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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _____)*
CAPSTONE PHARMACY SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK ($.01 PAR VALUE)
- --------------------------------------------------------------------------------
(Title of Class of Securities)
14066N101
---------------------------------------
(CUSIP Number)
DENIS A. PORTARO, 2596 MISSION STREET, SAN MARINO, CALIFORNIA 91108,
(818)441-4525
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
JANUARY 3, 1997
---------------------------------------
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
Check the following box if a fee is being paid with the statement [x]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
- ------------------------------------- ------------------------------
CUSIP No. 14066N101 Page 2 of 6 Pages
- ------------------------------------- ------------------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Ronald Belville; The Denis A. and Sandra Lou Portaro Revocable Trust
of 1992; and Denis A. Portaro and Sandra Lou Portaro
- --------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP(*) (a) [ ]
2 Denis A. Portaro and Sandra Lou Portaro are trustees of the (b) [x]
Denis A. and Sandra Lou Portaro Revocable Trust of 1992 (the
Trust"), which was the sole owner of Portaro Pharmacies, Inc.
Ronald Belville was the sole owner of Clinical Care-SNF
Pharmacy, Inc. The Trust and Ronald Belville both received
shares of common stock of the Issuer when Portaro Pharmacies,
Inc. and Clinical Care-SNF Pharmacy, Inc. were simultaneously
merged with and into a subsidiary of the Issuer. The filing of
this Statement shall not be deemed to be an admission that the
undersigned reporting persons constitute a "group" within the
meaning of Section 13(d).
- --------------------------------------------------------------------------------
SEC USE ONLY
3
- --------------------------------------------------------------------------------
SOURCE OF FUNDS*
4 OO
- --------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
5 Not Applicable
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6 Sandra Lou Portaro - California Denis A. Portaro - California
Ronald Belville - California
- --------------------------------------------------------------------------------
SOLE VOTING POWER
7 Ronald Belville - 1,354,402 shares.
NUMBER OF
SHARES ----------------------------------------------------------------
BENEFICIALLY SHARED VOTING POWER
OWNED BY 8 See response to item 5 on attached Schedule 13D.
EACH
REPORTING ----------------------------------------------------------------
PERSON SOLE DISPOSITIVE POWER
WITH 9 Ronald Belville - 1,354,402 shares.
----------------------------------------------------------------
SHARED DISPOSITIVE POWER
10 See response to item 5 on attached Schedule 13D.
- --------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11 The Denis A. and Sandra Lou Portaro Revocable Trust of 1992
(and Denis A. Portaro and Sandra Lou Portaro as trustees of the
Trust) - 1,354,402 shares. Ronald Belville - 1,354,402 shares.
- --------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
12 Ronald Belville disclaims beneficial ownership of all 1,354,402
shares held by The Denis A. and Sandra Lou Portaro Revocable
Trust of 1992, Denis A. Portaro and Sandra Lou Portaro. The
Denis A. and Sandra Lou Portaro Revocable Trust of 1992, Denis
A. Portaro and Sandra Lou Portaro disclaim beneficial ownership
of all 1,354,402 shares held by Ronald Belville.
- --------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 The Denis A. and Sandra Lou Portaro Revocable Trust of 1992
(and Denis A. Portaro and Sandra Lou Portaro as trustees of the
Trust) - 4.0% of total shares outstanding of 33,843,025. Ronald
Belville - 4.0% of total shares outstanding of 33,843,025.
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON *
14 Ronald Belville - IN
Denis A. Portaro - IN
The Denis A. and Sandra Lou Portaro Revocable Trust of 1992 - OO
Sandra Lou Portaro - IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 3
CUSIP No. 14066N101 Page 3 of 6
ITEM 1.SECURITY AND ISSUER.
The securities that are the subject of this statement consist of common
stock ($.01 par value) of Capstone Pharmacy Services, Inc. (the "Issuer"). The
Issuer's principal executive offices are located at 2930 Washington Boulevard,
Baltimore, Maryland 21230.
ITEM 2.IDENTITY AND BACKGROUND.
(a) This statement is filed jointly by the following reporting persons
(hereinafter sometimes referred to as the "Reporting Persons") pursuant to an
Agreement of Joint Filing attached to this statement as Exhibit 1:
(1) Ronald Belville, and
(2) The Denis A. and Sandra Lou Portaro Revocable Trust of 1992
(the "Trust"), and Denis A. Portaro and Sandra Lou Portaro.
(b) and (c) The business address of Denis A. Portaro and Sandra Lou
Portaro is 2596 Mission Street, San Marino, California 91108. Mr. Portaro is
employed by the Issuer as its Senior Vice President, Western Division, and Mrs.
Portaro is employed by Institutional Pharmacy Services, Inc., the subsidiary of
the Issuer (the "Subsidiary"). The business address of Ronald Belville is 9245
Activity Road, Suite 110, San Diego, California 92126. Mr. Belville is employed
by the Issuer as its Senior Vice President of Operations.
(d) None of the Reporting Persons has during the last five (5) years been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Reporting Persons was during the last five (5) years a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and, as a result of such proceeding, was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) Ronald Belville, Denis A. Portaro and Sandra Lou Portaro are United
States citizens and residents of California.
ITEM 3.SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The securities that are subject to this statement were issued by the
Issuer as part of the merger consideration in connection with the simultaneous
merger of Portaro Pharmacies, Inc. and Clinical Care-SNF Pharmacy, Inc. with and
into the Subsidiary. The merger of each company was effected pursuant to an
Agreement and Plan of Merger, copies of which are attached hereto as Exhibits 2
and 3.
(b) None of the reporting persons has used borrowed funds to acquire the
subject securities.
<PAGE> 4
CUSIP No. 14066N101 Page 4 of 6
ITEM 4. PURPOSE OF TRANSACTION.
The securities that are subject to this statement were issued by the
Issuer as part of the merger consideration in connection with the simultaneous
merger of Portaro Pharmacies, Inc. and Clinical Care-SNF Pharmacy, Inc. with and
into the Subsidiary. Such securities were not acquired by the Reporting Persons
for purpose of gaining control of the Issuer. None of the Reporting Persons has
any plans or proposals that relate to (i) any extraordinary corporate
transaction, (ii) any sale or transfer of a material amount of assets of the
Issuer or any of its subsidiaries, (iii) any change in the present Board of
Directors or management of the Issuer, (iv) any material change in the present
capitalization or dividend policy of the Issuer, (v) any other material change
in the Issuer's business or corporate structure, (vi) any changes in the
Issuer's charter, bylaws or instruments corresponding thereto, or other actions
which may impede the acquisition of control of the Issuer by any person, (vii)
causing a class of securities of the Issuer to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association, or (viii) a
class of equity securities of the Issuer becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934, as amended. The Reporting Persons intend to continue to conduct investment
activities related to the securities of the Issuer in the ordinary course of
business.
ITEM 5.INTEREST IN THE SECURITIES OF THE ISSUER.
(a) and (b) The Denis A. and Sandra Lou Portaro Revocable Trust of 1992
owns 1,354,402 shares of common stock of the Issuer (the "Trust Shares"), which
equals approximately 4.0% of the total 33,843,025 outstanding shares of common
stock of the Issuer. Denis A. Portaro and Sandra Lou Portaro are trustees of the
Trust and beneficially own such shares within the meaning of Rule 13d-3. The
actions of Mr. and Mrs. Portaro with respect to the Trust Shares are governed by
the terms of the trust instrument and the general obligations of fiduciaries.
Mr. and Mrs. Portaro may consult with each other and act together with respect
to the voting and disposition of the Trust Shares.
Ronald Belville owns 1,354,402 shares of common stock of the Issuer,
which equals approximately 4.0% of the total 33,843,025 outstanding shares of
common stock of the Issuer. Mr. Belville has sole voting and investment power
with respect to such shares.
Ronald Belville disclaims beneficial ownership of all 1,354,402
shares held by The Denis A. and Sandra Lou Portaro Revocable Trust of 1992 (and
Denis A. Portaro and Sandra Lou Portaro as trustees). The Denis A. and Sandra
Lou Portaro Revocable Trust of 1992, Denis A. Portaro and Sandra Lou Portaro
disclaim beneficial ownership of all 1,354,402 shares held by Ronald Belville.
The filing of this statement shall not constitute an admission that the
Reporting Persons constitute a "group" within the meaning of Section 13(d).
(c) The Reporting Persons did not engage in any transaction with respect
to the Common Stock of the Issuer during the sixty days prior to the date of the
event which required the filing of this statement.
(d) No other person has the right to receive or the power to direct the
receipt of dividends from or the proceeds from the sale of common stock of the
Issuer held by each Reporting Person, respectively.
<PAGE> 5
CUSIP No. 14066N101 Page 5 of 6
ITEM 6.CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
On January 3, 1997, Ronald Belville and his company, Clinical Care-SNF
Pharmacy, Inc. ("Clinical Care"), entered into an Agreement and Plan of Merger
with the Issuer and its subsidiary. On January 3, 1997, The Trust, Denis
Portaro, Sandra Portaro and their company, Portaro Pharmacies, Inc. ("PPI"),
entered into an Agreement and Plan of Merger with the Issuer and its subsidiary.
Pursuant to such merger agreements, Clinical Care and PPI were merged with and
into the subsidiary of the Issuer, and as part of the merger consideration the
Reporting Persons were issued the shares of common stock which are the subject
of this statement. All of the shares of common stock set forth herein are the
subject of a Registration Rights Agreement, a copy of which is attached hereto
as Exhibit 4. One Hundred Eighty Thousand Five Hundred Eighty-Seven (180,587)
shares held by the Trust (and by Denis and Sandra Portaro as trustees) and
180,587 shares held by Ronald Belville are currently held in escrow pursuant to
the terms of an Escrow Agreement, copies of which are attached hereto as
Exhibits 5 and 6. Such shares shall be released to the Reporting Persons in
accordance with the terms and conditions set forth in the merger agreements and
the escrow agreements and subject to deduction for any claims made against
such shares held in escrow.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following agreements are filed as Exhibits to this Schedule 13D:
1. Agreement of Joint Filing.
2. Agreement and Plan of Merger between Ronald Belville, Clinical Care-SNF
Pharmacy, Inc., Capstone Pharmacy Services, Inc. and Institutional Pharmacy
Services, Inc.
3. Agreement and Plan of Merger between Denis Portaro, Sandra Portaro, The
Denis A. and Sandra Lou Portaro Revocable Trust of 1992, Portaro Pharmacies,
Inc., Capstone Pharmacy Services, Inc. and Institutional Pharmacy Services, Inc.
4. Registration Rights Agreement.
5. Escrow Agreement (Portaro).
6. Escrow Agreement (Belville).
<PAGE> 6
CUSIP No. 14066N101 Page 6 of 6
SIGNATURE.
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this Statement is true, complete and
correct.
Dated: January 13, 1997 THE DENIS A. AND SANDRA LOU PORTARO
REVOCABLE TRUST OF 1992
By:/s/ Denis A. Portaro
------------------------------
Denis A. Portaro, Trustee
By:/s/ Sandra Lou Portaro
------------------------------
Sandra Lou Portaro, Trustee
Dated: January 13, 1997 /s/ Denis A. Portaro
------------------------------
DENIS A. PORTARO, Personally
Dated: January 13, 1997 /s/ Sandra Lou Portaro
------------------------------
SANDRA LOU PORTARO, Personally
Dated: January 13, 1997 /s/ Ronald Belville
------------------------------
RONALD BELVILLE, Personally
<PAGE> 1
EXHIBIT 1
AGREEMENT OF JOINT FILING
THIS AGREEMENT OF JOINT FILING ("Agreement") is entered into as of January
10, 1997 among THE DENIS A. AND SANDRA LOU PORTARO REVOCABLE TRUST OF 1992,
DENIS PORTARO, SANDRA PORTARO, and RONALD BELVILLE (collectively the "Reporting
Persons").
R E C I T A L S:
WHEREAS, the Reporting Persons beneficially own shares of Common Stock,
$.01 par value, of Capstone Pharmacy Services, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Reporting Persons acquired such shares in connection with the
simultaneous merger of companies owned by the Reporting Persons with and into a
subsidiary of the Company; and therefore the Reporting Persons may be deemed to
constitute a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Act"); and
WHEREAS, each of the Reporting Persons desires by this Agreement to
provide for the joint filing of a Schedule 13D, and all amendments thereto (if
deemed to be necessary), with the Securities and Exchange Commission.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Reporting Persons will join in the preparation and filing of a
single statement containing the information required by Schedule 13D, and all
amendments thereto, and the Schedule 13D and all such amendments will be filed
on behalf of each Reporting Person.
2. Each Reporting Person will be responsible for the timely filing of the
Schedule 13D, and all amendments thereto and for the completeness and accuracy
of the information concerning such party contained therein. No Reporting Person
will be responsible for the completeness or accuracy of the information
concerning any other party contained in the Schedule 13D or any amendment
thereto, except to the extent such Reporting Person knows or has reason to
believe that such information is inaccurate.
3. Denis Portaro will be designated as the person authorized to receive
notices and communications with respect to the Schedule 13D and all amendments
thereto.
4. This Agreement may be executed in counterparts, all of which when taken
together will constitute one and the same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
/s/ Denis Portaro
-----------------------------
DENIS PORTARO
/s/ Sandra Portaro
-----------------------------
SANDRA PORTARO
THE DENIS A. AND SANDRA LOU PORTARO
REVOCABLE TRUST OF 1992
By:/s/ Denis Portaro
-----------------------------
Denis Portaro, Trustee
By:/s/ Sandra Portaro
-----------------------------
Sandra Portaro, Trustee
/s/ Ronald Belville
-----------------------------
RONALD BELVILLE
-2-
<PAGE> 1
EXHIBIT 2
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"
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
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
4.26 Condition of Assets............................................. 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
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
9.7 Operating Targets............................................... 28
9.8 Value of Assets................................................. 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
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 Assistance32
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 BUSINESS AND 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
15.3 Notices......................................................... 38
15.4 Confidentiality; Prohibition on Trading......................... 38
15.5 Controlling Law................................................. 39
15.6 Headings........................................................ 39
15.7 Benefit......................................................... 39
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
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
</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 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.
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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.
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:
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(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 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)
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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.
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,
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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 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
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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 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;
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(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;
(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.
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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.
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
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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 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
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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 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");
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(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");
(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
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(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
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,
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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.
(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.
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(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 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
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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, 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
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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 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.
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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 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,
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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.
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
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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.
(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
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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.
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
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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 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,
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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.
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.
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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
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
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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.
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.
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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 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.
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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 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.
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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.
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.
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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.
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
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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 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.
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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.
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.
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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 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
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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:
(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
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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 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.
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,
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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.
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
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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
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
37
<PAGE> 43
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.
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
38
<PAGE> 44
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.
39
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY":
CLINICAL CARE-SNF PHARMACY, INC.
By: /s/ Ron Belville
-----------------------------
Title: President
-----------------------------
"SHAREHOLDER":
/s/ Ron Belville
-----------------------------
RON BELVILLE
-----------------------------
"PARENT":
CAPSTONE PHARMACY SERVICES, INC.
By: /s/ Donald Hughes
-----------------------------
Donald Hughes
Title: Chief Financial Officer
-----------------------------
"CAPSTONE SUB":
INSTITUTIONAL PHARMACY SERVICES, INC.
By: /s/ Donald Hughes
-----------------------------
Title: Vice President and Treasurer
-----------------------------
<PAGE> 1
EXHIBIT 3
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>
<S> <C>
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
4.26 Condition of Assets...................................................................21
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
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
9.7 Operating Targets.....................................................................28
9.8 Value of Assets.......................................................................29
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
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
ARTICLE XV. MISCELLANEOUS...............................................................................37
15.1 Assignment............................................................................37
15.2 Other Expenses........................................................................37
15.3 Notices...............................................................................38
15.4 Confidentiality; Prohibition on Trading...............................................38
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
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.
2
<PAGE> 8
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.
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:
3
<PAGE> 9
(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 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
4
<PAGE> 10
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 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
5
<PAGE> 11
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 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
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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 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;
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(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) 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.
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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, 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
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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.
(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
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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 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");
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(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");
(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
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(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").
(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
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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 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.
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(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 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
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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 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
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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 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.
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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, 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.
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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.
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.
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(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.
(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
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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.
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
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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:
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
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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.
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.
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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 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
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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 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.
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ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in Articles
VIII and IX hereof are satisfied, then the Closing shall occur on or by 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 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.
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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.
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
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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.
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.
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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.
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
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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.
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.
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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 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
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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 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
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<PAGE> 38
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
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
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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 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
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<PAGE> 40
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 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
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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 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
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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
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
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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 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
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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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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY":
PORTARO PHARMACIES, INC.
By: /s/ Denis Portaro
------------------------------------
Title: Chief Executive Officer
------------------------------------
"SHAREHOLDERS":
/s/ Denis Portaro
---------------------------------------------
DENIS PORTARO, in his individual capacity
/s/ Sandra Portaro
---------------------------------------------
SANDRA PORTARO, in her individual capacity
DENIS A. and SANDRA LOU PORTARO
---------------------------------------------
REVOCABLE TRUST of 1992
By: /s/ Denis Portaro
-----------------------------------------
DENIS PORTARO, its trustee
By: /s/ Sandra Portaro
-----------------------------------------
SANDRA PORTARO, its trustee
<PAGE> 46
"PARENT":
CAPSTONE PHARMACY SERVICES, INC.
By: /s/ Donald Hughes
------------------------------------
Title: Chief Financial Officer
------------------------------------
"CAPSTONE SUB":
INSTITUTIONAL PHARMACY SERVICES, INC.
By: /s/ Donald Hughes
------------------------------------
Title: Vice President and Treasurer
------------------------------------
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<PAGE> 1
EXHIBIT 4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of January 3, 1997, by and among CAPSTONE PHARMACY SERVICES,
INC., a Delaware corporation (the "Company"), and the parties named on Schedule
1 attached hereto (each a "Holder" and, collectively, the "Holders").
RECITALS
The Holders propose to acquire an aggregate of 2,708,804 shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), in connection with a Merger Agreement dated of even date herewith
pursuant to which the Company acquired by merger certain companies of which
Holders were shareholders (the "Merger Agreement").
The Company has agreed to file a Registration Statement (the "Current
Registration") including the Shares by January 31, 1997, and to take all
appropriate action to cause such Registration Statement to be declared effective
by March 31, 1997.
In order to induce Holders to enter the Merger Agreement and accept the
Shares as a portion of the merger consideration, the Company has agreed to
provide the registration rights set forth in this Agreement.
1. Piggyback Registrations.
(a) Right to Piggyback. If, at any time after the Effective Date and
prior to the earlier of (x) January 3, 1999, and (y) the date upon which the
Holders become eligible to sell shares pursuant to Rule 144 ("Rule 144")
promulgated under the Exchange Act of 1933 (such date being herein referred to
as the "Rights Termination Date") (i) an effective registration statement is not
in place to allow Holders to sell Shares held by them, (ii) the Company proposes
to register any of its securities under the Securities Act of 1933, as amended
(the "Securities Act"), and (iii) the registration form to be used may be used
for the registration of Shares (a "Piggyback Registration" and the rights to
such registration "Piggyback Registration Rights"), the Company will give prompt
written notice (in any event at least 30 days in advance) to all Holders of its
intention to effect such a registration and will include in such registration
all Shares with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The expenses incurred in connection with such
registration by the Holders will be paid by the Company in all Piggyback
Registrations.
<PAGE> 2
(c) Priority on Primary Registrations. If a Piggyback Registration is,
in whole or in part, an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number of piggyback shares which can be sold in such
offering, the Company will include in such registration (i) first, the shares of
Common Stock the Company proposes to sell, (ii) second, the shares of Common
Stock proposed to be sold by holders thereof who have registration rights
pursuant to the Registration Rights Agreement dated December 16, 1994, as
amended, or the Registration Rights Agreement dated May 22, 1995, as amended or
the Registration Rights Agreement dated April 16, 1996 or the Registration
Rights Agreement dated July 31, 1996 (such holders hereinafter referred to as
the "Existing Holders"), and (iii) third, other shares of Common Stock requested
to be included in such registration.
(d) Priority on Secondary Registration.
(i) If the Holders exercise their Piggyback Registration Rights in
connection with a registration statement filed in response to the exercise of
Demand Registration Rights (as defined below) and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) first,
to the shares, of Common Stock for which Demand Registration Rights are
exercised, (ii) second, the shares of Common Stock requested to be included by
the Existing Holders, and (iii) third, other securities requested to be included
in such registration.
(ii) If the Existing Holders exercise their Piggyback Registration
Rights in connection with a registration statement filed in response to the
exercise of Demand Registration Rights by the Holders, and the managing
underwriters advise the Company in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will, subject to the rights of
the Existing Holders under paragraph 2(c) hereof, include in such registration
statement (i) first, the shares of Common Stock requested to be included by the
Existing Holders, and (ii) second, the other securities, requested to be
included in such registration, that in the opinion of such underwriter can be
sold, pro rata among the holders of such shares on the basis of the number of
shares requested to be included by such holders.
2. Demand Registration.
(a) Registration. If at any time after the Effective Date and prior to
the Rights Termination Date an effective registration statement is not in place
to allow Holders to sell Shares held by them and such Shares have previously not
registered pursuant to Section 1 then the Holders of not less than one-half of
the Shares may request one
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<PAGE> 3
registration under the Securities Act of all or part of their Registrable
Securities on Form S-1 under the Securities Act or any other permitted
registration form ("Demand Registration" and the right to such registration
"Demand Registration Rights") for which the Company will pay all Registration
Expenses (as defined Section 5 below). A registration will not count as a Demand
Registration until it has become effective.
(b) Priority on Demand Registrations. If, at any time after March 31,
1997 and prior to the Rights Termination Date, the Company receives a request by
the Holders for a Demand Registration, within five days after the receipt
thereof the Company will (i) give written notice of such request to all Holders
and Existing Holders previously not registered and (ii) include in such Demand
Registration all shares of Common Stock with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. If the managing underwriter of any Demand Registration
advises the Company in writing that in its opinion the number of Shares and
other securities requested to be included exceeds the number of Shares and other
securities which can be sold in such offering, the Company will include in such
registration (i) first, the shares of Common Stock requested to be included by
the Existing Holders, and (ii) second, the number of Shares requested to be
included that in the opinion of such underwriter can be sold, pro rata among the
respective Holders on the basis of their relative shares of Shares requested to
be included. Any persons other than Holders who participate in the Demand
Registration must pay their share of the Registration Expenses as provided in
Section 5.
(c) Priority on Demand Registrations with respect to Existing Holders.
If, during the period after the Company has received a request by the Holders
for a Demand Registration and 15 days after the Holders and Existing Holders
have received the Company's notice described in the first sentence of Section
2(b) above, the Company receives a request by the Existing Holders for a demand
registration, then the Holders agree that the Company may file a registration
statement in response to the request by the Existing Holders in lieu of filing a
registration statement in response to the request by the Holders. The Holders
will have Piggyback Registration Rights in connection with such demand
registration in accordance with Section 1(d)(i) hereof and such registration
shall not count as Holders' Demand Registration.
(d) Selection of Underwriters. The Company will have the right to
decide if a Demand Registration shall be underwritten and to select the
investment banker(s) and manager(s) to manage or administer any offering
pursuant to a Demand Registration. Notwithstanding the foregoing, the Company's
unwillingness or inability to select such banker or manager shall not limit the
Company's obligation to proceed with a requested Demand Registration.
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<PAGE> 4
(e) In the event that all of the Shares requested to be included in a
registration pursuant to a Demand Registration are not included therein by
operation of Section 2(b) then such registration shall not count as Holders'
Demand Registration.
3. Current Registration. (a) The provisions of Sections 4, 5,6, 7 and 8 hereof
will apply to the Current Registration.
(b) The parties hereby agree that in the event the Current Registration
has not been declared effective by the Securities and Exchange Commission by
March 31, 1997 (the "Target Date") the Holders may be harmed by not being able
to sell shares until the date the Current Registration is actually declared
effective (the "Actual Date"), to the extent that the price on the Actual Date
is less than the price on the Target Date. Therefore, Company agrees to pay as
additional Merger Consideration (as defined in the related Merger Agreements
dated of even date herewith) and as liquidated damages an amount per share for
the total number of Shares equal to: (a) the closing bid price per share for the
common stock as quoted on the Nasdaq Stock Market on the Target Date, less (b)
the closing bid price per share for the common stock as quoted on the Nasdaq
Stock Market on the Actual Date, less $.50 (fifty cents) per share (the amount
per share in item (b) being referred to as the "Target Price" and the amount
calculated pursuant to items (a) and (b) being referred to herein as the "Per
Share Price Reconciliation"). The Per Share Price Reconciliation shall be
payable as follows:
(i) For Shares sold by the underwriters pursuant to the Current
Registration, the Company shall pay the Per Share Price
Reconciliation for such Shares immediately upon the Actual
Date (or the sale date, if later), first, by paying all or a
portion of the underwriting discount with respect to such
shares and then, if necessary, by paying any additional cash
to the Holders; and
(ii) For Shares sold otherwise, the Company shall pay the Per Share
Price Reconciliation for such Shares immediately upon the date
of such sale in cash to the Holders.
Notwithstanding the foregoing, if at any time after the Actual Date (when an
effective registration statement is in place with respect to the Shares or
Holders are eligible to sell shares pursuant to Rule 144) the closing bid price
per share for the common stock as quoted on the Nasdaq Stock Market is above the
Target Price for any three (3) trading days in any period of five (5)
consecutive trading days, then the Per Share Price Reconciliation for any Shares
still held by Holders shall be canceled, and Company shall be relieved of any
further obligation with respect thereto.
4. Registration Procedures. Whenever the Holders have requested that any Shares
be registered pursuant to the Agreement, the Company will use its best efforts
to
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<PAGE> 5
effect the registration and the sale of such Shares in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such Shares and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company may furnish to a single law firm selected by
the Holders of a majority of the Shares covered by such registration statement
copies of all such documents proposed to be filed, which documents would be
subject to the reasonable review of such counsel which review would be limited
to information concerning the Holders and their plans of distribution and other
issues reasonably related to the Holders as Selling Shareholders);
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than six months and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Holders thereof set forth in such registration statement;
(c) furnish to each Holder of Shares such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request in order to
facilitate the disposition of the Shares owned by such Holder;
(d) use its best efforts to register or qualify such Shares under such
other securities or blue sky laws of such jurisdiction as any Holder reasonably
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
such jurisdictions of the Shares owned by such Holder (provided that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
(e) notify each Holder of such Shares, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such Holder, the Company will prepare a supplement or amendment
to such prospectus so that, as
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<PAGE> 6
thereafter delivered to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(f) cause all such Shares to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Shares
(including, without limitation, effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Shares, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement; and
(j) obtain a comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the holders of a majority of the Shares being sold
reasonably request (provided that such Shares constitute at least 10% of the
securities covered by such registration statement).
5. Registration Expenses and Holdback Agreement.
(a) All expenses incident to the Company's performance under this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions, which are the responsibility of the
seller) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
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<PAGE> 7
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed.
(b) Each Holder agrees not to effect any public sale or distribution of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 120 day period beginning on the effective date of any underwritten
Piggyback Registration or any underwritten Demand Registration in which Shares
are included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each Holder, its officers, directors and employees and each person who controls
such holder (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such Holder expressly for use therein or by such Holder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such Holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers,
directors and employees and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Holders. Notwithstanding the foregoing, to
the extent that the provisions on indemnification and contribution contained in
any such underwriting agreement are in conflict with the foregoing provisions,
the provisions in the underwriting agreement shall control.
(b) In connection with any registration statement in which a Holder is
participating, each such Holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors, officers and
employees and each person who controls the Company (within the meaning of the
Securities Act) against any loss, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that
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<PAGE> 8
such untrue statement or omission is contained in any information or affidavit
so furnished in writing by such holder expressly for use herein.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense, is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
7. Participation in Underwritten Registrations. No person may participate in any
registration hereunder which includes an underwritten offering unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, power of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8. Miscellaneous.
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of holders of at least
two-thirds of the Shares.
(b) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of purchasers or Holders of are also for the
benefit of, and enforceable by, any subsequent Holder, provided that the Company
is given written notice at the time of or within a reasonable time after said
assignment, stating the name and address of the assignee or holder and
identifying the securities with respect to which such registration rights are
being assigned, and provided further, that the assignee or Holder of such rights
assumes the obligations of such Holder under this Agreement.
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<PAGE> 9
(c) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be effective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(d) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signature of more
than one party, but all such counterparts taken together will constitute one and
the same Agreement.
(e) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(f) Governing Law. The construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of the State of Delaware.
(g) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to each other Holder at the address provided by such Holder and to
Company at the address indicated below:
Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, Maryland 21230
Attn: R. Dirk Allison, President
With a copy mailed to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the Company has executed this Agreement as of
January 3, 1997.
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CAPSTONE PHARMACY SERVICES, INC.
By: /s/ Donald Hughes
-----------------------------
Its: Chief Financial Officer
<PAGE> 11
Schedule 1
Ron Belville
Denis A. and Sandra Lou Portaro and the Denis A. and Sandra Lou Portaro
Revocable Trust of 1992.
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<PAGE> 1
EXHIBIT 5
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is entered into as of January 3,
1997, by and among DENIS PORTARO and SANDRA PORTARO (collectively, the
"Shareholders"), CAPSTONE PHARMACY SERVICES, INC., a Delaware corporation
("Buyer"), and HARWELL HOWARD HYNE GABBERT & MANNER, P.C. ("Escrow Agent").
W I T N E S S E T H:
A. Buyer, Portaro Pharmacies, Inc., a California corporation
("Seller"), Shareholders and Institutional Pharmacy Services, Inc, a Maryland
corporation and wholly-owned subsidiary of Buyer ("Capstone Sub"), have entered
into an Agreement and Plan of Merger dated January 3, 1997 ("Merger Agreement"),
pursuant to which Buyer is acquiring the stock of Seller via Seller's merger
with and into Capstone Sub.
B. Buyer and Shareholders have agreed, pursuant to the Merger
Agreement, to the establishment of an escrow account to hold a portion of the
Merger Consideration to ensure the collection of Receivables acquired by Buyer
and to ensure certain of Shareholders' indemnity obligations under the Merger
Agreement (collectively, such Receivables obligations and such indemnity
obligations shall be known herein as the "Escrow Obligations").
C. As security for Escrow Obligations, the parties to the Merger
Agreement have agreed that Buyer shall deposit the number of shares of Capstone
Common Stock having an aggregate market value of Two Million and No/100 Dollars
($2,000,000.00) based upon the Average Price with the Escrow Agent as a fund to
be held by Escrow Agent in escrow, subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises set forth in the
Merger Agreement, the mutual covenants herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
1. Deposit. Concurrently with the execution and delivery of this
Agreement, Buyer has deposited with Escrow Agent the number of shares of
Capstone Common Stock having an aggregate market value of Two Million and No/100
Dollars ($2,000,000.00) based upon the Average Price ( the "Escrowed Stock"),
which constitutes a portion of the Merger Consideration payable pursuant to the
Merger Agreement, and Escrow Agent acknowledges receipt of such stock. Escrow
Agent will hold the Escrowed Stock in accordance with the terms and provisions
of this Agreement. The Seller may, at its option, substitute for the Escrowed
Stock, or any portion thereof, cash or cash equivalents having a value equal to
$2,000,000 or
<PAGE> 2
having a value equal to the percentage of $2,000,000 in Escrowed Stock which the
substitute collateral will replace.
2. Claims Against Escrowed Stock.
(a) Buyer and/or any of its affiliates may make a claim
against the Escrowed Stock if (a) there has been a Receivables Shortfall, as
defined in Section 3.1 of the Merger Agreement, or (b) there have been any
Breach Damages, as such term is defined in Section 2.3(2)(b) of the Merger
Agreement. Buyer may make such a claim upon giving written notice summarizing
the claim, including the amount of the claim (the "Claim Amount"), to Escrow
Agent and Shareholders.
(b) Upon the giving of such notice by Buyer, the Escrow Agent
will deliver to Buyer the number of shares of Escrowed Stock equal to (i) the
Claim Amount, divided by (ii) the Average Price, unless within ten (10) days
following Buyer's giving of its notice, Shareholders provide written notice to
Buyer and Escrow Agent disputing such claim and setting forth in detail the
nature and basis of such a dispute. If Shareholders timely deliver such written
notice, then such dispute shall be settled as set forth in paragraph 3 of this
Agreement.
3. Settlement of Disputes.
(a) If Shareholders provide written notice in accordance with
paragraph 3(b) of this Agreement that they dispute a claim, the question of
whether the claim is valid, whether payment of the claim is to be made out of
the Escrowed Stock, and the amount to be paid on the claim, along with any
reimbursable expenses applicable thereto, shall be conclusively determined by a
single arbitrator which Buyer and Shareholders shall jointly and in good faith
attempt to select. If Buyer and Shareholders are unable to agree on a single
arbitrator, then such determination shall be made by three arbitrators, one
arbitrator being selected by Buyer, one arbitrator being selected by
Shareholders and the third being selected by the two arbitrators so selected. In
the event that the first two arbitrators are unable to agree on the selection of
the third arbitrator, the third arbitrator shall be designated by the American
Arbitration Association. The rules of such Association shall govern the conduct
of any such arbitration proceeding, except as may otherwise be specifically
provided in this Agreement or the Purchase Agreement. In the event that either
Buyer or Shareholders, thirty (30) days after written notification of any demand
for arbitration hereunder, shall not have so selected its or their arbitrator
and given written notice thereof to the other party(is), such arbitrator shall
be selected by the American Arbitration Association at the request of any party
to this Agreement.
(b) The meetings of the arbitrators shall be held in Los
Angeles, California, or at such other place or places as may be agreed upon by
the arbitrators. All determinations made by the arbitrator(s) shall be by
majority vote and shall be
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final, conclusive, and binding on the parties hereto and the parties agree to
the entry of judgment in any court of competent jurisdiction based on the award
of the arbitrator(s). Any such award shall be in the full amount deemed owing by
the arbitrator(s). Notice of any such determination shall forthwith be given to
the disputing party(is) and Escrow Agent. Escrow Agent shall, upon receipt of
such notice, pay from the Escrowed Stock the amounts thereof allowed
respectively to each of Buyer and/or Shareholders, as the case may be, along
with any interest earned thereon. Buyer, on the one hand, and Shareholders, on
the other hand, shall each pay one-half of the fees and expenses of such
arbitration, unless the arbitrator(s) shall expressly determine to the contrary.
4. Release of Escrowed Stock. On the one-year anniversary of the
Closing, which occurred January 3, 1997, Escrow Agent shall deliver to
Shareholders the number of shares of Escrowed Stock equal to (a) fifty percent
(50%) of the original number of shares of Escrowed Stock, less (b) the number of
shares of Escrowed Stock delivered pursuant to Section 2(b), less (c) the number
of shares of Escrowed Stock as to which a claim pursuant to Section 2(a) has
been made and is being disputed pursuant to Section 3. On the two year
anniversary of the Closing, Escrow Agent shall deliver to Shareholders the
remainder of the Escrowed Stock then held by the Escrow Agent; provided,
however, that if at or prior to such anniversary Buyer or any affiliate shall
have given notice of a claim against the Escrowed Stock pursuant to paragraph 3
of this Agreement, a portion of the Escrowed Stock to otherwise be so released
in an amount equal to the amount of the claim (plus any interest thereon) shall
be retained by Escrow Agent until any amount that may be awarded with respect to
such claims shall have been finally determined and disposed of in accordance
with this Agreement.
5. Other Payments. Notwithstanding anything in this Escrow Agreement to
the contrary, Escrow Agent shall make payments of any or all Escrowed Stock in
accordance with the terms of any written instructions which it may receive which
have been executed by each of Buyer and Shareholders.
6. Resignation or Substitution of Escrow Agent. Escrow Agent may resign
and be discharged of its duties hereunder at any time by giving notice of such
resignation to Buyer and Shareholders, which notice will specify a date not less
than thirty (30) days after the giving of such notice when the resignation will
take effect. Promptly after such notice, a successor escrow agent will be
appointed jointly by Buyer and Shareholders. The successor escrow agent will
become Escrow Agent upon the resignation date specified in the notice. Escrow
Agent will continue to serve until its successor accepts the escrow and receives
the Escrowed Stock or until Escrow Agent interpleads the same into the registry
of the District Court of Davidson County, Tennessee.
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<PAGE> 4
7. Liability of Escrow Agent.
(a) Upon disbursement of the Escrowed Stock, Escrow Agent will
be released and discharged without further obligation under this Agreement.
Escrow Agent has no duties other than to hold and release the Escrowed Stock as
contemplated hereunder. This Agreement sets forth exclusively the duties of
Escrow Agent in its capacity as such and no implied duties or obligations will
be read into this Agreement against it. Escrow Agent will have no liability
hereunder except for acts of gross negligence, willful misconduct or fraud.
Escrow Agent shall not be responsible or liable in any manner whatsoever with
respect to any indebtedness or obligation of Buyer or Shareholders.
(b) Escrow Agent will be under no obligation to institute or
defend any action, suit or legal proceeding in connection with this Agreement or
to take any other action likely to involve it in expense unless first
indemnified to its satisfaction. In the event that a dispute arises, Escrow
Agent may bring an interpleader action in the District Court of Davidson County,
Tennessee, naming Buyer and Shareholders as parties. Service as Escrow Agent
shall not be deemed to create a conflict of interest that restricts the ability
of Harwell Howard Hyne Gabbert & Manner, P.C. to represent Buyer or its
affiliates with respect to any matter, including any dispute related to the
Escrowed Stock.
(c) Escrow Agent shall be protected in acting in reliance upon
any instrument or signature or telephonic communication believed to be genuine
and may assume that any person purporting to give any notice, advice or
instruction in connection with the provisions hereof has been duly authorized to
do so. Escrow Agent shall be protected in acting upon advice of counsel in
reference to any matter connected herewith.
(d) Escrow Agent shall not be liable for any error of
judgement, or for any act done or steps taken or omitted by it in good faith or
for any mistake of fact or law, or for anything which it may do or refrain from
doing in connection herewith, except its own gross negligence, willful
misconduct or fraud.
8. Indemnification of Escrow Agent. The other parties hereto, jointly
and severally, will indemnify and hold harmless Escrow Agent as such from and
against any claims, liabilities, damages, attorney fees, litigation, court and
other costs arising out of or in connection with the transactions contemplated
under the Merger Agreement, the services of Escrow Agent under this Agreement
(excluding acts of gross negligence, willful misconduct or fraud) or any
litigation arising from such services or any interpleader or similar action
pursuant to this Agreement.
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<PAGE> 5
9. Notices. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to be
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 so long
as the sending party retains a receipt thereof; and (c) if mailed, then five
days after mailing with the United States mail service, postage pre-paid. Any
such notices or communications shall be sent to the parties at the addresses set
forth in the Agreement and Plan of Merger or at such other addresses as a party
may specify by notice to the other parties to this Agreement, which notice will
be accomplished in accordance with the terms of this paragraph 9.
10. Miscellaneous. All capitalized terms not otherwise defined in this
Agreement will have the respective meanings set forth in the Merger Agreement.
This Agreement will inure to the benefit of, and will be binding upon, the
parties hereto and may not be assigned by any party without the prior written
consent of all other parties, and any prohibited assignment shall be null and
void. The headings used in this Agreement have been inserted for convenience
only and will not control or affect the meaning of any provision of this
Agreement. The provisions of this Agreement have been subject to negotiation,
and will not be construed against its drafter. This Agreement, together with the
Merger Agreement and the exhibits hereto, constitutes the entire agreement among
the parties with respect to the subject matter hereof. No change in, addition to
or waiver or amendment of the terms or conditions of this Agreement will be
binding upon any of the parties unless approved in writing by such parties. This
Agreement may be executed in any number of counterparts, each of which will be
deemed an original and all of which together will be deemed one and the same
instrument. This Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the date set forth above.
SHAREHOLDERS: BUYER:
CAPSTONE PHARMACY SERVICES,
INC.
/s/ Denis Portaro By: /s/ Donald Hughes
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Denis Portaro Title: Chief Financial Officer
/s/ Sandra Portaro
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Sandra Portaro
ESCROW AGENT:
HARWELL HOWARD HYNE GABBERT
& MANNER, P.C.
By: /s/ Mark Manner
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EXHIBIT 6
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is entered into as of January 3,
1997, by and among RON BELVILLE ("Shareholder"), CAPSTONE PHARMACY SERVICES,
INC., a Delaware corporation ("Buyer"), and HARWELL HOWARD HYNE GABBERT &
MANNER, P.C. ("Escrow Agent").
W I T N E S S E T H:
A. Buyer, Clinical Care-SNF Pharmacy, Inc., a California corporation
("Seller"), Shareholder and Institutional Pharmacy Services, Inc, a Maryland
corporation and wholly-owned subsidiary of Buyer ("Capstone Sub"), have entered
into an Agreement and Plan of Merger dated January 3, 1997 ("Merger Agreement"),
pursuant to which Buyer is acquiring the stock of Seller via Seller's merger
with and into Capstone Sub.
B. Seller and Shareholder have agreed, pursuant to the Merger
Agreement, to the establishment of an escrow account to hold a portion of the
Merger Consideration to ensure the collection of Receivables acquired by Buyer
and to ensure certain of Shareholder's indemnity obligations under the Merger
Agreement (collectively, such Receivables obligations and such indemnity
obligations shall be known herein as the "Escrow Obligations").
C. As security for Escrow Obligations, the parties to the Merger
Agreement have agreed that Buyer shall deposit the number of shares of Capstone
Common Stock having an aggregate market value of Two Million and No/100 Dollars
($2,000,000.00) based upon the Average Price with the Escrow Agent as a fund to
be held by Escrow Agent in escrow, subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises set forth in the
Merger Agreement, the mutual covenants herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
1. Deposit. Concurrently with the execution and delivery of this
Agreement, Buyer has deposited with Escrow Agent the number of shares of
Capstone Common Stock having an aggregate market value of Two Million and No/100
Dollars ($2,000,000.00) based upon the Average Price ( the "Escrowed Stock"),
which constitutes a portion of the Merger Consideration payable pursuant to the
Merger Agreement, and Escrow Agent acknowledges receipt of such stock. Escrow
Agent will hold the Escrowed Stock in accordance with the terms and provisions
of this Agreement. The Seller may, at its option, substitute for the Escrowed
Stock, or any
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portion thereof, cash or cash equivalents having a value equal to $2,000,000 or
having a value equal to the percentage of $2,000,000 in Escrowed Stock which the
substitute collateral will replace.
2. Claims Against Escrowed Stock.
(a) Buyer and/or any of its affiliates may make a claim
against the Escrowed Stock if (a) there has been a Receivables Shortfall, as
defined in Section 3.1 of the Merger Agreement, or (b) there have been any
Breach Damages, as such term is defined in Section 2.3(2)(b) of the Merger
Agreement. Buyer may make such a claim upon giving written notice summarizing
the claim, including the amount of the claim (the "Claim Amount") to Escrow
Agent and Shareholder.
(b) Upon the giving of such notice by Buyer, the Escrow Agent
will deliver to Buyer (A) to the extent of available shares, the number of
shares of Escrowed Stock equal to (i) the Claim Amount, divided by (ii) the
Average Price or (B) cash in the amount of any difference between the Claim
Amount and the amount delivered under subparagraph (A), unless within ten (10)
days following Buyer's giving of its notice, Shareholder provides written notice
to Buyer and Escrow Agent disputing such claim and setting forth in detail the
nature and basis of such a dispute. If Shareholder timely delivers such written
notice, then such dispute shall be settled as set forth in paragraph 3 of this
Agreement.
3. Settlement of Disputes.
(a) If Shareholder provides written notice in accordance with
paragraph 3(b) of this Agreement that he disputes a claim, the question of
whether the claim is valid, whether payment of the claim is to be made out of
the escrow and the amount to be paid on the claim, along with any reimbursable
expenses applicable thereto, shall be conclusively determined by a single
arbitrator which Buyer and Shareholder shall jointly and in good faith attempt
to select. If Buyer and Shareholder are unable to agree on a single arbitrator,
then such determination shall be made by three arbitrators, one arbitrator being
selected by Buyer, one arbitrator being selected by Shareholder and the third
being selected by the two arbitrators so selected. In the event that the first
two arbitrators are unable to agree on the selection of the third arbitrator,
the third arbitrator shall be designated by the American Arbitration
Association. The rules of such Association shall govern the conduct of any such
arbitration proceeding, except as may otherwise be specifically provided in this
Agreement or the Purchase Agreement. In the event that either Buyer or
Shareholder, thirty (30) days after written notification of any demand for
arbitration hereunder, shall not have so selected its or their arbitrator and
given written notice thereof to the
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other party(is), such arbitrator shall be selected by the American Arbitration
Association at the request of any party to this Agreement.
(b) The meetings of the arbitrators shall be held in Los
Angeles, California, or at such other place or places as may be agreed upon by
the arbitrators. All determinations made by the arbitrator(s) shall be by
majority vote and shall be final, conclusive, and binding on the parties hereto
and the parties agree to the entry of judgment in any court of competent
jurisdiction based on the award of the arbitrator(s). Any such award shall be in
the full amount deemed owing by the arbitrator(s). Notice of any such
determination shall forthwith be given to the disputing party(is) and Escrow
Agent. Escrow Agent shall, upon receipt of such notice, pay in accordance with
Section 2(b) the amounts allowed respectively to each of Buyer and/or
Shareholder, as the case may be, along with any interest earned thereon. Buyer,
on the one hand, and Shareholder, on the other hand, shall each pay one-half of
the fees and expenses of such arbitration, unless the arbitrator(s) shall
expressly determine to the contrary.
4. Release of Escrowed Stock. On the one-year anniversary of Closing,
which occurred January 3, 1997, Escrow Agent shall deliver to Shareholder the
number of shares of Escrowed Stock or cash in the equivalent amount equal to (a)
fifty percent (50%) of the original number of shares of Escrowed Stock, less (b)
the number of shares of Escrowed Stock delivered pursuant to Section 2(b), less
(c) the number of shares of Escrowed Stock as to which a claim pursuant to
Section 2(a) has been made and is being disputed pursuant to Section 3. On the
two year anniversary of the Closing, Escrow Agent shall deliver to Shareholder
the remainder of the cash and Escrowed Stock then held by the Escrow Agent;
provided, however, that if at or prior to such anniversary Buyer or any
affiliate shall have given notice of a claim against the Escrowed Stock pursuant
to paragraph 3 of this Agreement, a portion of the Escrowed Stock to otherwise
be so released in an amount equal to the amount of the claim (plus any interest
thereon) shall be retained by Escrow Agent until any amount that may be awarded
with respect to such claims shall have been finally determined and disposed of
in accordance with this Agreement.
5. Other Payments. Notwithstanding anything in this Escrow Agreement to
the contrary, Escrow Agent shall make payments of any or all Escrowed Stock in
accordance with the terms of any written instructions which it may receive which
have been executed by each of Buyer and Shareholder.
6. Resignation or Substitution of Escrow Agent. Escrow Agent may resign
and be discharged of its duties hereunder at any time by giving notice of such
resignation to Buyer and Shareholder, which notice will specify a date not less
than thirty (30) days after the giving of such notice when the resignation will
take effect.
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Promptly after such notice, a successor escrow agent will be appointed jointly
by Buyer and Shareholder. The successor escrow agent will become Escrow Agent
upon the resignation date specified in the notice. Escrow Agent will continue to
serve until its successor accepts the escrow and receives the Escrowed Stock or
until Escrow Agent interpleads the same into the registry of the District Court
of Davidson County, Tennessee.
7. Liability of Escrow Agent.
(a) Upon disbursement of the Escrowed Stock in accordance with
the terms of this Agreement, Escrow Agent will be released and discharged
without further obligation under this Agreement. Escrow Agent has no duties
other than to hold and release the cash and Escrowed Stock as contemplated
hereunder. This Agreement sets forth exclusively the duties of Escrow Agent in
its capacity as such and no implied duties or obligations will be read into this
Agreement against it. Escrow Agent will have no liability hereunder except for
acts of gross negligence, willful misconduct or fraud. Escrow Agent shall not be
responsible or liable in any manner whatsoever with respect to any indebtedness
or obligation of Buyer or Shareholder.
(b) Escrow Agent will be under no obligation to institute or
defend any action, suit or legal proceeding in connection with this Agreement or
to take any other action likely to involve it in expense unless first
indemnified to its satisfaction. In the event that a dispute arises, Escrow
Agent may bring an interpleader action in the District Court of Davidson County,
Tennessee, naming Buyer and Shareholder as parties. Service as Escrow Agent
shall not be deemed to create a conflict of interest that restricts the ability
of Harwell Howard Hyne Gabbert & Manner, P.C. to represent Buyer or its
affiliates with respect to any matter, including any dispute related to the
Escrowed Stock.
(c) Escrow Agent shall be protected in acting in reliance upon
any instrument or signature or telephonic communication believed to be genuine
and may assume that any person purporting to give any notice, advice or
instruction in connection with the provisions hereof has been duly authorized to
do so. Escrow Agent shall be protected in acting upon advice of counsel in
reference to any matter connected herewith.
(d) Escrow Agent shall not be liable for any error of
judgement, or for any act done or steps taken or omitted by it in good faith or
for any mistake of fact or law, or for anything which it may do or refrain from
doing in connection herewith, except its own gross negligence, willful
misconduct or fraud.
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8. Indemnification of Escrow Agent. The other parties hereto, jointly
and severally, will indemnify and hold harmless Escrow Agent as such from and
against any claims, liabilities, damages, attorney fees, litigation, court and
other costs arising out of or in connection with the transactions contemplated
under the Merger Agreement, the services of Escrow Agent under this Agreement
(excluding acts of gross negligence, willful misconduct or fraud) or any
litigation arising from such services or any interpleader or similar action
pursuant to this Agreement.
9. Notices. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to be
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 so long
as the sending party retains a receipt thereof; and (c) if mailed, then five
days after mailing with the United States mail service, postage pre-paid. Any
such notices or communications shall be sent to the parties at the addresses set
forth in the Agreement and Plan of Merger or at such other addresses as a party
may specify by notice to the other parties to this Agreement, which notice will
be accomplished in accordance with the terms of this paragraph 9.
10. Miscellaneous. All capitalized terms not otherwise defined in this
Agreement will have the respective meanings set forth in the Merger Agreement.
This Agreement will inure to the benefit of, and will be binding upon, the
parties hereto and may not be assigned by any party without the prior written
consent of all other parties, and any prohibited assignment shall be null and
void. The headings used in this Agreement have been inserted for convenience
only and will not control or affect the meaning of any provision of this
Agreement. The provisions of this Agreement have been subject to negotiation,
and will not be construed against its drafter. This Agreement, together with the
Merger Agreement and the exhibits hereto, constitutes the entire agreement among
the parties with respect to the subject matter hereof. No change in, addition to
or waiver or amendment of the terms or conditions of this Agreement will be
binding upon any of the parties unless approved in writing by such parties. This
Agreement may be executed in any number of counterparts, each of which will be
deemed an original and all of which together will be deemed one and the same
instrument. This Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
11. Replacement of Escrow Agent. The parties hereto agree that the
Escrow Agent named above shall serve in such capacity only until a bank, trust
company or other institution mutually agreeable to Shareholder and Buyer can be
substituted as Escrow Agent. The terms of the agreement entered into with said
substitute Escrow Agent shall include provisions for investing any cash in the
escrow account pursuant to instructions from Shareholder in certificates of
deposits, corporate bonds,
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government bonds and other interest bearing securities; provided that no such
investment may be made in any interest bearing account, certificate of deposit
or bond unless the certificate of deposit, bond or other instrument is at least
of investment grade. The parties hereto shall take such other steps and make
such other changes at the request of the replacement Escrow Agent as reasonably
requested in order to allow such party to act as Escrow Agent. The parties shall
take whatever action is appropriate to cause the substitution of the Escrow
Agent no later than 30 days from the date of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the date set forth above.
SHAREHOLDER: BUYER:
CAPSTONE PHARMACY SERVICES,
INC.
/s/ Ron Belville
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Ron Belville By: /s/ Donald Hughes
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Title: Chief Financial Officer
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ESCROW AGENT:
HARWELL HOWARD HYNE GABBERT
& MANNER, P.C.
By: /s/ Mark Manner
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