preparation of financial statements relating to such periods and Parent'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.
6.2 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.
6.3 Indebtedness; Liens. 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 the Continuing Liabilities, and Company shall deliver to Parent
such releases, U.C.C. termination statements and other documents as Parent may
reasonably request to evidence the same.
6.4 Maintain Insurance Coverage. Company shall provide at Closing
written evidence satisfactory to Parent that such insurance continues to be in
effect, that all premiums due have been paid, and that Shareholder will take,
immediately after Closing, all action to have Parent and Surviving Corporation
named additional insured since the date hereof.
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6.5 Excluded Items. Immediately prior to the effectuation of the
Merger, Company shall transfer to the Shareholder 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 4.11(4) (the "Excluded Items"). The parties acknowledge
and agree that Company is not conveying to Parent or Surviving Corporation any
of the Excluded Items and that, following closing, neither Parent nor Surviving
Corporation will have any right, title, interest or obligation with respect to
the Excluded Items.
6.6 Registration Statement. Parent will use its best efforts to
file with the SEC by January 31, 1997, a Registration Statement on Form S-3 to
register the Merger Consideration Stock. Parent shall take all appropriate
action to cause all the Merger Consideration Stock to be the subject of an
effective Registration Statement no later than March 31, 1997. In the event
such Registration Statement is not declared effective at or prior to March 31,
1997, Shareholder shall be entitled to the Price Reconciliation as set forth in
the Registration Rights Agreement.
6.13 Registration Rights Agreement. Parent and Shareholder shall
enter into a Registration Rights Agreement, the form of which is attached
hereto as Exhibit 6.13.
6.14 Tax Filings. Parent and Capstone Sub shall make such filings
with their applicable tax returns subsequent to the Closing as are required
under Section 368 of the Internal Revenue Code and regulations promulgated
thereunder to entitle Shareholder to the tax treatment provided therein.
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 3, 1997 at the offices of Harwell Howard Hyne Gabbert & Manner,
P.C., Nashville, Tennessee, or at such other time or place as the parties may
mutually agree (the "Closing"). In the event that Closing has not occurred by
February 15, 1997, then any party not in default hereunder may terminate this
Agreement without further obligation.
ARTICLE VIII. COMPANY'S AND SHAREHOLDER'S CONDITIONS TO CLOSE
The obligations of Company and Shareholder 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 Shareholder, in whole or in
part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of 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. Parent shall have
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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 transaction herein contemplated, and no
governmental agency or body or other entity shall have taken any other action
or made any request of Company, Shareholder or Parent as a result of which
Company or Shareholder 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 Employment Agreements. Parent and Ron Belville shall have
entered into an employment agreement in the form attached hereto as Exhibit
8.4.
8.5 Simultaneous Closing. The Related Transaction shall close
simultaneously with the Closing.
8.6 Registration Rights Agreement. Parent and Shareholder shall
have entered into a Registration Rights Agreement in the form attached hereto
as Exhibit 6.13.
ARTICLE IX. PARENT'S AND CAPSTONE SUB'S CONDITIONS TO CLOSE
The obligations of Parent and Capstone Sub under this Agreement are
subject to the satisfaction, on or prior to Closing, of the following
conditions (which may be waived in writing by Parent, in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Shareholder and Company
contained 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 respects. Company and
Shareholder 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. Shareholder shall have assisted Parent
in making all applications to obtain (a) certification for participation in the
Medicaid Programs of the states where the Business is conducted, (b)
certification from the appropriate agency of
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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 Parent to effectuate the Merger and
to 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, Shareholder, Parent or Capstone Sub as a
result of which Parent 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. Parent and its
representatives shall have had and continue to have reasonable rights of
inspection of the Business in connection with Parent's due diligence review,
and the results of Parent'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 Parent or Capstone Sub
to effectuate the Merger 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 Employment Agreements. Parent and Ron Belville shall have
entered into an employment agreement in the form attached hereto as Exhibit
8.4.
9.7 Operating Targets. As of the date of Closing, Company and the
Related Company shall meet the following minimum operating thresholds: (i)
Company (for the nine (9) month period ended at September 30, 1996), and the
Related Company (for the nine (9) month period ended at August 31, 1996) shall
have achieved aggregate net revenues of no less than Twenty One Million One
Hundred Sixty Four Thousand Dollars ($21,164,000.00); (ii) Company (for the
nine (9) month period ended at September 30, 1996) and the Related Company (for
the nine (9) month period ended August 31, 1996) shall have achieved aggregate
EBITDA, recast to include the expense assumptions found in the Geneva Review,
of no less than One Million Six Hundred Seventy Seven Thousand Dollars
($1,677,000.00); and (iii) since September 30, 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 Shareholder. With regard
to any EBITDA Shortfall, Parent shall have the option of closing this
transaction and applying an offset against the Merger Consideration, as
described in Section 3.2 hereof.
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9.8 Value of Assets. At Closing the aggregate Net Equity of the
Company and the Related Company (being the aggregate net book value of the
Assets of the Company and the Related Company, as "Assets" is defined herein
and in the Related Merger Agreement and as such Assets are recast in the Geneva
Companies' Confidential Business Review of the Companies (the "Geneva Review"),
minus the aggregate Continuing Liabilities of the Company and the Related
Company, as "Continuing Liabilities" is defined herein and in the Related
Merger Agreement) shall be no less than Three Million Four Hundred Fifty-Two
Thousand Dollars ($3,452,000.00). The Assets shall be free and clear of all
liabilities and encumbrances whatsoever other than the Continuing Liabilities.
9.9 Third Party Consents; Releases. Shareholder and Company shall
provide to the Parent all third party consents, releases and authorizations
believed by Parent 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 Parent.
9.10 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Parent.
9.11 Beds. Company and the Related Company shall be servicing
under valid contracts with facilities (such contracts to be acceptable to
Parent) an aggregate of not less than Eighteen Thousand (18,000) beds.
9.12 Simultaneous Closing. The Related Transaction shall close
simultaneously with the Closing.
9.13 Registration Rights Agreement. Parent and Shareholder shall
have entered into a Registration Rights Agreement in the form attached hereto
as Exhibit 6.13.
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDER AT CLOSING
At Closing, Company and Shareholder shall deliver or cause to be
delivered to Parent the following in form and substance reasonably satisfactory
to Parent:
10.1 Documents Relating to Title. Shareholder shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Parent:
(1) Stock certificates, registered in the name of the
Shareholder, duly endorsed by Shareholder 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.
(3) Executed Certificate of Merger.
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10.2 Possession. Company shall deliver to Parent full possession
and control of the Stock, Business and Assets.
10.3 Opinion of Counsel. Shareholder shall deliver to Parent the
favorable opinion of counsel for Shareholder and Company, dated as of Closing,
in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolution. Shareholder
shall deliver to Parent 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
Articles of Incorporation of Company, and a certified copy of the resolutions
of the Board of Directors and Shareholder 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 Closing Certificate. Company shall deliver to Parent a
certificate of an officer of Company and of Shareholder, dated as of Closing,
certifying that (a) each covenant and obligation of Company and Shareholder
have been complied with, and (b) each representation, warranty and covenant of
Company and Shareholder is true and correct at the Closing as if made on and as
of the Closing.
10.6 Third Party Consents. Shareholder shall deliver to Parent all
consents, estoppels, approvals, releases, filings and authorizations of third
parties that Parent believes are necessary for the legal and proper execution,
delivery and consummation of this Agreement, and the transactions contemplated
hereunder.
10.7 Releases. Shareholder shall deliver to Parent executed
releases of all mortgages, security interests, liens, pledges, restrictions or
other encumbrances on or applicable to the Stock or Assets except to the extent
such encumbrances relate to Continuing Liabilities.
10.8 Additionally Requested Documents; Post-Closing Assistance. At
the reasonable request of Parent at Closing and at any time or from time to
time thereafter, Shareholder shall cooperate with Parent to put Parent and
Capstone Sub 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 Parent may reasonably request in order
to effectively sell, convey, transfer and assign the same to Parent, to execute
and deliver such further instruments and to take such other actions as Parent
may reasonably request to release Parent, Capstone Sub, Company and Surviving
Corporation from all obligation and liability with regard to any obligation or
liability retained or assumed by Shareholder, and to execute and deliver such
further instruments
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and to cooperate with Parent and Capstone Sub as Parent may reasonably request
or to enable Parent and Company to obtain all necessary health care or
regulatory certifications, approvals, consents and licenses, accreditation or
permits.
10.9 Confidentiality and Employment Agreements. Shareholder shall
deliver to Parent and Capstone Sub executed copies of each of the agreements
described in paragraphs 9.6 and 9.7.
10.10 Assumption Agreement. Shareholder shall deliver to Parent,
Capstone Sub and the Company an Assumption Agreement evidencing that
Shareholder shall be responsible for all obligations pertaining to past
operations of the Business other than the Continuing Liabilities.
10.11 Escrow Agreement. Shareholder shall deliver to Parent the
executed Escrow Agreement described in Section 2.2(3) hereof.
ARTICLE XI. OBLIGATIONS OF PARENT AT CLOSING
At Closing, Parent shall deliver or cause to be delivered to
Shareholder the following in a form and substance reasonably satisfactory to
Shareholder:
11.1 Merger Consideration. Parent shall pay to Shareholder the
Merger Consideration upon the terms specified in this Agreement.
11.2 Corporate Good Standing and Certified Board Resolutions.
Parent and Capstone Sub shall deliver to Shareholder a certificate of good
standing from the Secretary of State of Delaware and Maryland, respectively,
dated the most recent practical date prior to Closing, together with a
certified copy of the resolutions of each of their Board of Directors
authorizing the execution, delivery and consummation of this Agreement and all
other documents executed in connection herewith.
11.3 Closing Certificate. Parent shall deliver to Shareholder a
certificate of an officer of Parent, dated as of Closing, certifying that (a)
each covenant and obligation of Parent has been complied with, and (b) each
representation, warranty and covenant of Parent is true and correct at the
Closing as if made on and as of the Closing.
11.4 Opinion of Parent's Counsel. Parent shall deliver to
Shareholder a favorable opinion of counsel for Parent, dated as of Closing, in
the form specified in Article XII hereof.
11.5 Escrow Agreement. Parent shall deliver to Shareholder the
executed Escrow Agreement described in Section 2.2(3) hereof.
11.6 Employment Agreements. Parent and Shareholder shall have
entered into an Employment Agreement, as described in Section 9.7.
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11.7 Registration Rights and Escrow Agreements; Post-Closing
Assistance. At the reasonable request of Shareholder following Closing, Parent
and Capstone Sub shall cooperate with Shareholder to put Shareholder in actual
possession and control of the Merger Consideration Stock when appropriate as
contemplated under the Escrow Agreement and the Registration Rights Agreement,
to execute and deliver such further instruments of sale, conveyance, transfer
and assignment as Shareholder may reasonably request in order to effectively
sell, convey, transfer and assign the same to Shareholder, and to execute and
deliver such further instruments and to take such other actions as Shareholder
may reasonably request to otherwise effectuate the Escrow Agreement and the
Registration Rights Agreements.
ARTICLE XII. OPINION OF PARENT'S COUNSEL
At the Closing, Parent shall deliver to Shareholder 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 Paragraph of Business Law
(1991), in form and substance reasonably satisfactory to Shareholder and their
counsel to the effect that:
(1) Parent and Capstone Sub are corporations duly
organized, validly existing and in good standing under the laws of the States
of Delaware and Maryland, respectively, and each 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.
(2) Each of Parent and Capstone Sub 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 Parent and
Capstone Sub at Closing and to consummate the transactions contemplated on the
part of Parent and Capstone Sub hereby and thereby; Each of Parent and Capstone
Sub 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 Parent and
Capstone Sub at Closing constitute the valid and binding obligations of Parent
and Capstone Sub, respectively 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.
(3) The Merger Consideration Stock, when issued, will be
duly authorized, validly issued, fully paid and nonassessable.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Parent, Company 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
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have been relied upon by the parties hereto notwithstanding any investigation
prior to the Closing, shall survive the date of Closing as provided in section
13.5 hereof, and shall not be merged into any documents delivered in connection
with the Closing.
13.2 Indemnification by Shareholder. Subject to the provisions of
paragraph 13.4, Shareholder shall promptly indemnify, defend, and hold harmless
Parent, Surviving Corporation 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 Shareholder of any of the in covenants, obligations, representations
or warranties or untruth of any representation or warranty contained in this
Agreement (payment for which is to be initially made pursuant to the offset
provisions of Section 2.3 hereof) or any certificate or Closing Document of
Company and/or Shareholder required to be delivered pursuant to this Agreement
(which Closing Documents are the following: Operating Agreement, Lease,
Employment Agreement, Assumption Agreement, Escrow Agreement, Registration
Rights Agreement, Letter Agreement), (ii) any liability of Company not
expressly retained by Surviving Corporation or assumed by Parent pursuant to
Paragraph 4.11(4) hereof, and (iii) except as relates to the Continuing
Liabilities any claim (whether or not disclosed herein) that is brought or
asserted by any third party(s) against Parent or Surviving Corporation arising
out of the ownership, licensing, operation or conduct of the Business or Assets
or the conduct of any of Company's employees, agents or independent
contractors, relating to all periods of time prior to the Transaction Effective
Date. 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.
13.3 Indemnification by Surviving Corporation and Parent. Subject
to the provisions of paragraph 13.4, Parent shall promptly indemnify, defend,
and hold Shareholder 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 Parent or Surviving Corporation
of any of their covenants, obligations, representations or warranties or breach
or untruth of any representation or warranty contained in this Agreement or any
certificate or document of Parent or Surviving Corporation delivered pursuant
to this Agreement, (ii) any claim which is brought or asserted by any third
party(s) against Shareholder for failure to pay or perform any of the
Continuing Liabilities, and (iii) any claim that is brought or asserted by any
third party(s) against Shareholder 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 the Transaction Effective Date. 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:
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(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 Los Angeles, California 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 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. If they are unable to settle the disputed
claim, the unresolved issue or issues shall be settled by arbitration in Los
Angeles, California in accordance with the rules and procedures of the
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American Arbitration Association. Notwithstanding the provisions of this
clause (2), the enforcement provisions set forth in paragraph 14.2 will be
available in the event of a breach of paragraph 14.1.
(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 Transaction Effective Date and subsequent to
the Transaction Effective Date will be the responsibility of either Parent or
Shareholder 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
Transaction Effective Date, Shareholder shall respond to the loss and defense
expenses; (ii) if it is a claim in which the incident giving rise to liability
clearly arose on or after the Transaction Effective Date, Parent 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, Shareholder and Parent will
jointly defend the case and each will fully cooperate with the other in such
defense. Once the case is closed, if Parent and Shareholder cannot agree to
the allocation of both indemnity and expenses, then the matter shall be
submitted to binding arbitration in Los Angeles California in accordance with
the rules and procedures of the American Arbitration Association.
Notwithstanding anything seemingly to the contrary contained herein, no
indemnification shall be made hereunder until agreed to by the parties hereto
or settled in arbitration.
13.5 Indemnity Period. The representations, warranties and
covenants, and the indemnity obligations related thereto, under this Agreement
shall expire 24 months from the Closing, except for claims under sections 4.13
and 4.28 hereof, which shall expire upon the expiration of the applicable
statute of limitations, and except for claims under sections 4.9 or 4.25
hereof, which shall expire on the earlier of the expiration of the applicable
statute of limitations or 48 months from Closing. 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 Shareholder. The obligations
of an indemnifying party under this Agreement shall not begin until the
indemnified party incurs one or more liabilities which equal Two Hundred
Thousand and No/100 Dollars ($200,000.00) (the "Basket"). Once the Basket is
reached, the obligations of an indemnifying party under this Agreement shall
apply to all claims of the indemnified party, whether such claims are part of
the Basket or in excess thereof. In no event shall the obligations of an
indemnifying party and its affiliates under this Agreement exceed Four Million
Dollars ($4,000,000.00) (the "Cap"). Notwithstanding the foregoing, the Basket
and the Cap shall not apply to any payroll or withholding issues related to
Shareholder.
34
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ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Shareholder hereby covenants and
agrees with Parent that, during the NON- COMPETE PERIOD (as such term is
defined herein) and within the NON-COMPETE AREA (as such term is defined
herein), no Shareholder 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 health care operation
or business which provides any goods or services competitive with the goods and
services provided by the Business as of the Closing, or (b) solicit for
employment or employ any person who at Closing or thereafter became an employee
of Parent, Surviving Corporation 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 Parent,
Surviving Corporation and/or an Affiliate contracts with in connection with the
Business, either solicit the same in a manner which could adversely affect
Parent, Surviving Corporation or an Affiliate, or make statements to the same
which disparage Parent, Surviving Corporation, an Affiliate or their respective
operations in any way. The "Non-Compete Period" shall commence at the Closing
and terminate on the third anniversary thereof. The "Non-Compete Area" shall
mean the area within a fifty (50) mile radius of each location from which the
Business or the Related 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,
Shareholder recognizes that monetary damages shall be inadequate to compensate
Parent and Surviving Corporation, and Parent and Surviving Corporation 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 Shareholder. Nothing contained herein shall be
construed as prohibiting Parent or Surviving Corporation 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 Shareholder 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 Shareholder 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.
35
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ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Parent and Surviving
Corporation 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 Shareholder; provided however that Parent shall
remain primarily liable with regard to its obligations hereunder. No
Shareholder may assign any rights or delegate any obligations under this
Agreement without the prior written consent of Parent, and any prohibited
assignment or delegation will be null and void.
15.2 Other Expenses. Except as otherwise provided in this
Agreement, Shareholder shall pay all of his and Company's expenses in
connection with the negotiation, execution, and implementation of the
transactions contemplated under this Agreement and Parent shall pay all of its
and Capstone Sub's 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
Transaction Effective Date between the Shareholder and Parent respectively,
such that the Shareholder pay all such taxes with respect to the Business up to
the Transaction Effective Date, and the Parent pays all such amounts
thereafter. Shareholder represents 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 Shareholder shall indemnify
Surviving Corporation and Parent for any costs incurred from circumstances to
the contrary.
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 Shareholder and, prior to Closing, Company:
Ron Belville
P.O. Box 8381
Rancho Santa Fe, CA 92067
with a copy to:
Joseph D. Carruth, Esq.
Rutan & Tucker
611 Auton Blvd.
Suite 1400
Costa Mesa, California 92626
36
<PAGE> 42
To the Parent, Capstone Sub and, after Closing, to the Surviving Corporation:
Capstone Pharmacy Services, Inc.
9901 East Valley Ranch Parkway, Suite 3001
Irving, Texas 75063
Attn: 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
15.4 Confidentiality; Prohibition on Trading. Except for press
releases issued by Parent in the ordinary course following Closing, all parties
agree to maintain the confidentiality of the existence of this Agreement and
the transactions contemplated hereunder, unless disclosure is required by law.
Shareholder, Company and their affiliates agree not to trade in the securities
of Parent or its affiliates based upon any material 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 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 void unless it is
in writing and signed by the party against which it is sought to be enforced.
37
<PAGE> 43
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 knowledge of Company or Shareholder" or the like is
used, Company and Shareholder shall be deemed to have the knowledge of those
persons listed on Exhibit 15.11 who are all of the officers of the Company.
15.12 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 Parent, Company and
Shareholder.
15.13 Further Assurance of Shareholder After Closing. Subsequent to
the Closing, each of Shareholder and Parent shall from time to time, at the
other's request, execute and deliver such other instruments of conveyance and
transfer, and take such other action as the other may request, in order to
effectuate fully the Merger and vest in Parent and Surviving Corporation (as
the case may be), on the one hand, and Shareholder, on the other the benefits
of the Merger as contemplated hereunder.
15.14 Legal Fees and Costs. In the event any party hereto 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.
38
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY":
CLINICAL CARE-SNF PHARMACY, INC.
By:
-------------------------------
Title:
-------------------------------
"SHAREHOLDER":
--------------------------------------
RON BELVILLE
"PARENT":
CAPSTONE PHARMACY SERVICES, INC.
By:
-------------------------------
Title:
-------------------------------
"CAPSTONE SUB":
INSTITUTIONAL PHARMACY SERVICES, INC.
By:
-------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
AMONG
PORTARO PHARMACIES, INC.
THE "COMPANY,"
DENIS PORTARO AND SANDRA PORTARO
AND
DENIS A. AND SANDRA LOU PORTARO REVOCABLE TRUST OF 1992
COLLECTIVELY, THE "SHAREHOLDERS,"
CAPSTONE PHARMACY SERVICES, INC.
THE "PARENT"
AND
INSTITUTIONAL PHARMACY SERVICES, INC.
THE "CAPSTONE SUB."
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effective Time and Transaction Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. STATUS AND CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Capitalization and Stock Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Operations Since August 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Medicare, Medicaid and Other Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Compliance with Zoning, Land Use and Other Laws; Easements . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12 Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14 Miscellaneous Representations Relating to Real Estate . . . . . . . . . . . . . . . . . . . . . . . . 17
4.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.16 Company Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.17 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.19 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.20 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.21 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.22 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.23 Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.25 Compliance with Healthcare and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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4.26 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.27 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.28 Tax Returns; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.29 Asset Value; EBITDA and Net Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.30 No Omissions or Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Parent Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Capstone Common Stock and Merger Consideration Stock . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 S-3 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.7 No Omissions or Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Medicare and Medicaid Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Maintain Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Excluded Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.5 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Tax Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Simultaneous Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IX. PARENT'S AND CAPSTONE SUB'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . . 27
9.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Inspection of Assets; U.C.C. Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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9.7 Operating Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Value of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.9 Third Party Consents; Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.10 Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.11 Beds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Simultaneous Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDERS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.4 Corporate Good Standing and Corporate Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8 Additionally Requested Documents; Post-Closing Assistance . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Confidentiality and Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.10 Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.11 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI. OBLIGATIONS OF PARENT AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Corporate Good Standing and Certified Board Resolutions . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.4 Opinion of Parent's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.5 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Registration Rights and Escrow Agreements; Post-Closing Assistance . . . . . . . . . . . . . . . . . . 32
ARTICLE XII. OPINION OF PARENT'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2 Indemnification by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3 Indemnification by Surviving Corporation and Parent . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.4 Rules Regarding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.5 Indemnity Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.6 Limitation on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XIV. PRESERVATION OF BUSINESSAND NONCOMPETE RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XV. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.2 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.4 Confidentiality; Prohibition on Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.5 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.7 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.8 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.11 Interpretation; Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
15.13 Further Assurance of Shareholders After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
15.14 Legal Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into on
January 3, 1997, by and among PORTARO PHARMACIES, INC., a California
corporation (the "Company"), DENIS A. PORTARO and SANDRA LOU PORTARO, residents
of the State of California (the Portaros") and the DENIS A. AND SANDRA LOU
PORTARO REVOCABLE TRUST of 1992 (the "Trust") (collectively, the Portaros and
the Trust are referred to herein as the "Shareholders"), CAPSTONE PHARMACY
SERVICES, INC., a Delaware corporation ("Parent") and INSTITUTIONAL PHARMACY
SERVICES, INC. a Maryland corporation (the "Capstone Sub").
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 Los Angeles, 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
WHEREAS, the shareholder of Clinical Care-SNF Pharmacy, Inc. (the
"Related Sellers") have agreed to the acquisition by Parent of such company
(the "Related Company") in conjunction with this transaction (the "Related
Transaction") pursuant to an Agreement and Plan of Merger between the Related
Sellers, the Related Company, Parent and Capstone Sub (the "Related Merger
Agreement") regarding Related Sellers' institutional pharmacy service business
in San Diego, California and surrounding areas (the "Related Business"); and
WHEREAS, the Shareholders and the respective Boards of Directors of
Company, Parent and Capstone Sub consider the acquisition by Parent of Company
through a merger in accordance with this Agreement to be in the respective best
interests of the parties. To that end, each Shareholder and Board of Directors
has approved this Agreement and the form of Certificate of Merger attached
hereto as Exhibit B (the "Certificate of Merger"). The parties adopt this
Agreement, together with the form of Certificate of Merger, as a "plan of
reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1984, as amended (the "Code").
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:
<PAGE> 7
ARTICLE I. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3
hereof) and subject to and upon the terms and conditions of this Agreement,
Company shall be merged with and into Capstone Sub (the "Merger") in accordance
with provisions of the Maryland Business Corporation Law ("MBCL"). Following
the Merger, Capstone Sub shall continue as the surviving corporation under the
name "Institutional Pharmacy Services, Inc." (the "Surviving Corporation"), and
the separate corporate existence of Company will cease.
1.2 Effects of the Merger. At the Effective Time, the Surviving
Corporation shall, without any other action, possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties of each of
Company and Capstone Sub (Company and Capstone Sub are sometimes hereinafter
referred to as the "Constituent Corporations" of the Surviving Corporation);
and all rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, and shall be vested
in the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate vested by deed or otherwise, in
the Constituent Corporations, shall not revert or be in any way impaired by
reason of the Merger; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of either of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
1.3 Effective Time and Transaction Effective Date. The Merger
shall become effective at the time of the filing of the Certificate of Merger
with the office of the Secretary of State of the State of Maryland in
accordance with the applicable provisions of the MBCL, which Certificate of
Merger shall be so filed as soon as practicable after the Closing (as defined
in Section 8.1). The date and time when the Merger shall become effective for
the purposes of Maryland law are herein referred to as the "Effective Time";
upon consummation, the Closing shall be deemed to be effective for all other
purposes as of 12:01 a.m. local time on January 1, 1997 (the "Transaction
Effective Date").
1.4 Articles of Incorporation. The Articles of Incorporation of
the Capstone Sub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with the provisions of the applicable corporate law, except that at
the Effective Time the Certificate of Incorporation may be amended and restated
as may be provided for in the form of the Certificate of Merger.
1.5 Bylaws. The Bylaws of the Capstone Sub in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with the provisions of the applicable corporate
law, the Certificate of Incorporation of the Surviving Corporation and such
Bylaws.
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<PAGE> 8
1.6 Directors. The directors of the Capstone Sub immediately
prior to the Effective Time shall, after the Effective Time, be the directors
of the Surviving Corporation without change, until their successors have been
duly elected and qualified in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
1.7 Officers. The officers of the Capstone Sub immediately prior
to the Effective Time shall, after the Effective Time, be the officers of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation or until his or her
successor has been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II. STATUS AND CONVERSION OF SECURITIES
2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Capstone Sub, Company
or the Shareholders:
(1) Each share of common stock, par value $.01 per share,
of Capstone Sub issued and outstanding immediately prior to the Effective Time
shall continue without change and shall represent validly issued, fully paid
and nonassessable shares of common stock of the Surviving Corporation.
(2) Each share of Company Common Stock held by Company as
a treasury share shall be canceled and no payment shall be made with respect
thereto.
(3) Each outstanding share of Company Common Stock issued
and outstanding immediately prior to the Effective Time, shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be canceled and extinguished and converted into the right to
receive an aliquot portion of the Merger Consideration (as defined below) as
described below.
2.2 Merger Consideration. The aggregate merger consideration
payable pursuant hereto and to the Related Merger Agreement, subject to
adjustment as described herein and therein, is Forty Million Dollars
($40,000,000.00). The merger consideration payable by Parent to Shareholders
in consideration for the Merger and for the agreements contained herein,
including the agreements contained in Article XIV hereof, will be Twenty
Million Dollars ($20,000,000.00) (the "Merger Consideration"). The Merger
Consideration shall be subject to adjustment as set forth in this Agreement and
shall be payable in the following manner:
(1) Five Million Dollars ($5,000,000.00) in immediately
available funds by wire transfer at Closing;
(2) the number of shares of Parent's common stock, par
value $.01 per share (the "Capstone Common Stock"), having an aggregate market
value of Thirteen Million Dollars ($13,000,000.00), based upon the average
closing bid price per share of the
3
<PAGE> 9
Capstone Common Stock on the Nasdaq Stock Market for the fifteen (15)
consecutive trading days ending one day prior to the Closing (the "Average
Price"); and
(3) the number of shares of Capstone Common Stock having
an aggregate market value of Two Million Dollars ($2,000,000.00), based upon
the Average Price, to be held in escrow (the "Escrowed Shares"), from which 50%
of such shares then held by the escrow agent will be released on the first
anniversary of the Closing ("First Anniversary Shares") and the remainder of
which will be released on the second anniversary of the Closing ("Second
Anniversary Shares"), pursuant to the terms of an escrow agreement (the "Escrow
Agreement"), the form of which is attached hereto as Exhibit 2.2(3).
All such shares of Capstone Common Stock described in 2.2(2) and
2.2(3) herein shall be subject to a Registration Rights Agreement between
Parent and Shareholders (as described in Section 6.13 hereof) and shall be
collectively referred to herein as the "Merger Consideration Stock." Upon
effective registration of the Merger Consideration Stock described in Section
2.2(3) hereof, such shares may be sold by Shareholders and the proceeds of such
sale substituted for such sold shares in escrow, in accordance with the
provisions of the Escrow Agreement.
2.3 Offset. The Merger Consideration shall be subject to offset
in the following manner:
(1) The Merger Consideration shall be subject to
repayment (out of the Escrow Account, first, and then from Shareholders as
necessary) subsequent to Closing by, in the event that EBITDA falls below the
EBITDA Target (each as defined in Section 4.29 hereof and such shortfall being
herein referred to as the "EBITDA Shortfall"), an amount equal to the EBITDA
shortfall, multiplied by 6.5 (50% of which reduction is to be reflected in this
transaction and 50% in the Related Transaction) (the parties have agreed based
on information provided to date that the EBITA Shortfall is zero); and
(2) Subject to the provisions of Article XIII the portion
of the Merger Consideration reflected in Section 2.2(3) hereof, shall be
offset by:
(a) the full extent of the Receivables Shortfall
(as defined in paragraph 3.1 hereof), if any; and
(b) in the event of any losses, costs, and
expenses (including reasonable cost of investigation, court costs and
legal fees actually incurred) and other damages resulting from 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 (collectively, the "Breach Damages"), at Parent's option, to
the full extent of such losses, costs, expenses and/or damages.
Such claims under this Section 2.3(2) shall first be satisfied out of the First
Anniversary Shares until these are exhausted in full. To the extent such
claims are not satisfied in full
4
<PAGE> 10
by the First Anniversary Shares, they shall then be satisfied out of the Second
Anniversary Shares. The number of shares to be offset shall be determined
based upon the dollar amount to be offset divided by the Average Price. To the
extent claims under Section 3.2(2)(b) are not satisfied in full by the Escrowed
Shares, then cash payments shall be made by the Shareholders in accordance with
the indemnification provisions of Article XIII hereof. To the extent the
escrow account contains cash or assets other than the Escrowed Shares, any
claims shall be satisfied first from the Escrowed Shares and then from such
cash or other assets.
ARTICLE III. RECEIVABLES
3.1 Collection of Receivables. After Closing, Surviving
Corporation will proceed to collect the Receivables. Shareholders shall
provide such assistance in the collection process as Surviving Corporation or
Parent may reasonably request. If, within 180 days following Closing,
Surviving Corporation has 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 (such event
being a "Receivables Shortfall"), (a) the Merger Consideration shall be reduced
by the amount of such shortfall in accordance with Section 2.3 hereof, and (b)
any Receivables subject to a Receivables Shortfall shall be assigned to
Shareholders in the amount of each such shortfall, provided that such
Receivables relate to facilities which are not ongoing clients of the Business
or to private (non-facility) payors.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
As a material inducement to Parent and Capstone Sub to enter into this
Agreement and to consummate the transactions contemplated hereunder,
Shareholders hereby jointly and severally represent and warrant to Parent and
Capstone Sub, which representations and warranties shall be true and correct on
the date of Closing, as follows:
4.1 Organization, Qualification and Authority. Company is a
corporation duly organized and validly existing in the State of California,
and is not required to be qualified to do business as a foreign corporation in
any other jurisdiction. Since the date of its organization and incorporation,
Company has consistently observed and operated within the corporate formalities
of the jurisdiction in which it is incorporated, and has consistently observed
and complied with the general corporation law of such jurisdiction except where
the failure to do so would not have a material adverse effect on the Company.
Company 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 jurisdiction where the Business is conducted. 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
5
<PAGE> 11
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 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.
Dennis Portaro and Sandra Portaro are the sole trustees of the Trust.
4.2 Capitalization and Stock Ownership. 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 Company. The Stock, being 1,000 shares, no par value, 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 equity interest of any kind, or to transfer or
modify any right with respect to any capital stock, security or other equity
interest, and no one has any pre-emptive 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 has been issued in accordance with all
applicable federal and state securities laws.
4.3 Absence of Default. Except as set forth on Exhibit 4.3
attached hereto, 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 Parent,
Surviving Corporation or the Business under: (a) any term or provision of the
Charter or Bylaws of Company; (b) any material 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
6
<PAGE> 12
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, either of the Shareholders, Stock and/or the Assets
are subject.
4.4 Financial Statements.
(1) Attached hereto as Exhibit 4.4 are true and correct
copies of Company's unaudited balance sheets as of November 30, 1995, and its
unaudited income statements for the year then ending (the "Fiscal Year
Financial Statements"), and the internally prepared interim unaudited balance
sheet and income statement of Company for the nine (9) month period ended
August 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 the
financial position of Company as of, and the results of its operations for, the
periods specified.
(2) Shareholders shall fully and readily cooperate with
Parent in Parent's attempt to perform an audit of Company for any period prior
to Closing not already audited.
4.5 Operations Since August 31, 1996 . Except as set forth on
Exhibit 4.5 attached hereto, since August 31, 1996, there has been no:
(1) material change in the condition, financial or
otherwise (including, without limitation, major loss of customers), which has,
or could reasonably be expected to have, a material adverse effect on any of
the Assets, the Business or in the results of the operations of the Company;
(2) material loss, damage or destruction of or to any of
the Assets, whether or not covered by insurance;
(3) 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) increase in the compensation payable by Company to
Shareholders, directors, independent contractors, agents, or, other than in the
ordinary course of business, employees, 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 except as made known to and agreed to by Parent;
7
<PAGE> 13
(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 to Shareholders or their affiliates or
expenditure or intercompany payable in an aggregate amount greater than
$25,000.00;
(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, since November 22,
1996, solicitation by Shareholders or Company therefor;
(11) other than in the ordinary course of business,
security interest, guarantee or other encumbrance, 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) [RESERVED.]
(13) strike, work stoppage or other labor dispute of the
Company adversely affecting the Business; or
(14) other than in the ordinary course of business, any
termination, waiver or cancellation of any rights or claims of Company, under
any material contract or otherwise, it being understood that all contracts
pursuant to which Company provides goods and/or services are, without
limitation, material hereunder.
Further, since August 31, 1996, neither the Shareholders nor any of
their family members or affiliates have received any compensation, benefits or
distributions from Company, whether as salary, bonus, fees, dividends or any
other form of compensation, other than, as to Shareholders, amounts not greater
than the amount of compensation and benefits contemplated pursuant to the
agreement referenced in paragraph 9.7.
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 that are included in the Continuing
Liabilities.
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 knowledge of the Company or
Shareholders, has threatened to assert,
8
<PAGE> 14
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 are part
of the Excluded Items (as defined in section 6.11 hereof).
4.8 Licenses and Permits.
(1) Except as set forth on Exhibit 4.8(1) Company has all
material 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 material default on the part of Company or
Shareholders under any of the Licenses and Permits. Subject to the effect of
this transaction, to the knowledge of the Company or Shareholders, there exist
no material 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 material 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. To the
knowledge of the Company or Shareholders, there is no default under, nor does
there exist any 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 full
compliance with all of the material terms, conditions and provisions of the
Program Agreements.
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<PAGE> 15
(2) No notice of any offsets against future
reimbursements under or pursuant to the Programs has been received by either
Company or Shareholders, nor, to the knowledge of Company or 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. 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.
(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 material 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, Parent or Surviving Corporation suffers any
offsets against any reimbursement under any third-party payor or reimbursement
programs due to Parent or Surviving Corporation relating to the periods on or
prior to the Closing, then Shareholders shall immediately pay to Parent the
amounts so offset, 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 Company or Shareholders, none of the Real Estate is in
violation of any material 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. To the knowledge of Company or Shareholders, the Company has all
material easements and permits necessary to continue operation of the Business,
copies of which are set forth in Exhibit 4.10 attached hereto.
4.11 Assets and Liabilities.
(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. The Assets are all the assets set forth on the Interim Financial
Statements or used in the operation of the Business.
(2) Company does not own any real property. The
descriptions of the Real Estate (as defined herein) contained in Exhibit
4.11(3)(a) are accurate and such descriptions include all real property leased
by Company and used in connection with the
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Business or set forth on the Interim Financial Statements. Company 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, subject to any action required of Parent or its
affiliates, the Merger as contemplated by the terms of this Agreement once
effected as contemplated hereunder, will vest in the Parent, either directly or
indirectly through Surviving Corporation, the lawful right to possess and use
the leased Real Estate, superior in right to all others.
(3) At Closing the Company shall own or lease, as
specified, all assets, tangible and intangible, real and personal, that are
necessary or that it uses to operate the Business as currently conducted
(collectively, the "Assets"), free and clear of all encumbrances, mortgages,
pledges, liens, security interests, obligations and liabilities other than the
Continuing Liabilities (as defined in paragraph 4.11(4)), which Assets shall
include, without limitation, the following:
(a) All of the Company's right, title and
interest in and to all of the land and real estate owned or leased by
the Company and used in connection with the Business as listed in
Exhibit 4.11(3)(a) 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");
(b) 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 4.11(3)(b) attached hereto
(collectively, the "Equipment and Furnishings");
(c) 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 (collectively, the
"Inventory");
(d) All accounts and notes receivables of the
Company (the "Receivables");
(e) All cash, bank accounts (as listed by name
and address of banking institution, account name and account and
routing numbers on Exhibit 4.11(3)(e) attached hereto), money market
accounts, other accounts, certificates of deposit and other
investments of the Company (the "Cash and Cash Equivalents");
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(f) All patient, medical, personnel, corporate
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;
(g) Except as set forth on Exhibit 4.8(1), to the
full extent transferable, all licenses, permits, registrations,
certificates, consents, accreditations, approvals and franchises
necessary to operate and conduct the Business, and all waivers which
the Company currently has, if any, of any requirements pertaining to
such licenses, permits, registrations, certificates, consents,
accreditations, approvals and franchises;
(h) 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;
(i) All prepaid expenses including those
reflected on the Financial Statements except where used in the
ordinary course of business;
(j) 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 in
connection with the Business and that are approved by Parent (as such
term is defined herein);
(k) 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 "Portaro Pharmacy," "Clinical Care" and
derivatives thereof, to the extent the Company or either of the
Shareholders has rights in or to each such name; and
(l) All equity interests in Company and all
corporate, fiscal and other records pertaining to Company or the
Business and all of Company's right, title and interest in any
partnerships, joint ventures or similar arrangements.
(4) At Closing, Surviving Corporation 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, long term and interest bearing debt which Surviving Corporation
expressly elects to retain as specifically set forth on Exhibit 4.11(4)
attached hereto, (b) those obligations constituting working capital liabilities
incurred in the ordinary course of business on and after the Transaction
Effective Date and (c) those obligations arising on and after the Transaction
Effective Date under those Leases and Contracts (as defined in paragraph 4.12)
which Surviving Corporation expressly elects to retain (collectively, the
"Continuing Liabilities").
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(5) Except for the Continuing Liabilities, neither Parent
nor Surviving Corporation is assuming any debt, liability or obligation of the
Company or of any Shareholders and it is expressly agreed and understood by
each of the parties to this Agreement that after the Closing Surviving
Corporation shall not retain or be liable for, any debt, liability or
obligation of Company prior to the Closing or of 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 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 Shareholders including, without limitation,
recapture or prior period adjustments under Medicare, Medicaid and Blue Cross,
all impositions of income tax and other taxes; all employee wages, salaries and
benefits including, without limitation, COBRA and WARN obligations, accrued
vacation and sick pay, and other accrued employee benefits including rights of
Company's retirees to participate in medical plans.
(6) Shareholders hereby jointly and severally represent
and warrant that the value of their aggregate "total assets," as such term is
defined in Rules, Regulations, Statements and Interpretations under the Hart-
Scott-Rodino Anti-Trust Improvements Act of 1976 (16 C.F.R. 801 et seq.), does
not equal or exceed $10,000,000.00.
4.12 Leases and Contracts.
(1) Exhibit 4.12(1) 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"). Accurate and complete copies of all written Leases and
Contracts have been made available to Parent and written summaries of key terms
of all oral Leases and Contracts are attached to Exhibit 4.12(1).
(2) Since September 30, 1996, 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 against the Company
and, to the knowledge of Company or Shareholders, any other party thereto, 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 4.12(3) attached
hereto, 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 Company or, to
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Company's or Shareholders' knowledge, 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 those set forth on Exhibits 4.11(4)).
(5) No purchase commitment by Company is in excess of
Company's ordinary business requirements as now projected.
(6) Except as set forth in Exhibit 4.3 attached hereto,
subject to any action required of Parent or its affiliates, the Merger will not
default, alter or terminate any of the Leases and Contracts, and Parent,
directly or through Surviving Corporation, will be entitled to all rights
thereunder.
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 of 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 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
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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) Except as set forth on Exhibits 4.13(2)(a)
attached hereto, 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 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 knowingly 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.
(c) Company has not at any time engaged in or
knowingly 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 Parent to
clean-up obligations imposed by governmental authorities.
(d) To the knowledge of Company or Shareholders,
none of the Real Estate, nor any part thereof, nor Company, nor Denis
Portaro (but only with regard to the San Marino property): (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 knowledge of Company or Shareholders,
threatened investigation or inquiry by any governmental authority for
noncompliance with, or any remedial obligations under Environmental
Law, and, except as set forth on Exhibit 4.13(2)(a) attached hereto,
there are no circumstance known to Company or Shareholders which is
likely to serve as a basis therefor. The Company has not explicitly
assumed any liability of a third party for clean-up under or
noncompliance with Environmental Law.
(e) 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
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 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 knowledge of Company and Shareholders, no
portion of the Real Estate has ever been
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used as a landfill. Company has furnished to Parent 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) Notice. Company and Shareholders shall promptly
notify Parent in writing of any order, receipt of any notice of violation or
noncompliance with any Environmental Law, any threatened or pending action or
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 Parent 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 Parent or the Assets, Parent 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. Parent shall
give Shareholders prior or simultaneous notice of such notification.
4.14 Miscellaneous Representations Relating to Real Estate.
(1) To the knowledge of Company and Shareholders, no part
of the Real Estate is currently subject to condemnation proceedings and no
condemnation or taking is threatened or contemplated. To the knowledge of
Company and Shareholders, 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 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 and 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 knowledge of Company 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 knowledge of
Company 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) To the knowledge of Company and Shareholders, 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
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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. In the last twelve (12) months, neither Company
nor Shareholders have received written 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 neither Parent nor Surviving Corporation assumes any liability),
there are no lawsuits, proceedings, actions, arbitrations, governmental
investigations, claims, inquiries or proceedings pending or, to the knowledge
of Company and Shareholders, threatened involving Company, 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
(which policies have been made available to Parent in lieu of attachment
hereto), (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
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. Section 2102 et
seq. Except as provided in Exhibit 4.12, Company has no employment agreements
with its employees and all such employees are employed on an "at will" basis.
Exhibit 4.16 lists all ex-employees of Company utilizing or eligible to utilize
COBRA (health insurance). Shareholders agree to jointly and severally indemnify
and hold Parent and Surviving Corporation harmless from and against any and all
claims of employees, whenever made, relating to their employment by Company
through Closing. As of the Closing, Company has adequately accrued all
salaries and wages, related payroll taxes and all sick leave, holiday, 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. Except as set forth on Exhibit 4.7 attached
hereto, there is no pending or, to the knowledge of Company and Shareholders,
threatened labor dispute, work stoppage, unfair labor practice complaint,
strike,
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administrative or court proceeding or order between Company and any present or
former employee(s) of Company. There is no pending or, to the knowledge of
Company and Shareholders, threatened suit, action, investigation or claim
between Company and any present or former employee(s) of Company. To
Shareholders' and Company's knowledge, 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.
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 in reasonable types and amounts for its
type of business. A complete and accurate list of all such insurance policies
is included in Exhibit 4.12. Exhibit 4.18 attached hereto includes a
certificate of insurance provided by the Company's insurance company depicting
Company's current insurance coverage (listing type, carrier and limits).
Exhibit 4.18 also includes a list of any pending insurance claims relating to
Company. Shareholders agree to jointly and severally indemnify and hold Parent
and Surviving Corporation harmless from and against such pending insurance
claims to the extent such claims are not satisfied by Company's insurance
policies. Company is not in material 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 the Geneva Corporate
Finance, Inc., to which the Shareholders shall be solely responsible for
payment of any and all fees and expenses, 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. 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) either of the Shareholders (except with regard to
the lease between Company and Denis Portaro for the San Marino property), (b)
any director or officer of Company, or (c) any entity under common control with
Company or controlled by or related to Shareholders.
4.21 Intellectual Property. All material trademarks, service
marks, trade names, patents, inventions, processes, copyrights and applications
therefor, whether registered or at common law (collectively, the "Intellectual
Property"), owned by Company are listed and described in Exhibit 4.21 attached
hereto. No proceedings have been instituted or are pending or, to the
knowledge of Company and Shareholders, threatened which challenge the validity
of the ownership by Company of any such Intellectual Property. Company has not
licensed anyone to use any such Intellectual Property, and neither Company nor
Shareholders have any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. To Company's and Shareholders'
knowledge, Company owns or possesses adequate and enforceable licenses or other
rights to use all Intellectual Property now used in the conduct of its Business
as and where currently operated.
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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
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
Interim Financial Statements, Company has not decreased or substituted its
items of Inventory other than in the ordinary course of business. Company 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.
4.23 Motor Vehicles. All motor vehicles used in the Business,
whether owned or leased, are listed in Exhibit 4.11(3)(b) 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
Parent.
(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 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 Parent.
(3) Liabilities. Except to the extent accrued as a
Continuing Liability, there are no unfunded liabilities under any Welfare
Benefit Plan or Pension Benefit Plan. Neither Parent nor Surviving Corporation
shall be liable or responsible for any debt, obligation, responsibility or
liability under any such plans related to periods prior to Closing. However,
such benefit plans for Company's employees as in effect immediately prior to
Closing shall be continued by Parent and Surviving Corporation for a minimum of
three (3) months following Closing and, at Shareholders' option, for a period
of an additional three (3) months for those key employees identified on Exhibit
4.24(3) attached hereto (the "Key Employees"). Except to the extent accrued as
a Continuing Liability, shareholders hereby jointly and severally 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.
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(4) Termination of Participation. Subject to the
provisions of Section 4.24(3), 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 Parent and Surviving Corporation.
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. No bulk sales or similar statute applies to the transactions
contemplated under this Agreement. 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 prior to Closing 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
filing 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. Shareholders shall retain and be responsible, for any liability
incurred, and Shareholders 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. 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. All components of
all of the Equipment and Furnishings material to the Business (a) perform the
functions they are supposed to perform, and (b) except for ordinary wear and
tear, are otherwise in good working order. Within the last 24 months, 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
September 30,1996, the Business has been operated in conformity with the
methods and procedures observed and utilized during the two year period
immediately preceding September 30, 1996, and, since September 30, 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 Transaction
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.
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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 and Shareholders have 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 required to
be 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 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 Asset Value; EBITDA and Net Revenues. The aggregate net book
value of the Assets, as recast in the Geneva Companies' Confidential Business
Review of the Companies (the "Geneva Review"), owned by Company and the Related
Company at Closing less the Continuing Liabilities shall be no less than Three
Million Four Hundred Fifty Two Thousand Dollars ($3,452,000.00). Shareholders
make no representations or warranties other than those contained in this
Agreement and the Exhibits attached hereto. Other than as expressly provided
herein, Shareholders make no representations or warranties in connection with
any materials furnished or statements made in, in connection with, or related
to the Geneva Review. For the nine (9) month period ended at August 31 with
respect to the Company and September 30, 1996 with respect to the Related
Company, Company and the Related Company, shall have achieved aggregate
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
recast to include the expense assumptions found in the Geneva Review, of no
less than One Million Six Hundred Seventy Seven Thousand Dollars
($1,677,000.00) (the "EBITDA Target"), and net revenues of no less than Twenty
One Million One Hundred Sixty Four Thousand Dollars ($21,164,000.00). Parent
accepts the Geneva adjustments and as of Closing has no knowledge of any basis
for an EBITDA shortfall.
4.30 No Omissions or Misstatements. None of the representations,
warranties, covenants or other information in this Agreement and Exhibits
hereto, 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.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT
As an inducement to Shareholders and Company to enter into this
Agreement and to consummate the transactions contemplated herein, Parent hereby
represents and warrants to Shareholders and Company, which representations and
warranties shall be true and correct on the date of Closing, as follows:
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5.1 Organization, Qualification and Authority. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Capstone Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
Each of Parent and Capstone Sub 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. Each of
Parent and Capstone Sub has the full right, power and authority to execute,
deliver and carry out the Merger and the terms of the Merger and 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
Parent and Capstone Sub, respectively, hereby. The execution, delivery and
consummation of this Agreement and all other agreements and documents executed
in connection herewith by Parent and/or Capstone Sub has been duly authorized
by all necessary corporate action on the part of Parent and/or Capstone Sub.
No other action on the part of Parent or Capstone Sub 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 Parent and/or Capstone Sub, upon due execution and
delivery thereof, shall constitute the valid binding obligations of 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. No
shareholder approval is required to effectuate the transactions contemplated
hereunder. Parent and Capstone Subsidiary have all material licenses, permits
and governmental approvals necessary to operate their businesses.
5.2 Parent Reports. Parent has delivered to the Shareholders
those filings with the Securities and Exchange Commission (collectively, the
"Parent Reports") listed on Exhibit 5.2 hereto. The Parent Reports were
complete, accurate and correct, in all material respects, when filed. The
Parent Reports, when filed, did not contain any untrue statement of material
fact or omit to state any material fact necessary in order to make any of the
statements therein not misleading in light of the circumstances in which they
were made.
5.3 Capstone Common Stock and Merger Consideration Stock. At
Closing, the Capstone Common Stock, of which the Merger Consideration Stock is
a part, being 33,843,025 shares, $.01 par value, will constitute all issued and
outstanding common stock of Parent. At Closing, there will be outstanding no
shares of preferred stock in Parent, warrants to purchase 1,668,158 shares of
Capstone Common Stock, and options to purchase 3,013,500 shares of Capstone
Common Stock. Upon issuance of the Merger Consideration Stock, all the
Capstone Common Stock will be duly authorized, validly issued, fully paid and
non assessable, and the Merger Consideration Stock will be free and clear of
any liens, charges, encumbrances, security interests, pledges or any other
restrictions whatsoever.
5.4 S-3 Requirements. Parent meets all the eligibility
requirements under the Federal Securities Laws necessary to enable it to use a
Registration Statement on Form S-3 for the Merger Consideration Stock.
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5.5 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Parent and/or Capstone Sub 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 Parent's or Capstone Sub's assets
(except in the ordinary course pursuant to Parent's existing credit agreement)
under: (a) any term or provision of the Certificate of Incorporation or Bylaws
of Parent and/or Capstone Sub; (b) any contract, lease, agreement, indenture,
mortgage, pledge, assignment, permit, license, approval or other commitment to
which Parent and/or Capstone Sub is a party or by which Parent and/or Capstone
Sub 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 Parent and/or Capstone Sub is subject.
5.6 Broker's or Finder's Fee. Except as to Adirondack Capital
Advisors, LLC, to which Parent shall be solely responsible for payment of any
and all fees and expenses, Parent 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.
5.7 No Omissions or Misstatements. None of the representations,
warranties, covenants or other information in this Agreement and Exhibits
hereto, 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.
5.8 Financial Statements. Attached hereto as Exhibit 5.6 are true
and correct copies of Parent's unaudited balance sheets as of September 30,
1996 and its unaudited income statements for the nine (9) months then ending
(collectively, "Parent Financial Statements"). Since September 30, 1996,
there has been no material change, financial or otherwise, in Parent's
operations, which has had, or could reasonably be expected to have, a material
adverse effect on the value of the Capstone Common Stock. The Parent Financial
Statements are based on the books and records of Parent and present fairly, the
financial position of Parent for the periods specified.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Access to Books and Records.
(1) Following the Closing, Parent and Surviving
Corporation shall permit Shareholders' 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
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occurring prior to the Closing. All out-of-pocket costs associated with the
delivery of the requested documents shall be paid by Shareholders.
(2) Shareholders shall use their best efforts to cause
Company's accounting firm to consent to 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 Parent or
its affiliates to comply with any applicable registration or reporting
requirements of federal or state securities laws.
(3) After Closing, Shareholders shall make the books and
records of Company available to Parent and Surviving Corporation (and, without
limitation, to Parent's and Surviving Corporation's auditors and other agents)
and shall otherwise cooperate with Parent in order to permit Parent to conduct
an audit of Company's financial statements for any period prior to Closing not
already audited. Shareholders jointly and severally agree to cooperate with
Parent in Parent's preparation of financial statements relating to such periods
and Parent'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.
6.2 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.
6.3 Maintain Insurance Coverage. Company shall provide at Closing
written evidence satisfactory to Parent that such insurance continues to be in
effect, that all premiums due have been paid, and that Shareholders will take,
immediately after Closing, all action to have Parent and Surviving Corporation
named additional insureds since the date hereof.
6.4 Excluded Items. Immediately prior to the effectuation of the
Merger, 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 4.11(4) (the "Excluded Items"). The parties acknowledge
and agree that Company is not conveying to Parent or Surviving Corporation any
of the Excluded Items and that, following closing, neither Parent nor Surviving
Corporation will have any right, title, interest or obligation with respect to
the Excluded Items.
6.5 Registration Statement. Parent will file with the SEC by
January 31, 1997, a Registration Statement on Form S-3 to register the Merger
Consideration Stock. Parent shall take all appropriate action to cause all the
Merger Consideration Stock to be the subject of an effective Registration
Statement no later than March 31, 1997. In the event
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such Registration Statement is not declared effective at or prior to March 31,
1997, Shareholders shall be entitled to the Price Reconciliation as set forth
in the Registration Rights Agreement.
6.6 Registration Rights Agreement. Parent and Shareholder shall
enter into a Registration Rights Agreement the form of which is attached hereto
as Exhibit 6.13.
6.7 Tax Filings. Parent and Capstone Sub shall make such filings
with their applicable tax returns subsequent to the Closing as are required
under Section 368 of the Internal Revenue Code and regulations promulgated
thereunder necessary to Shareholders desired tax treatment provided therein.
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 3, 1997 at the offices of Harwell Howard Hyne Gabbert & Manner,
P.C., Nashville, Tennessee, or at such other time or place as the parties may
mutually agree (the "Closing"). In the event that Closing has not occurred by
February 15, 1997, then any party not in default hereunder may terminate this
Agreement without further obligation.
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 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. Parent 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 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 Parent 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
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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 Agreements. Parent and Denis Portaro shall have
entered into an employment agreement in the form attached hereto as Exhibit
8.4.
8.5 Simultaneous Closing. The Related Transaction shall close
simultaneously with the Closing.
8.6 Lease. Parent and Denis Portaro shall have entered into a
lease regarding the San Marino property in the form attached hereto as Exhibit
8.6.
8.7 Registration Rights Agreement. Parent and Shareholders shall
have entered into a Registration Rights Agreement in the form attached hereto
as Exhibit 6.13.
ARTICLE IX. PARENT'S AND CAPSTONE SUB'S CONDITIONS TO CLOSE
The obligations of Parent and Capstone Sub under this Agreement are
subject to the satisfaction, on or prior to Closing, of the following
conditions (which may be waived in writing by Parent, 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 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 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.
9.2 Regulatory Approvals. Shareholders shall have assisted Parent
in making all applications to 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, permits, approvals, provider contracts or determinations necessary in
the judgment of Parent to effectuate the Merger and to 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, Parent or Capstone Sub as a
result of which Parent reasonably and in good faith deems that to proceed with
the transactions hereunder may constitute a violation of law.
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9.4 Inspection of Assets; U.C.C. Searches, etc. Parent and its
representatives shall have had and continue to have reasonable rights of
inspection of the Business in connection with Parent's due diligence review,
and the results of Parent'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 Parent or Capstone Sub
to effectuate the Merger 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 Employment Agreements. Parent and Denis Portaro shall have
entered into an employment agreement in the form attached hereto as Exhibit
8.4.
9.7 Operating Targets. As of the date of Closing, Company and the
Related Company shall meet the following minimum operating thresholds: (i)
Company (for the nine (9) month period ended at August 31, 1996) and the
Related Company (for the nine (9) month period ended at September 30, 1996
shall have achieved aggregate net revenues of no less than Twenty One Million
One Hundred Sixty Four Thousand Dollars ($21,164,000.00); (ii) Company (for the
nine (9) month period ended at August 31, 1996) and the Related Company (for
the nine (9) month period ended at September 30, 1996) shall have achieved
aggregate EBITDA, recast to include the expense assumptions found in the Geneva
Review, of no less than One Million Six Hundred Seventy Seven Thousand Dollars
($1,677,000.00); and (iii) since August 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. With regard
to any EBITDA Shortfall, Parent shall have the option of closing this
transaction and applying an offset against the Merger Consideration, as
described in Section 3.2 hereof.
9.8 Value of Assets. As of the date of Closing, the aggregate Net
Equity of the Company and the Related Company (being the aggregate net book
value of the Assets of the Company and the Related Company (as "Assets" is
defined herein and in the Related Merger Agreement, and as such Assets are
recast in the Geneva Companies' Confidential Business Review of the Companies
(the "Geneva Review")), minus the aggregate Continuing Liabilities of the
Company and the Related Company (as "Continuing Liabilities" is defined herein
and in the Related Merger Agreement) at Closing shall be no less than Three
Million Four Hundred Fifty-Two Thousand Dollars ($3,452,000.00). The Assets
shall be free and clear of all liabilities and encumbrances whatsoever other
than the Continuing Liabilities.
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9.9 Third Party Consents; Releases. Shareholders and Company shall
provide to the Parent all third party consents, releases and authorizations
believed by Parent 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 Parent.
9.10 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Parent.
9.11 Beds. Company and the Related Company shall be servicing
under valid contracts with facilities (such contracts to be acceptable to
Parent) an aggregate of not less than Eighteen Thousand (18,000) beds.
9.12 Simultaneous Closing. The Related Transaction shall close
simultaneously with the Closing.
9.13 Registration Rights Agreement. Parent and Shareholders shall
have entered into a Registration Rights Agreement in the form attached hereto
as Exhibit 6.13.
ARTICLE X. OBLIGATIONS OF COMPANY AND SHAREHOLDERS AT CLOSING
At Closing, Company and Shareholders shall deliver or cause to be
delivered to Parent the following in form and substance reasonably satisfactory
to Parent:
10.1 Documents Relating to Title. Shareholders shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Parent:
(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.
(3) Executed Certificate of Merger.
10.2 Possession. Company shall deliver to Parent full possession
and control of the Stock, Business and Assets.
10.3 Opinion of Counsel. Shareholders shall deliver to Parent the
favorable opinion of counsel for Shareholders and Company, dated as of Closing,
in the form attached hereto as Exhibit 10.3.
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10.4 Corporate Good Standing and Corporate Resolution. Shareholders
shall deliver to Parent 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
Articles of Incorporation 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 Closing Certificate. Company shall deliver to Parent a
certificate of an officer of Company and of Shareholders, dated as of Closing,
certifying that (a) each covenant and obligation of Company and Shareholders
have been complied with, and (b) each representation, warranty and covenant of
Company and Shareholders is true and correct at the Closing as if made on and
as of the Closing.
10.6 Third Party Consents. Shareholders shall deliver to Parent all
consents, estoppels, approvals, releases, filings and authorizations of third
parties that Parent believes are necessary for the legal and proper execution,
delivery and consummation of this Agreement, and the transactions contemplated
hereunder.
10.7 Releases. Shareholders shall deliver to Parent executed
releases of all mortgages, security interests, liens, pledges, restrictions or
other encumbrances on or applicable to the Stock or Assets except to the extent
such encumbrances relate to Continuing Liabilities.
10.8 Additionally Requested Documents; Post-Closing Assistance. At
the reasonable request of Parent at Closing and at any time or from time to
time thereafter, Shareholders shall cooperate with Parent to put Parent and
Capstone Sub 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 Parent may reasonably request in order
to effectively sell, convey, transfer and assign the same to Parent, to execute
and deliver such further instruments and to take such other actions as Parent
may reasonably request to release Parent, Capstone Sub, Company and Surviving
Corporation 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 Parent and Capstone Sub as Parent may
reasonably request or to enable Parent and Company to obtain all necessary
health care or regulatory certifications, approvals, consents and licenses,
accreditation or permits.
10.9 Confidentiality and Employment Agreements. Shareholders shall
deliver to Parent and Capstone Sub executed copies of each of the agreements
described in paragraphs 9.6 and 9.7.
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10.10 Assumption Agreement. Shareholders shall deliver to Parent,
Capstone Sub 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.
10.11 Escrow Agreement. Shareholders shall deliver to Parent the
executed Escrow Agreement described in Section 2.2(3) hereof.
ARTICLE XI. OBLIGATIONS OF PARENT AT CLOSING
At Closing, Parent shall deliver or cause to be delivered to
Shareholders the following in a form and substance reasonably satisfactory to
Shareholders:
11.1 Merger Consideration. Parent shall pay to Shareholders the
Merger Consideration upon the terms specified in this Agreement.
11.2 Corporate Good Standing and Certified Board Resolutions.
Parent and Capstone Sub shall deliver to Shareholders a certificate of good
standing from the Secretary of State of Delaware and Maryland, respectively,
dated the most recent practical date prior to Closing, together with a
certified copy of the resolutions of each of their Board of Directors
authorizing the execution, delivery and consummation of this Agreement and all
other documents executed in connection herewith.
11.3 Closing Certificate. Parent shall deliver to Shareholders a
certificate of an officer of Parent, dated as of Closing, certifying that (a)
each covenant and obligation of Parent has been complied with, and (b) each
representation, warranty and covenant of Parent is true and correct at the
Closing as if made on and as of the Closing.
11.4 Opinion of Parent's Counsel. Parent shall deliver to
Shareholders a favorable opinion of counsel for Parent, dated as of Closing, in
the form specified in Article XII hereof.
11.5 Escrow Agreement. Parent shall deliver to Shareholders the
executed Escrow Agreement described in Section 2.2(3) hereof.
11.6 Employment Agreements. Parent and Shareholders shall have
entered into an Employment Agreement, as described in Section 9.7.
11.7 Registration Rights and Escrow Agreements; Post-Closing
Assistance. At the reasonable request of Shareholders following Closing, Parent
and Capstone Sub shall cooperate with Shareholders to put Shareholders in
actual possession and control of the Merger Consideration Stock when
appropriate as contemplated under the Escrow Agreement and the Registration
Rights Agreement, to execute and deliver such further instruments of sale,
conveyance, transfer and assignment as Shareholders may
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reasonably request in order to effectively sell, convey, transfer and assign
the same to Shareholders, and to execute and deliver such further instruments
and to take such other actions as Shareholders may reasonably request to
otherwise effectuate the terms of the Escrow and Registration Rights
Agreements.
ARTICLE XII. OPINION OF PARENT'S COUNSEL
At the Closing, Parent 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 Paragraph of Business Law
(1991), in form and substance reasonably satisfactory to Shareholders and their
counsel to the effect that:
(1) Parent and Capstone Sub are corporations duly
organized, validly existing and in good standing under the laws of the States
of Delaware and Maryland, respectively, and each 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.
(2) Each of Parent and Capstone Sub 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 Parent and
Capstone Sub at Closing and to consummate the transactions contemplated on the
part of Parent and Capstone Sub hereby and thereby; each of Parent and Capstone
Sub 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 Parent and
Capstone Sub at Closing constitute the valid and binding obligations of Parent
and Capstone Sub, respectively, 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.
(3) The Merger Consideration Stock, when issued at
Closing, will be duly authorized, validly issued, fully paid and nonassessable.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of 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 survive the date
of Closing as provided in section 13.5 hereof, and shall not be merged into any
documents delivered in connection with the Closing.
13.2 Indemnification by Shareholders. Subject to the provisions of
paragraph 13.4, Shareholders shall jointly and severally promptly indemnify,
defend, and hold harmless Parent, Surviving Corporation and the directors,
officers, stockholders, employees and
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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 their covenants, obligations, representations or
warranties or untruth of any representation or warranty contained in this
Agreement (payment for which is to be initially made pursuant to the offset
provisions of Section 2.3 hereof) or any certificate or closing document of
Company and/or Shareholders required to be delivered pursuant to this Agreement
(which Closing Documents are the following: Employment Agreement, Assumption
Agreement, Escrow Agreement, Lease, Registration Rights Agreement, Letter
Agreement, (ii) any liability of Company not expressly retained by Surviving
Corporation or assumed by Parent pursuant to Paragraph 4.11(4) hereof, and
(iii) except as related to the Continuing Liabilities, any claim (whether or
not disclosed herein) that is brought or asserted by any third party(s) against
Parent or Surviving Corporation arising out of the ownership, licensing,
operation or conduct of the Business or Assets or the conduct of any of
Company's employees, agents or independent contractors, relating to all periods
of time prior to the Transaction Effective Date. 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.
13.3 Indemnification by Surviving Corporation and Parent. Subject
to the provisions of paragraph 13.4, Parent shall promptly 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 Parent or Surviving Corporation
of any of their covenants, obligations, representations or warranties or breach
or untruth of any representation or warranty contained in this Agreement or
any certificate or document of Parent or Surviving Corporation 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) 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 the Transaction Effective Date. 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
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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 Los Angeles, California 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 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. If they are unable to settle the disputed
claim, the unresolved issue or issues shall be settled by arbitration in Los
Angeles, California in accordance with the rules and procedures of the American
Arbitration Association. Notwithstanding the provisions of this clause (2),
the enforcement provisions set forth in paragraph 14.2 will be available in the
event of a breach of paragraph 14.1.
(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
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Transaction Effective Date and subsequent to the Transaction Effective Date
will be the responsibility of either Parent 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 Transaction Effective Date,
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 on or after
the Transaction Effective Date, Parent 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 Parent will jointly defend the case and
each will fully cooperate with the other in such defense. Once the case is
closed, if Parent and Shareholders cannot agree to the allocation of both
indemnity and expenses, then the matter shall be submitted to binding
arbitration in Los Angeles California in accordance with the rules and
procedures of the American Arbitration Association. Notwithstanding anything
seemingly to the contrary contained herein, no indemnification shall be made
hereunder until agreed to by the parties hereto or settled in arbitration.
13.5 Indemnity Period. The representations, warranties and
covenants, and the indemnity obligations related thereto, under this Agreement
shall expire 24 months from the Closing, except for claims under sections 4.13
and 4.28 hereof, which shall expire upon the expiration of the applicable
statute of limitations, and except for claims under sections 4.9 or 4.25
hereof, which shall expire on the earlier of the expiration of the applicable
statue of limitations or 48 months from Closing. 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. The
obligations of an indemnifying party under this Agreement shall not begin until
the indemnified party incurs one or more liabilities which equal Two Hundred
Thousand and No/100 Dollars ($200,000.00) (the "Basket"). Once the Basket is
reached, the obligations of an indemnifying party under this Agreement shall
apply to all claims of the indemnified party, whether such claims are part of
the Basket or in excess thereof. In no event shall the obligations of an
indemnifying party and its affiliates under this Agreement exceed Four Million
Dollars ($4,000,000.00) (the "Cap"). Notwithstanding the foregoing, the Basket
and the Cap shall not apply to any payroll or withholding issues related to
Shareholders.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Shareholders hereby jointly and
severally covenant and agree with Parent that, during the NON-COMPETE PERIOD
(as such term is defined herein) and within the NON-COMPETE AREA (as such term
is defined herein), neither of the 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
health care operation or business which provides any goods
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or services competitive with the goods and services provided by the Business as
of the Closing, or (b) solicit for employment or employ any person who at
Closing or thereafter became an employee of Parent, Surviving Corporation 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 Parent, Surviving Corporation and/or an Affiliate
contracts with in connection with the Business, either solicit the same in a
manner which could adversely affect Parent, Surviving Corporation or an
Affiliate, or make statements to the same which disparage Parent, Surviving
Corporation, an Affiliate or their respective operations in any way. The
"Non-Compete Period" shall commence at the Closing and terminate on the third
anniversary thereof. The "Non-Compete Area" shall mean the area within a fifty
(50) mile radius of each location from which the Business or the Related
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,
Shareholders recognizes that monetary damages shall be inadequate to compensate
Parent and Surviving Corporation, and Parent and Surviving Corporation 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 Shareholders. Nothing contained herein shall be
construed as prohibiting Parent or Surviving Corporation 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.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Parent and Surviving
Corporation 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; provided however, that Parent shall
remain primarily liable with regard to its obligations hereunder. No
Shareholders may assign any rights or delegate any obligations under this
Agreement without the prior written consent of Parent, and any prohibited
assignment or delegation will be null and void.
15.2 Other Expenses. Except as otherwise provided in this
Agreement, Shareholders shall pay all of their and Company's expenses in
connection with the
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negotiation, execution, and implementation of the transactions contemplated
under this Agreement and Parent shall pay all of its and Capstone Sub's
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 Transaction
Effective Date between the Shareholders and Parent respectively, such that the
Shareholders pay all such taxes with respect to the Business up to the
Transaction Effective Date, and the Parent pays all such amounts thereafter.
Shareholders jointly and severally 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 jointly and
severally indemnify Surviving Corporation and Parent for any costs incurred
from circumstances to the contrary.
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 Shareholders and, prior to Closing, Company:
Denis Portaro and Sandra Portaro
1127 La Loma Road
Pasadena, CA 91105
with a copy to:
Joseph D. Carruth, Esq.
Rutan & Tucker
611 Auton Blvd.
Suite 1400
Costa Mesa, California 92626
To the Parent, Capstone Sub and, after Closing,
to the Surviving Corporation:
Capstone Pharmacy Services, Inc.
9901 East Valley Ranch Parkway, Suite 3001
Irving, Texas 75063
Attn: Chief Executive Officer
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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
15.4 Confidentiality; Prohibition on Trading. Except for press
releases issued by Parent in the ordinary course following Closing, all parties
agree to maintain the confidentiality of the existence of this Agreement and
the transactions contemplated hereunder, unless disclosure is required by law.
Shareholders, Company and their affiliates agree not to trade in the securities
of Parent or its affiliates based upon any material 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 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 void 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
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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
knowledge of Company or Shareholders" or the like is used, Company and
Shareholders shall be deemed to have the knowledge of those persons listed on
Exhibit 15.11 who are all of the officers of the Company.
15.12 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 Parent, Company and
Shareholders.
15.13 Further Assurance of Shareholders After Closing. Subsequent to
the Closing, each of Shareholders and Parent shall from time to time, at the
other's request, execute and deliver such other instruments of conveyance and
transfer, and take such other action as the other may request, in order to
effectuate fully the Merger and vest in Parent and Surviving Corporation (as
the case may be), on the one hand, and Shareholders, on the other the benefits
of the Merger as contemplated hereunder.
15.14 Legal Fees and Costs. In the event any party hereto 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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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY":
PORTARO PHARMACIES, INC.
By:
-------------------------------
Tilte:
-------------------------------
"SHAREHOLDERS":
--------------------------------------
DENIS PORTARO, in his individual
capacity
--------------------------------------
SANDRA PORTARO, in her individual
capacity
DENIS A. and SANDRA LOU PORTARO
REVOCABLE TRUST of 1992
By:
-----------------------------------
DENIS PORTARO, its trustee
By:
-----------------------------------
SANDRA PORTARO, its trustee
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"PARENT":
CAPSTONE PHARMACY SERVICES, INC.
By:
-------------------------------
Tilte:
-------------------------------
"CAPSTONE SUB":
INSTITUTIONAL PHARMACY SERVICES, INC.
By:
-------------------------------
Tilte:
-------------------------------
40
