<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 1, 2000
------------------------------
Park Pharmacy Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Colorado 000-15379 84-1029701
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
10711 Preston Road, Suite 250, Dallas, Texas 75230
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (214) 692-9921
--------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changes Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective April 1, 2000, pursuant to the terms of an Agreement and Plan of
Merger (the "Merger Agreement"), Park Pharmacy Corporation, a Colorado
corporation ("Registrant"), acquired all of the issued and outstanding stock of
Total Pharmacy Supply, Inc., a Texas corporation ("Total"), pursuant to a merger
in which Total Acquisition Corporation, a Texas corporation and newly-formed
wholly-owned subsidiary of Registrant ("Acquisition"), merged with and into
Total (the "Merger"). Pursuant to the terms of the Merger, Total is the
surviving company in the Merger and shall operate as a wholly-owned subsidiary
of Registrant. All of the issued and outstanding shares of common stock of
Total, all of which were owned by Carl S. Moses and Cynthia A. Moses
(collectively, "Moses"), were converted into, and became exchangeable for, an
aggregate of 41,515 validly issued, fully paid and nonassessable unregistered
shares of Registrant's Series A Preferred Stock, par value $.001 per share (the
"Registrant Shares"). 4,151 of the Registrant Shares payable by Registrant
pursuant to the terms and conditions of the Merger were held back by the
Registrant pursuant to the terms and conditions of a Closing and Holdback
Agreement (the "Holdback Agreement") between the parties. The Registrant Shares
held back pursuant to the Holdback Agreement are available for satisfaction of
potential indemnification claims by the Registrant against Total and Moses
pursuant to the terms of the Merger Agreement. Total is a wholesale
pharmaceutical supplier. Registrant currently intends to continue Total's
business.
The consideration paid by Registrant pursuant to the Merger was negotiated
at arm's length between the parties on the basis of the Registrant's assessment
of the value of Total following an investigation of, and discussions with Total
and its representatives concerning Total and its business and prospects. It is
intended that, for federal income tax purposes, the Merger will qualify as a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder.
For financial accounting purposes, it is intended that the Merger will be
accounted for as a "purchase."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
(1) Balance Sheet of Total as of December 31, 1999.
(2) Statements of Income and Retained Earnings of Total for the years
ended December 31, 1999, and December 31, 1998.
(3) Statements of Cash Flows of Total for the years ended December 31,
1999, and December 31, 1998.
(4) Notes to Financial Statements.
(b) Pro Forma Financial Information
(1) Pro forma combined balance sheet as of December 31, 1999.
<PAGE> 3
(2) Pro forma combined statements of operations for the six months ended
December 31, 1999.
(3) Pro forma combined statement of operations for the year ended June 30,
1999.
(c) Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of March 31, 2000 by
and among Registrant, Acquisition, Total, and Moses
27.1 Financial Data Schedule
99.1 Closing and Holdback Agreement dated March 31, 2000 by and
among Registrant, Acquisition, Total, and Moses
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PARK PHARMACY CORPORATION
(Registrant)
Date: April 14, 2000 By: /s/ Thomas R. Baker
--------------------------------------
Thomas R. Baker,
Chief Executive Officer & President
<PAGE> 4
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Total Pharmacy Supply, Inc.
We have audited the accompanying balance sheet of Total Pharmacy Supply, Inc. as
of December 31, 1999, and the related statements of income and retained earnings
(deficit), and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Total Pharmacy Supply, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
each of the two years then ended in conformity with generally accepted
accounting principles.
HEIN + ASSOCIATES LLP
February 17, 2000
Dallas, Texas
<PAGE> 5
TOTAL PHARMACY SUPPLY, INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 300
Trade accounts receivable, net of allowance for doubtful accounts of $34,100 418,022
Inventory 246,540
---------
Total current assets 664,862
PROPERTY AND EQUIPMENT, net 44,295
---------
Total assets $ 709,157
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 356,500
Note payable to stockholder 125,000
Accounts payable and accrued expenses 210,816
---------
Total current liabilities 692,316
COMMITMENT (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; 1,000,000 shares authorized;
10,000 shares issued and outstanding 1,000
Additional paid-in capital 25,000
Retained deficit (9,159)
---------
Total stockholders' equity 16,841
---------
Total liabilities and stockholders' equity $ 709,157
=========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
2
<PAGE> 6
TOTAL PHARMACY SUPPLY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
SALES $ 3,253,110 $ 3,057,350
COST OF GOODS SOLD 2,073,034 1,986,366
----------- -----------
Gross profit 1,180,076 1,070,984
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,036,565 977,642
----------- -----------
Operating income 143,511 93,342
INTEREST EXPENSE 27,627 24,384
----------- -----------
NET INCOME 115,884 68,958
RETAINED EARNINGS, beginning of year 208,957 192,507
Distributions to stockholders (334,000) (52,508)
----------- -----------
RETAINED EARNINGS (DEFICIT), end of year $ (9,159) $ 208,957
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
3
<PAGE> 7
TOTAL PHARMACY SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 115,884 $ 68,958
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss on disposal of assets 4,924 4,839
Depreciation expense 26,187 23,307
Change in assets and liabilities:
Trade accounts receivable (195,011) 93,057
Inventory 30,622 (14,512)
Accounts payable and accrued expenses 77,803 (95,805)
--------- ---------
Net cash provided by operating activities 60,409 79,844
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (7,112) (35,856)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 335,000 (35,000)
Repayment of note payable to stockholder (55,000) --
Distributions to stockholders (334,000) (52,508)
--------- ---------
Net cash used in financing activities (54,000) (87,508)
--------- ---------
NET DECREASE IN CASH (703) (43,520)
CASH, beginning of year 1,003 44,523
--------- ---------
CASH, end of year $ 300 $ 1,003
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 27,627 $ 24,384
========= =========
State income taxes paid $ 2,986 $ 4,554
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
4
<PAGE> 8
TOTAL PHARMACY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Total Pharmacy Supply, Inc. ("the Company") was established in 1989 and is
a wholesale distributor of pharmacy supplies and related accessory items.
The Company's customers are comprised of independent pharmacies, national
retail chains and hospitals located principally in the Southwest Central
United States.
Inventory
Inventory consists of finished goods held for resale and is valued at the
lower of cost or market. Cost is determined by the first-in, first-out
method.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated
useful lives, generally five to seven years, of the underlying assets.
Leasehold improvements are amortized over the life of the related lease
agreement. The costs of repairs and maintenance are expensed as incurred.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under such provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on the
Company's taxable income. The Company remains liable for state income
taxes.
Revenue Recognition
The Company recognizes revenue at the time product is shipped to the
customer. All sales are recorded net of applicable sales discounts and
estimates for returns and allowances.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999:
<TABLE>
<S> <C>
Computer equipment and software $ 60,325
Office furniture and equipment 31,505
Vehicle 23,730
Leasehold improvements 13,309
---------
128,869
Less accumulated depreciation (84,574)
---------
$ 44,295
</TABLE>
5
<PAGE> 9
TOTAL PHARMACY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1999:
<TABLE>
<S> <C>
Trade accounts payable $179,650
Checks issued in advance of deposits 22,495
Accrued expenses 8,671
--------
$210,816
</TABLE>
4. LINE OF CREDIT
The Company has a $450,000 line of credit with a bank. Borrowings under the
line of credit bear interest at prime plus 1.25% (total of 9.75% at
December 31, 1999). Interest is payable monthly with outstanding principal
due April 2000. The borrowings are collateralized by substantially all the
Company's assets and guaranteed by a stockholder. The total principal
balance outstanding at December 31, 1999 is $356,500.
5. COMMITMENT
The Company leases office and warehouse space under a lease agreement which
expires in 2002. Rental expense under this operating lease was $43,700 and
$42,200 for 1999 and 1998, respectively.
Future minimum rental payments under this non-cancellable operating lease
agreement are as follows:
<TABLE>
<CAPTION>
Years Ending
------------
<S> <C>
2000 $ 41,040
2001 45,600
2002 7,600
--------
$ 94,240
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has issued an unsecured promissory note to a stockholder in
connection with cash advances totaling $125,000. The note agreement
requires monthly interest payments at 12% per annum. Interest paid to the
stockholder was $15,071 in both 1999 and 1998. In January 2000, the
stockholder provided an additional $250,000 cash advance under the same
terms. The proceeds were used to pay down the Company's bank line of
credit. The balances due the stockholder are required to be repaid on
December 31, 2000.
The Company had issued an unsecured promissory note to the relative of a
stockholder in connection with a $55,000 cash advance. The note agreement
required monthly interest payments of 10.5% per annum. Interest paid to the
stockholder in 1999 and 1998 was $5,300 and $5,800, respectively. The
Company paid off this obligation in December 1999.
7. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
Sales to a single customer accounted for 47% and 35% of Company revenues in
1999 and 1998, respectively. Loss of this customer could have an adverse
effect on the Company's operations. Accounts receivable due
6
<PAGE> 10
TOTAL PHARMACY SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
from this customer represents approximately 58% of total receivables at
December 31, 1999. The Company does not generally require collateral in
connection with customer accounts receivable, but performs periodic credit
evaluations of its customers and believes the allowance for doubtful
accounts is adequate.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and notes payable. The carrying amounts of these financial
instruments approximate their fair values because of their short-term
nature.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a simple retirement account savings plan (the "Plan").
The Plan allows employees who generally receive at least $5,000 in
compensation during a year to contribute a portion of their pre-tax income.
The Company matches employee contributions up to 3% of the employee's
compensation. Each individual employee is responsible for directing the
investments in his/her retirement account in accordance with applicable
provisions of ERISA. Company contributions to the Plan totaled $6,400 and
$5,100 in 1999 and 1998, respectively.
*********
7
<PAGE> 11
Park Pharmacy Corporation
Unaudited Pro Forma Combined Financial Statements
The accompanying unaudited pro forma combined financial statements have been
prepared to reflect the acquisition of 100% of the common stock of Total
Pharmacy Supply, Inc. ("Total") by Park Pharmacy Corporation ("Park") on April
1, 2000 as if the acquisition had occurred on December 31, 1999 with respect to
the pro forma balance sheet and as of the beginning of the respective periods
with respect to the pro forma statements of operations. Park acquired Total for
an aggregate of 41,515 shares of convertible preferred stock (subject to a
hold-back of 4,151 shares of convertible preferred stock for potential
indemnification claims). The acquisition is recorded based on the market value
of the shares of common stock of Park underlying the convertible preferred
stock. The pro forma statements of operations also reflect the acquisitions of
RX Pro. Com, which occurred on December 21, 1999, and Dougherty's Pharmacy,
Inc., which occurred on December 31, 1999, as if these acquisitions had occurred
at the beginning of the respective periods. These latter acquisitions were
previously reported on Forms 8-K filed by the Company.
The accompanying unaudited pro forma financial statements should be read in
conjunction with the historical financial statements of Total included herein
and the aforementioned Forms 8-K for the acquisitions of RX Pro.Com and
Dougherty's and the Form 10-QSB of Park. These pro forma financial statements
are not indicative of the financial position or results of operations that would
actually have occurred if the transactions described above had occurred at the
dates presented or which may be obtained in the future.
<PAGE> 12
PARK PHARMACY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Park Total Adjustments Balances
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 516,470 $ 300 $ 516,770
Accounts receivable 2,280,700 418,022 2,698,722
Inventories 1,402,806 246,540 1,649,346
Other 20,778 20,778
----------- ----------- ----------- -----------
Total current assets 4,220,754 664,862 4,885,616
FIXED ASSETS, NET 828,255 44,295 872,550
GOODWILL AND OTHER INTANGIBLE ASSETS 2,286,485 -- 1,083,159(1) 3,369,644
----------- ----------- ----------- -----------
Total assets $ 7,335,494 $ 709,157 $ 1,083,159 $ 9,127,810
=========== =========== =========== ===========
CURRENTS LIABILITIES:
Notes payable $ 329,011 $ 481,500 $ 810,511
Accounts payable and accrued expenses 2,326,809 210,816 2,537,625
----------- ----------- ----------- -----------
Total current liabilities 2,655,820 692,316 3,348,136
STOCKHOLDERS EQUITY (DEFICIT):
Preferred stock 2,993 38(1) 3,031
Common stock 442 1,000 (1,000)(1) 442
Other stockholders' equity 4,676,239 15,841 1,084,121(1) 5,776,201
----------- ----------- ----------- -----------
Total stockholders' equity 4,679,674 16,841 1,083,159 5,779,674
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 7,335,494 $ 709,157 $ 1,083,159 $ 9,127,810
=========== =========== =========== ===========
</TABLE>
NOTE
(1) Adjustment to record the estimated value of stock issued to acquire Total
and remove Total's equity accounts. The purchase price is allocated to the
estimated fair value of the Total assets.
<PAGE> 13
PARK PHARMACY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Park Total RX Pro Dougherty's Adjustments Balances
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ -- $ 1,626,500 $ 96,091 $ 9,459,109 $ 11,181,700
Less cost of sales -- 1,036,500 10,421 6,369,303 7,416,224
------------ ------------ ------------ ------------ ------------ ------------
Gross profit -- 590,000 85,670 3,089,806 -- 3,765,476
General and administrative expenses 173,764 518,500 200,601 2,547,317 3,440,182
Amortization of intangibles and goodwill 282,539(1) 282,539
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (173,764) 71,500 (114,931) 542,489 (282,539) 42,755
Other income (expense) -- (14,000) -- (8,431) (22,431)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (173,764) 57,500 (114,931) 534,058 (282,539) 20,324
Provision for income taxes -- -- -- 173,000 (67,000)(2) 106,000
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) $ (173,764) $ 57,500 $ (114,931) $ 361,058 $ (215,539) $ (85,676)
============ ============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.04) $ (0.02)
============ ============
weighted average shares 4,419,000 4,419,000
============ ============ ============
</TABLE>
NOTES
(1) Adjustment to reflect amortization of software and goodwill recorded in the
acquisition of Rx Pro over five years and and the goodwill in the Total
acquisition over 10 years.
(2) Adjustment to reduce income taxes to the amount that would have occurred if
the companies had been combined at the beginning of the year. The
amortization of the goodwill and intangible assets are not deductible for
tax.
<PAGE> 14
PARK PHARMACY CORPORATION AND RX PRO. COM
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Park Total RX Pro Dougherty's Adjustments Balances
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ -- $ 3,155,000 $ 170,307 $ 16,420,687 $ 19,745,994
Less cost of goods sold -- 2,029,500 20,680 11,024,706 13,074,886
------------ ------------ ------------ ------------ ------------ ------------
Gross profit -- 1,125,500 149,627 5,395,981 -- 6,671,108
General and administrative expenses 105,725 1,007,000 265,130 4,678,782 6,056,637
Amortization of intangibles and goodwill 565,079(1) 565,079
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (105,725) 118,500 (115,503) 717,199 (565,079) 49,392
Other income (expense) -- (26,000) -- 29,006 3,006
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (105,725) 92,500 (115,503) 746,205 (565,079) 52,398
Provision for income taxes -- -- -- 262,000 (46,000)(2) 216,000
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (105,725) $ 92,500 $ (115,503) $ 484,205 $ (519,079) $ (163,602)
============ ============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.04)
============ ============
weighted average shares 4,419,000 4,419,000
============ ============
</TABLE>
NOTES
(1) Adjustment to reflect amortization of software and goodwill recorded in the
acquisition of Rx Pro over five years and goodwill in the Total acquisition
over 10 years
(2) Adjustment to reduce income taxes to amount that would have occurred if the
companies had been combined at the beginning of the year. The amortization
of the goodwill and intangible assets are not deductible for tax.
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger dated as of March 31, 2000 by and among
Registrant, Acquisition, Total, and Moses
27.1 Financial Data Schedule
99.1 Closing and Holdback Agreement dated March 31, 2000 by and among
Registrant, Acquisition, Total, and Moses
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
Among
PARK PHARMACY CORPORATION,
a Colorado corporation,
TOTAL ACQUISITION CORPORATION,
a Texas corporation,
TOTAL PHARMACY SUPPLY, INC.,
a Texas corporation,
CARL S. MOSES and CYNTHIA A. MOSES
----------
Dated as of March 31, 2000
----------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No
-------
<S> <C>
ARTICLE 1
The Merger; Closing; Effective Time .......................................... 1
1.1 The Merger ............................................................. 1
1.2 Closing ................................................................ 1
1.3 Effective Time ......................................................... 2
1.4 Effects of the Merger .................................................. 2
1.5 Articles of Incorporation .............................................. 2
1.6 Bylaws ................................................................. 2
1.7 Officers and Directors ................................................. 2
1.8 Subsequent Action ...................................................... 2
1.9 Definitions ............................................................ 3
ARTICLE 2
Merger Consideration; Debt Repayment; Current Year Earnings .................. 3
2.1 Merger Consideration ................................................... 3
2.2 Debt Repayment At Closing .............................................. 4
2.3 S-Corporation Earnings ................................................. 4
ARTICLE 3
Effect of the Merger on Capital Stock; Exchange of Certificates .............. 5
3.1 Status and Conversion of Stock ......................................... 5
3.2 Closing of the Company's Transfer Books ................................ 5
ARTICLE 4
Representations and Warranties of Parent ..................................... 6
4.1 Due Organization ....................................................... 6
4.2 Due Authorization ...................................................... 6
4.3 Brokers ................................................................ 7
4.4 Investment Representation .............................................. 7
ARTICLE 5
Representations and Warranties of Shareholders and the Company ............... 8
5.1 Capitalization; Ownership of Shares; No Liens on Shares ................ 8
5.2 Other Rights to Acquire Capital Stock .................................. 9
5.3 Due Organization ....................................................... 9
5.4 Subsidiaries ........................................................... 9
5.5 Due Authorization ...................................................... 9
5.6 Financial Statements ................................................... 11
5.7 Conduct of Business; Certain Actions ................................... 12
5.8 Properties ............................................................. 13
5.9 Tangible Property ...................................................... 14
5.10 Environmental Matters .................................................. 14
5.11 Licenses and Permits ................................................... 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.12 Proprietary Rights .......................................... 16
5.13 Compliance with Laws ........................................ 17
5.14 Insurance ................................................... 17
5.15 ERISA Compliance ............................................ 18
5.16 Contracts and Agreements .................................... 19
5.17 Claims and Proceedings ...................................... 20
5.18 Taxes ....................................................... 20
5.19 Personnel ................................................... 21
5.20 Business Relations .......................................... 22
5.21 Accounts Receivable ......................................... 23
5.22 Bank Accounts ............................................... 23
5.23 Agents ...................................................... 23
5.24 Indebtedness To and From Officers, Directors,
Shareholders and Employees .................................. 23
5.25 Certain Consents ............................................ 24
5.26 Brokers ..................................................... 24
5.27 Interest in Competitors, Vendors and Customers .............. 24
5.28 Inventory ................................................... 24
5.29 Warranties .................................................. 24
5.30 Customers and Vendors ....................................... 25
5.31 Information Furnished ....................................... 25
5.32 Questionable Payments ....................................... 25
5.33 Year 2000 ................................................... 26
5.34 Investment Intent ........................................... 26
5.35 Restricted Securities ....................................... 27
5.37 Frost Loans ................................................. 28
5.38 Tax Treatment ............................................... 28
ARTICLE 6
Covenants ......................................................... 28
6.1 Inspection .................................................. 28
6.2 Compliance by the Company and Shareholders .................. 29
6.3 Satisfaction of All Conditions Precedent .................... 29
6.4 No Solicitation ............................................. 29
6.5 Notice of Developments ...................................... 30
6.6 Notice by Shareholders and the Company of Breach ............ 30
6.7 Notice by Shareholders and the Company of Litigation ........ 30
6.8 Updating Information ........................................ 31
6.9 Interim Operations of the Company ........................... 31
6.10 Resignations of Directors ................................... 33
6.11 Employment Agreement - Carl S. Moses ........................ 33
6.12 Employment Agreement - Cynthia A. Moses ..................... 33
6.13 Closing and Holdback Agreement .............................. 33
6.14 Registration Rights ......................................... 33
ARTICLE 7
Conditions to Closing ............................................. 34
7.1 Conditions to Obligations of Parent ......................... 34
7.2 Conditions to Obligations of Shareholders and the Company ... 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8
Indemnification ................................................... 38
8.1 Indemnification ............................................. 38
8.2 Defense of Third-Party Claims ............................... 39
8.3 Direct Claims ............................................... 41
8.4 Tax Audits .................................................. 42
ARTICLE 9
Miscellaneous ..................................................... 42
9.1 Collateral Agreements, Amendments and Waivers ............... 42
9.2 Successors and Assigns ...................................... 43
9.3 Expenses .................................................... 43
9.4 Invalid Provisions .......................................... 43
9.5 Information and Confidentiality ............................. 44
9.6 Waiver ...................................................... 44
9.7 Notices ..................................................... 45
9.8 Survival of Representations and Warranties .................. 46
9.9 Further Assurances .......................................... 46
9.10 No Third-Party Beneficiaries ................................ 46
9.11 Governing Law ............................................... 46
9.12 Remedies Not Exclusive ...................................... 46
</TABLE>
iii
<PAGE> 5
EXHIBITS
A - Employment Agreement - Carl S. Moses
B - Employment Agreement - Cynthia A. Moses
C - Closing and Holdback Agreement
D - Opinion of Cribbs & McFarland
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into as
of March 31, 2000, by and among Park Pharmacy Corporation, a Colorado
corporation ("Parent"), Total Acquisition Corporation, a Texas corporation
("Merger Sub"), Total Pharmacy Supply, Inc., a Texas corporation (the
"Company"), and Carl S. Moses and Cynthia A. Moses (collectively, the
"Shareholders").
The parties hereto agree as follows:
ARTICLE 1
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in accordance with the Texas Business Corporation Act (the
"TBCA"), Merger Sub shall be merged with and into the Company (the "Merger") on
the Closing Date (as herein defined). Following the Merger, the Company shall
continue as the surviving corporation (hereinafter sometimes called the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Texas, and the separate existence of Merger Sub shall
cease. The name of the Surviving Corporation shall continue to be "Total
Pharmacy Supply, Inc." It is the intent of the parties hereto that the Merger
shall qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
1.2 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Carrington, Coleman, Sloman & Blumenthal, L.L.P., 200 Crescent
Court, Suite 1500, Dallas, Texas 75201, at 10:00 a.m., local time, on March 31,
2000, or at such other time and place and/or on such other date, as the parties
hereto may agree upon in writing. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
<PAGE> 7
1.3 Effective Time. As soon as practicable following the Closing, the
Merger shall be consummated by the filing of articles of merger (the "Articles
of Merger"), in such form as required by, and executed in accordance with, the
relevant provisions of the TBCA, with the Secretary of State of the State of
Texas in accordance with Article 5.04 of the TBCA. The Articles of Merger shall
provide that the Merger shall be effective as of 12:01 a.m., April 1, 2000 (the
"Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth
in Article 5.06 of the TBCA.
1.5 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall, pursuant to the Merger and without any further
action by the Surviving Corporation or its shareholders, be amended to read in
its entirety as the Articles of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time, except that Article I of the Articles
of Incorporation of the Surviving Corporation shall read as follows: "The name
of the Corporation is Total Pharmacy Supply, Inc.," until thereafter amended in
accordance with the TBCA.
1.6 Bylaws. The bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the bylaws of the Surviving Corporation, until
amended as therein provided.
1.7 Officers and Directors. The officers and directors of Merger Sub
immediately prior to the Effective Time shall be the officers and directors of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and bylaws of the Surviving Corporation until their successors
have been duly elected and qualified in accordance with the Articles of
Incorporation and bylaws of the Surviving Corporation and the applicable
provisions of the TBCA.
1.8 Subsequent Action. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions
2
<PAGE> 8
or things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of either of the Company or Merger
Sub acquired or to be acquired by the Surviving Corporation as a result of, or
in connection with the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Company and Merger
Sub or otherwise, all such deeds, bills of sale, assignments and assurances and
to take and do, in the name and on behalf of each of the Company and Merger Sub
or otherwise, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement.
1.9 Definitions. All financial terms used herein shall have the
meanings ascribed to them in accordance with generally accepted accounting
principles consistently applied ("GAAP"). All terms capitalized herein are
defined the first time they are used, except as otherwise noted.
ARTICLE 2
MERGER CONSIDERATION; DEBT REPAYMENT; CURRENT YEAR EARNINGS
2.1 Merger Consideration. At the Closing, Parent shall, subject to the
terms of that certain Closing and Holdback Agreement executed in connection
herewith, issue and deliver to Shareholders that number of shares of Series A
Preferred Stock, par value $.001 per share, of Parent (the "Parent Preferred
Shares") arrived at by dividing the Measuring Number of Common Shares (as
defined herein) by ten (10). The "Measuring Number of Common Shares" shall be
the number of shares of Common Stock, par value $.0001 per share, of Parent (the
"Common Stock") determined by dividing One Million, One Hundred Thousand and
No/100 Dollars ($1,100,000) by the Target Price Per
3
<PAGE> 9
Common Share (as defined below). The Target Price Per Common Share shall be
equal to the lesser of (i) the average price per share at which the shares of
Common Stock were traded on the Over-The-Counter Bulletin Board Market as of the
close of business on the five (5) trading days immediately preceding the Closing
Date, and (ii) $3.00. No fractional Parent Preferred Shares shall be issued but
instead cash in an amount equal to the value of such fractional Parent Preferred
Share shall be paid.
2.2 Debt Repayment At Closing. At the Closing, Parent shall, or shall
cause the Surviving Corporation or the Company to repay in full the following
indebtedness for borrowed money:
(a) that certain loan from Frost Bank to the Company, the
principal balance of which, and accrued but unpaid interest thereon, as
of the date of this Agreement is $85,000 and $63.75, respectively (the
"Frost Loan #1"); and
(b) that certain loan from Frost Bank to the Company, the
principal balance of which, and the accrued but unpaid interest
thereon, as of the date of this Agreement is $450,000 and $773.32,
respectively (the "Frost Loan #2").
(c) It shall be a condition to the Parent's obligation under
this Section 2.2 that Frost Bank return all promissory notes evidencing
the Frost Loan #1 and the Frost Loan #2 (collectively, the "Frost
Loans"), in each case marked "Paid in Full."
2.3 S-Corporation Earnings. Prior to the Closing, the Company will
distribute to the Shareholders the year-to-date net income of the Company for
calendar year 2000 up to, but not to exceed, an amount of $50,000.
4
<PAGE> 10
ARTICLE 3
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
3.1 Status and Conversion of Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders thereof:
(a) Each share of common stock, $.10 par value per share, of
the Company (the "Company Common Stock" or the "Shares") which is held
by the Company (the "Treasury Shares") shall be canceled and retired
without payment of any consideration therefor;
(b) Each 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, be canceled
and converted exclusively into the right to receive that number of
Parent Preferred Shares equal to the total number of shares of Parent
Preferred Shares to be issued in the Merger pursuant to Section 2.1
divided by the total number of shares of Company Common Stock issued
and outstanding at the Effective Time.
(c) Each issued and outstanding share of capital stock of
Merger Sub shall be converted into one fully paid and nonassessable
share of common stock, $.01 par value per share, of the Surviving
Corporation.
3.2 Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made. If after the Effective Time
certificates previously representing shares of Company Common Stock are
presented to the Surviving Corporation or its transfer agent, they shall be
canceled and exchanged for the Merger Consideration.
5
<PAGE> 11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Shareholders and the Company as
follows (with the understanding that Shareholders and the Company are relying
materially on such representations and warranties in entering into and
performing this Agreement):
4.1 Due Organization. Parent is a corporation, validly existing and in
good standing under the laws of the State of Colorado, and has full corporate
power and authority to enter into and perform this Agreement and each other
instrument, agreement and document to be executed by it in connection herewith.
Merger Sub is a corporation validly existing and in good standing under the laws
of the State of Texas, and has full corporate power and authority to enter into
and perform this Agreement and other instrument, agreement and document to be
executed by it in connection herewith.
4.2 Due Authorization. The execution, delivery and performance of this
Agreement and such other agreements, instruments and documents to be executed in
connection herewith by Parent and Merger Sub have been duly authorized by the
Board of Directors of Parent and Merger Sub. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and constitutes a valid
and binding obligation of Parent and Merger Sub enforceable in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally and the application of general principles of equity. The
execution, delivery and performance of this Agreement by Parent and Merger Sub
will not (a) violate any federal, state, county or local law, rule or regulation
applicable to Parent and Merger Sub or its property, (b) violate or conflict
with, or permit the cancellation of,
6
<PAGE> 12
any agreement to which Parent or Merger Sub is a party or by which it or its
property is bound, (c) permit the acceleration of the maturity of any
indebtedness of, or any indebtedness secured by the property of, Parent or
Merger Sub, or (d) violate or conflict with any provision of Parent's or Merger
Sub's articles of incorporation or by-laws. No action, consent or approval of or
filing with any federal, state, county or local governmental authority is
required in connection with the execution, delivery or performance of this
Agreement (or any other agreement, instrument or document executed in connection
herewith by Parent or Merger Sub), except for filings required under applicable
federal and state securities laws.
4.3 Brokers. Neither Parent or Merger Sub has engaged, or caused to be
incurred any liability to, any finder, broker or sales agent in connection with
the execution, delivery or performance of this Agreement or the transactions
contemplated hereby (except that any fee payable to Hoak Breedlove Wesneski &
Co. shall be payable by Parent).
4.4 Investment Representation. Parent is acquiring the Shares for
Parent's own account for investment and not with a view to, or for sale or other
disposition in connection with, any distribution of all or any part thereof,
except (i) in an offering covered by a registration statement filed with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act") covering such Shares or (ii) pursuant to an
applicable exemption under the Securities Act. In acquiring the Shares, Parent
is not offering or selling and will not offer or sell, for the Company in
connection with any distribution of the Shares, and Parent has no participation
and will not participate in any such undertaking or in any underwriting of such
an undertaking except in compliance with applicable federal and state securities
laws. Parent represents that Parent has had an opportunity to ask questions of
and receive answers from Shareholders
7
<PAGE> 13
regarding the Company and its business, assets, results of operation, and
financial condition and the terms and conditions of the sale of the Shares.
Parent is an "accredited investor" as such term is defined in Regulation D under
the Securities Act.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND THE COMPANY
Shareholders and the Company hereby jointly and severally represent and
warrant to Parent and Merger Sub as follows (with the understanding that Parent
and Merger Sub are relying materially on each such representation and warranty
in entering into and performing this Agreement):
5.1 Capitalization; Ownership of Shares; No Liens on Shares. The
authorized capital stock of the Company consists of 1,000,000 shares of common
stock, par value $.10 per share, 10,500 of which are issued and outstanding. All
such issued and outstanding Shares are duly authorized, validly issued, fully
paid and nonassessable. All of the Shares are owned of record and beneficially
by Shareholders as set forth on Schedule 5.1 attached hereto. None of the Shares
were issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any person. Each Shareholder is the true
and lawful owner, of record and beneficially, of his or her Shares, free and
clear of any liens, restrictions, security interests, claims, rights of another
or encumbrances; none of the Shares are subject to any outstanding options,
warrants, calls or similar rights of any other person to acquire the same; none
of the Shares are subject to any restrictions on transfer thereof; and each
Shareholder has the full power and authority to convey, and will convey to
Parent at Closing, good and marketable title to his or her Shares, free and
clear of any liens, restrictions, security interests, claims, rights of another
or encumbrances.
8
<PAGE> 14
5.2 Other Rights to Acquire Capital Stock. There are no authorized or
outstanding warrants, options or rights of any kind to acquire from the Company
or any Shareholder any equity or debt securities of the Company or securities
convertible into or exchangeable for equity or debt securities of the Company.
5.3 Due Organization. The Company is a corporation, validly existing
and in good standing under the laws of the State of Texas and has full power and
authority to carry on its business as now conducted. The Company is qualified to
do business and is in good standing in all jurisdictions where such
qualification is required except where failure to be so qualified would not have
a material adverse effect on the business, properties or assets of the Company.
5.4 Subsidiaries. The Company does not directly or indirectly have (or
possess any options or other rights to acquire) any subsidiaries or any direct
or indirect ownership interests in any person, business, corporation,
partnership, association, joint venture, trust or other entity.
5.5 Due Authorization.
(a) The Company has full corporate power and authority to
enter into and perform this Agreement and each other agreement,
instrument and document required to be executed by the Company in
connection herewith. The execution, delivery and performance of this
Agreement and such other agreements, instruments and documents have
been duly authorized by the Board of Directors of the Company.
(b) This Agreement has been duly and validly executed and
delivered by the Company and the Shareholders and constitutes a valid
and binding obligation of the Company and the Shareholders enforceable
in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization or other laws
affecting the
9
<PAGE> 15
enforcement of creditors' rights generally and the application of
general principles of equity. Upon its execution and delivery, each
other agreement, instrument and document required to be executed by the
Company or any Shareholder in connection herewith shall have been duly
and validly executed and delivered by the Company and/or the
Shareholders and shall constitute a valid and binding obligation of the
Company and/or the Shareholders enforceable in accordance with its
terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally and the application of general principles
of equity.
(c) Neither the execution, delivery and performance of this
Agreement by the Company and Shareholders, nor the execution, delivery
and performance by the Company and/or any Shareholder of each other
agreement, instrument or document required to be executed by it, him or
her in connection herewith, shall, (i) violate any federal, state,
county or local law, rule or regulation applicable to the Company, any
Shareholder, or their respective properties, (ii) violate or conflict
with, or permit the cancellation of, any agreement to which the Company
or any Shareholder is a party, or by which any of them or any of their
respective properties is bound, or result in the creation of any lien,
security interest, charge or encumbrance upon any of such properties,
(iii) permit the acceleration of the maturity of any indebtedness of,
or indebtedness secured by the property of, the Company or any
Shareholder, or (iv) violate or conflict with any provision of the
certificate or articles of incorporation, or by-laws of the Company.
(d) No action, consent or approval of or filing with any
federal, state, county or local governmental authority is required in
connection with the execution, delivery or
10
<PAGE> 16
performance of this Agreement (or any other agreement, instrument or
document executed in connection herewith by the Company or any
Shareholder), except for filings under applicable federal and state
securities laws.
5.6 Financial Statements. The following Financial Statements (herein so
called) of the Company have been delivered to Parent by the Company and
Shareholders: the unaudited balance sheets and related statements of income,
retained earnings, and cash flows of the Company as of and for the years ended
December 31, 1999, December 31, 1998, and December 31, 1997, together with the
notes thereto.
The Financial Statements have been prepared in accordance with the
Company's modified cash basis accounting principles, internally prepared,
applied on a consistent basis throughout the periods indicated and present
fairly the financial position, results of operations and changes in the
financial position of the Company as of the indicated dates and for the
indicated periods (except for the absence of notes thereto and subject to normal
year-end audit adjustments and accruals required to be made in the ordinary
course of business which are not materially adverse and are consistent with past
practices). Except to the extent reflected, disclosed or provided for in the
balance sheet included in the Financial Statements, the Company has no material
liabilities or material obligations normally reflected in financial statements
(including footnotes) prepared in accordance with the Company's modified cash
basis accounting principles, other than liabilities incurred in the ordinary
course of business subsequent to December 31, 1999; and neither the Company nor
any Shareholder has knowledge of any basis for the assertion of any such
liability or obligation. Since December 31, 1999, there has been no material
adverse change in the financial position, assets, liabilities, results of
operations or business of the Company. To the best knowledge of Shareholders,
there are no pending
11
<PAGE> 17
or proposed statutes, rules or regulations, nor any current or pending
developments or circumstances, which would have a material adverse effect on the
financial position, assets, liabilities, results of operations or business of
the Company.
5.7 Conduct of Business; Certain Actions. Except as set forth on
Schedule 5.7 attached hereto, since December 31, 1999, the Company has conducted
its business and operations in the ordinary course and consistent with its past
practices and has not (a) paid or declared any dividend or distribution or
purchased or retired any indebtedness from any shareholder thereof, or
purchased, retired or redeemed any capital stock from any shareholder, (b)
increased the compensation of any of the directors, officers or key employees
of, or consultants to, the Company or, except for wage and salary increases made
in the ordinary course of business and consistent with past practices, increased
the compensation of any other employees of the Company, (c) made any capital
expenditures, (d) sold any asset (or any group of related assets) in any
transaction (or series of related transactions) in which the purchase price for
such asset (or group of related assets) exceeded $1,500 (other than sales of
inventory in the ordinary course of business), (e) discharged or satisfied any
lien or encumbrance or paid any obligation or liability, absolute or contingent,
other than current liabilities incurred and paid in the ordinary course of
business, (f) made or guaranteed any loans or advances to any party whatsoever,
(g) suffered or permitted any lien, security interest, claim, charge or other
encumbrance to arise or be granted or created against or upon any of the assets
of the Company, real or personal, tangible or intangible, (h) canceled, waived
or released any of the Company's debts, rights or claims against third parties,
(i) amended the certificate or articles of incorporation or by-laws of the
Company, (j) made or paid any severance or termination payment to any employees
or consultants, (k) made any change in the method of accounting of the Company,
(l) made any
12
<PAGE> 18
investment or commitment therefor in any person, business, corporation,
association, partnership, joint venture, trust or other entity, (m) made,
entered into, amended or terminated any written employment or consulting
contract, created, made, amended or terminated any bonus, stock option, pension,
retirement, profit sharing or other employee benefit plan or arrangement, or
withdrawn from any "multi-employer plan" (as defined in Section 414(f) of the
Code) so as to create any liability under Article IV of ERISA (as hereinafter
defined) to any entity, (n) amended or experienced a termination of any material
contract, agreement, lease, franchise or license to which the Company is a
party, except in the ordinary course of business, (o) entered into any other
material transactions except in the ordinary course of business, (p) entered
into any contract, commitment, agreement or understanding to do any acts
described in the foregoing clauses (a)-(o) of this Section 5.7, (q) suffered any
material damage, destruction or loss (whether or not covered by insurance) to
any assets, (r) experienced any strike, slowdown or demand for recognition by a
labor organization by or with respect to any of the employees of the Company, or
(s) experienced or effected any shutdown, slow-down or cessation of any
operations conducted by, or constituting part of, the Company.
5.8 Properties. Schedule 5.8 attached hereto contains a complete and
accurate list and brief description of all real property owned or leased by the
Company. With respect to each lease so set forth: (a) the lease has been validly
executed and delivered by the Company and, to the knowledge of the Company and
each Shareholder, by the other party or parties thereto, and is in full force
and effect; (b) neither the Company, nor to the knowledge of the Company and
each Shareholder, any other party to the lease, is in material breach or
default, and no event has occurred on the part of the Company and each
Shareholder, or to the knowledge of the Company, on the part of any other party,
13
<PAGE> 19
which, with notice or lapse of time, would constitute such a breach or default
or permit termination, modification or acceleration under the lease; (c) to the
knowledge of the Company and each Shareholders, the lease will continue to be
binding in accordance with its terms following the Closing; (d) the Company has
not repudiated and no other party to the lease has repudiated, any provision
thereof; (e) there are no written notices of disputes, oral agreements or
delayed payment programs in effect as to the lease; and (f) all facilities
leased thereunder have been approved by all necessary Government Entities, and
are in good condition, working order and repair.
5.9 Tangible Property. Except as set forth in Schedule 5.9 attached
hereto, the Company has good and legal title to, or a valid leasehold interest
in, each item of tangible property, whether real, personal or mixed, reflected
on its books and records as owned or used by it, subject to no encumbrances,
loans, security interests, mortgages or pledges except those which arise by
matter of law or in the ordinary course of business, which are inventory sold
subsequent to the date of entry on the books and which sales are not entered in
the books of the Company on the date of this Agreement or the Closing Date, or
which are set forth in Schedule 5.9.
5.10 Environmental Matters. Except as set forth in Schedule 5.10, (i)
the Company is in compliance with all applicable Environmental Laws; (ii) the
Company has not received any written notices from any Governmental Entity or any
other person or entity alleging the violation of any applicable Environmental
Law; (iii) the Company is not the subject of any court order, administrative
order or decree arising under any Environmental Law; (iv) there has not been a
release of Hazardous Substances (as defined below) on any of the properties
owned or leased by the Company; and (v) the Company has not generated, stored,
used, emitted, discharged or disposed of any Hazardous Substances in violation
of or giving rise to liability under applicable Environmental Laws.
14
<PAGE> 20
As used herein, "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit, order,
decree or injunction relating to the protection of the environment (including
air, water, soil and natural resources), or regulating or imposing standards of
care with respect to the use, storage, handling, release or disposal of any
Hazardous Substance, including petroleum.
As used herein, "Hazardous Substance" means any substance listed,
defined, designated, regulated or classified as hazardous, toxic or radioactive
under any applicable Environmental Law, including petroleum and petroleum
products.
5.11 Licenses and Permits. Attached hereto as Schedule 5.11 is a list
of all federal, state, county and local governmental licenses, certificates and
permits held or applied for by the Company. Except as set forth on Schedule 5.11
attached hereto, the Company has complied in all material respects, and is in
compliance in all material respects, with the terms and conditions of all such
licenses, certificates and permits and no violation of any such licenses,
certificates or permits or the laws or rules governing the issuance or continued
validity thereof has occurred. No additional license, certificate or permit is
required from any federal, state, county or local governmental agency or body
thereof in connection with the conduct of the business of the Company which, if
not obtained, would materially and adversely affect the business or properties
of the Company. Except as set forth on Schedule 5.11 attached hereto, no claim
has been made or threatened by any governmental authority (and, to the best
knowledge of Shareholders, no such claim is anticipated) to the effect that a
license, permit or order is necessary in respect of the business conducted by
the Company.
15
<PAGE> 21
5.12 Proprietary Rights. Schedule 5.12 attached hereto lists all
Proprietary Rights used in or necessary to the business of the Company as now
being conducted. Except as set forth in Schedule 5.12, the Company owns or has
the right to use all material Proprietary Rights necessary to the conduct of its
business as presently conducted. Except as indicated in Schedule 5.12, (a) the
Company owns all right, title, and interest in and to or a valid and enforceable
license or waiver to use all of such material Proprietary Rights, trade secrets
and confidential information and other proprietary rights, (b) there are no
outstanding claims received by the Company asserting the invalidity, abuse,
misuse, or unenforceability of any of such rights by the Company, and, to the
Company's and each Shareholder's knowledge, there are no grounds for the same,
and (c) to the knowledge of the Company and each Shareholder, the conduct of the
Company's business has not infringed any such rights of others. All of the
material patents, trademarks and copyrights owned by the Company have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office or Register of Copyrights or the corresponding offices of other
countries, and have been properly maintained and renewed, consistent with
prudent business practices, in accordance with all applicable provisions of law
and administrative regulations in the United States and each such country. The
term "Proprietary Rights" means any patents, patent applications, patent
disclosures and inventions as well as any reissues, continuations,
continuations-in-part, divisions, extensions or reexaminations thereof;
trademarks, service marks, trade dress, logos, trade names and corporate names,
together with all goodwill associated therewith, copyrights and copyrightable
works; mask works; and registrations, applications and renewals for any of the
foregoing; computer software; and all copies and tangible embodiments of the
foregoing (in whatever form or medium), Internet domain
16
<PAGE> 22
names, service marks, registered trade names and applications for each of the
foregoing, if any, subject to licenses described herein.
5.13 Compliance with Laws. The Company has complied in all material
respects, and is in compliance in all material respects, with all federal,
foreign, state, county and local laws, regulations and orders applicable to its
businesses and have filed with the proper authorities all statements and reports
required by the laws, regulations and orders to which the Company or any of its
properties or operations are subject, except where the failure to so comply will
not have a material adverse effect on the Company or its assets, or prospects.
No claim has been made or threatened by any governmental authority (and, to the
best knowledge of Shareholders, no such claim is anticipated) to the effect that
the business conducted by the Company fails to comply, in any respect, with any
law, rule, regulation or ordinance.
5.14 Insurance. Attached hereto as Schedule 5.14 is a list of all
policies of fire, liability, business interruption and other forms of insurance
and all fidelity bonds held by or applicable to the Company at any time within
the past three years, which schedule sets forth in respect of each such policy
the policy name, policy number, carrier, term, type of coverage, deductible
amount or self-insured retention amount, limits of coverage and annual premium.
Except as set forth on Schedule 5.14 attached hereto, no event relating to the
Company has occurred that will result in a retroactive upward adjustment of
premiums under any such policies or that is likely to result in any prospective
upward adjustment in such premiums. The insurance currently held by the Company
is in such amount and is of such type and scope as is customary for a company in
the industry in which the Company is engaged.
17
<PAGE> 23
5.15 ERISA Compliance. Except as set forth in Schedule 5.15 attached
hereto, the Company does not maintain or contribute to any "employee pension
benefit plans" ("Pension Plans"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Except as
set forth in Schedule 5.15 attached hereto, the Company is not subject to
liability for any obligation of any Pension Plan which the Company maintains or
formerly maintained or to which the Company contributes or formerly was required
to contribute. None of the Company or any of the Pension Plans of the Company
which are subject to ERISA, or any trusts created thereunder, or any trustee or
administrator thereof, has engaged in, or permitted the assets of any such plan
or trust to be involved in, a "prohibited transaction", as such term is defined
in Section 4975 of the Code or Sections 406 and 407 of ERISA, which could
subject the Company, any of such plans or any trust to any material tax or
penalty on prohibited transactions imposed by Section 4975 of the Code or which
would have a material adverse effect on the Company. Except as set forth in
Schedule 5.15 attached hereto, the Company is not obligated to provide any
benefit under any of the "employee welfare benefit plans", as such term is
defined in Section 3(1) of ERISA, which the Company maintains ("Welfare Plans"),
or to which the Company is obligated to contribute, to any retiree from the
Company, except to the extent that such benefits may be required by the
continuation coverage provisions of Part 6 of Title I of ERISA and Section 4980B
of the Code. Each Welfare Plan subject to such continuation coverage
requirements has complied in all material respects with such continuation
coverage requirements. Except as set forth in Schedule 5.15 attached hereto, the
Company is not, and has not been, a contributing employer to any "multiemployer
plan" (without regard to whether it was a Pension Plan or a Welfare Plan), as
such term is defined in Section 3(37) or Section 4001(a)(3) of ERISA, or to any
"multiple employer plan" within the meaning of Section
18
<PAGE> 24
413(c) of the Code. The Company has not withdrawn from such a plan, and is not
subject to any withdrawal liability with respect to any such plan. All Welfare
Plans, Pension Plans and the Company have timely complied with the requirements
of Part I of Title I of ERISA and currently comply and have complied in the
past, both as to form and operation, with ERISA, the Code and all other
applicable laws, and with all applicable Statements of Financial Accounting
Standards, including Statements 87 and 106.
5.16 Contracts and Agreements. Attached hereto as Schedule 5.16 is a
list of all written or oral contracts, commitments, leases and other agreements
(including, without limitation, promissory notes, loan agreements and other
evidences of indebtedness) to which the Company is a party or by which the
Company or its properties are bound, pursuant to which the obligations
thereunder of either party thereto are, or are contemplated or estimated as
being, in respect of any such individual contracts, commitments, leases or other
agreements during the term thereof, $2,500 or greater, or which are otherwise
material to the business of the Company. The Company is not, and, to the best
knowledge of the Company and each Shareholder, no other party thereto, is in
default (and no event has occurred which, with the passage of time or the giving
of notice or both, would constitute a default) under any such contracts,
commitments, leases or other agreements, and the Company has not waived any
right under any such contracts, commitments, leases or other agreements. None of
such contracts, commitments, leases or other agreements are leases in connection
with which an election was made under Section 168(f)(8) of the Code. Except as
set forth on Schedule 5.16 attached hereto, the Company has not guaranteed any
obligations of any other person.
19
<PAGE> 25
5.17 Claims and Proceedings. Attached hereto as Schedule 5.17 is a list
and description of all claims, actions, suits, proceedings and investigations
pending or threatened against the Company or any of its properties or assets, at
law or in equity, or before or by any court, municipal or other governmental
department, commission, board, agency or instrumentality. Except as set forth on
Schedule 5.17 attached hereto, none of such pending or threatened claims,
actions, suits, proceedings or investigations will result in any liability or
loss to the Company which (individually or in the aggregate) is material to the
Company, and the Company is not now subject to any order, judgment, decree,
stipulation or consent of any court, governmental body or agency. No inquiry,
action or proceeding has been asserted, instituted or, to the best knowledge of
Shareholders, threatened to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof. There is
no basis for any such valid claim or action or any other claims or actions that
would, or could reasonably be expected to (individually or in the aggregate),
have a material adverse effect on the business, operations or financial
condition of the Company or result in a material liability of the Company.
5.18 Taxes. All federal, foreign, state, county and local income, gross
receipts, excise, franchise, license and withholding tax (collectively, "Taxes")
returns, reports and declarations of estimated tax (collectively, "Returns")
which were originally due to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Returns are true and correct and accurately reflect the Tax liabilities
of the Company. All Taxes, assessments, penalties and interest which have become
due pursuant to such Returns have been paid or adequately accrued in the
Financial Statements. All ad valorem or property taxes that have been
20
<PAGE> 26
assessed have also been paid or adequately accrued in the Financial Statements.
Sales and use taxes have been paid, and all returns and reports made with
respect thereto, in all jurisdictions where the Company has offices or maintains
operations and in other jurisdictions where taxing authorities have required
such payments, returns or reports. The provisions for Taxes, including ad
valorem, property, sales and use taxes (collectively, "Other Taxes"), reflected
on the balance sheet contained in the Financial Statements are adequate to cover
all of the Company's estimated liabilities for Taxes and Other Taxes for the
respective periods then ended and all prior periods. The Company has not
executed any presently effective waiver or extension of any statute of
limitations against assessment and collection of Taxes or Other Taxes. There are
no pending or threatened claims, assessments, notices, proposals to assess,
deficiencies or audits (collectively, "Tax Actions") with respect to any Taxes
or Other Taxes owed or allegedly owed by the Company. To the best knowledge of
the Company and each Shareholder, there is no basis for any Tax Actions. There
are no tax liens on any of the assets of the Company. To the best knowledge of
the Company and each Shareholder, proper and accurate amounts have been withheld
and remitted by the Company from and in respect of all persons from whom it is
required by applicable law to withhold for all periods in compliance with the
tax withholding provisions of all applicable laws and regulations. The Company
utilizes the accrual method of accounting for federal income tax purposes.
5.19 Personnel. Attached hereto as Schedule 5.19 is a list of the names
and annual rates of compensation of the directors and officers of the Company,
and of the employees of the Company whose annual rates of compensation for the
calendar year ending December 31, 1999 (including base salary, bonus,
commissions and incentive pay) exceeded $40,000. Schedule 5.19 attached hereto
also sets forth the bonus, company automobile, club membership and other like
benefits, if any, paid
21
<PAGE> 27
or payable to the directors, officers and employees of the Company during the
Company's 1999 fiscal year and to the date hereof and/or under which such
directors, officers and employees are entitled to receive benefits. Schedule
5.19 attached hereto also contains a list of all employment agreements, deferred
compensation agreements, consulting agreements and confidentiality agreements to
which the Company is a party, and all severance benefits which any director,
officer, consultant or employee of the Company is or may be entitled to receive.
The employee relations of the Company are good and there is no pending or
threatened labor dispute or union organization campaign. None of the employees
of the Company are represented by any labor union or organization. The Company
is in compliance in all material respects with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours and are not engaged in any unfair labor
practices. There is no unfair labor practice claim against the Company before
the National Labor Relations Board or any strike, labor dispute, work slowdown
or work stoppage pending or threatened against or involving the Company.
5.20 Business Relations. Shareholders do not know or have any reason to
believe that any customer or vendor of the Company will, as a result of the
transactions contemplated hereby, cease to do business with the Company after
the consummation of the transactions contemplated hereby in the same manner as
previously conducted with the Company. The Company has not received notice from
any of its customers or vendors that any such customer or vendor will, for any
reason, cease to do business with the Company after the date hereof in the same
manner as previously conducted with the Company. The Company has not received
any notice of any disruption (including delayed deliveries or allocations by
vendors) in the availability of the products used by the Company,
22
<PAGE> 28
nor is the Company aware of any facts which could lead it to believe that the
business of the Company will be subject to any such material disruption.
5.21 Accounts Receivable. As of the date of this Agreement there are
properly reflected on its books and records, all notes receivable and accounts
receivable of the Company. Schedule 5.21 attached hereto is a complete list of
all notes receivable and accounts receivable of the Company as of March 31,
2000. All of such notes and accounts are valid receivables free and clear of any
security interests, liens, encumbrances or other charges; none of such notes or
accounts receivable are subject to any offsets or claims of offset; and no
obligor of any such note or account receivable exceeding $1,000 has given notice
that it will or may refuse to pay the full amount thereof or any portion
thereof. All such receivables are collectable in the ordinary course of business
for the Company.
5.22 Bank Accounts. Attached hereto as Schedule 5.22 is a list of all
banks or other financial institutions with which the Company has an account or
maintains a safe deposit box, showing the type and account number of each such
account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
5.23 Agents. Except as set forth on Schedule 5.23 attached hereto, the
Company has not designated or appointed any person or other entity to act for it
or on its behalf pursuant to any power of attorney or any agency that is
presently in effect.
5.24 Indebtedness To and From Officers, Directors, Shareholders and
Employees. The Company does not owe any indebtedness to any of its officers,
directors, shareholders or employees (other than accrued salaries or benefits
payable in the ordinary course of business) or has indebtedness owed to it from
any of its officers, directors, shareholders or employees, excluding
indebtedness for travel advances or similar advances (not exceeding $1,000 per
individual) for expenses incurred on
23
<PAGE> 29
behalf of and in the ordinary course of business of the Company and consistent
with the Company's past practices.
5.25 Certain Consents. There are no consents, waivers or approvals
required to be executed and/or obtained from third parties in connection with
the execution, delivery and performance by the Company or any Shareholder of
this Agreement and each other agreement, instrument and document required to be
executed by it, him or her in connection herewith, and the transactions
contemplated hereby or thereby.
5.26 Brokers. None of Shareholders, or the Company has engaged, or
caused any liability to be incurred to, any finder, broker or sales agent in
connection with the execution, delivery or performance of this Agreement or the
transactions contemplated hereby.
5.27 Interest in Competitors, Vendors and Customers. No officer or
director of the Company or any affiliate of any such officer or director has any
ownership interest in any competitor, vendor or customer of the Company or any
property used in the operation of the business of the Company.
5.28 Inventory. The inventories shown on the balance sheet contained in
the Financial Statements consist of (and the inventories of the Company on the
Closing Date shall consist of) items of a quality and quantity reasonably usable
or saleable in the ordinary course of business by the Company. Attached to
Schedule 5.28 is a list of inventory as of March 31, 2000.
5.29 Warranties. Attached hereto as Schedule 5.29 is a list and brief
description of all warranties and guarantees made by the Company to third
parties with respect to any products sold or services rendered by it. Except as
set forth on Schedule 5.29 attached hereto, no claims for breach of product or
service warranties to customers have been made against the Company since
24
<PAGE> 30
December 31, 1998. To the best knowledge of Shareholders, no state of facts
exists, or event has occurred, which may form the basis of any present claim
against the Company for liability on account of any express or implied warranty
to any third party.
5.30 Customers and Vendors. Schedule 5.30 attached hereto is a true and
complete list of all suppliers of the Company to whom the Company made payments
during the fiscal year ended December 31, 1999, in excess of five percent (5%)
of the Company's revenues for such year and all customers of the Company that
paid the Company, during the fiscal year ended December 31, 1999 more than five
percent (5%) of the revenues of the Company for such year. Since January 31,
1999, no such supplier or the Company has, or has indicated that it will, stop,
or decrease materially the rate of, supplying materials, products or services to
the Company, and no such customer of the Company has materially decreased or
ceased their business with the Company, or has indicated that it will materially
decrease or cease doing business with the Company.
5.31 Information Furnished. Shareholders and the Company have made
available to Parent and its officers, attorneys, accountants and representatives
true and correct copies of all agreements, documents and other items listed on
the schedules to this Agreement and all books and records of the Company, and
neither this Agreement, the schedules attached hereto nor any information,
agreements or documents delivered to or made available to Parent or its
officers, attorneys, accountants or representatives pursuant to this Agreement
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements herein or therein, as the case may be, not
misleading.
5.32 Questionable Payments. The Company has not directly or indirectly
(i) used corporate funds for unlawful contributions, gifts, entertainment, or
for other unlawful expenses relating to
25
<PAGE> 31
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (iii) violated or is in violation of any
provision or the Foreign Corrupt Practices Act of 1977 applicable to the conduct
of their business, or (iv) established or maintained any unlawful or unrecorded
fund of corporate monies or other assets.
5.33 Year 2000. All hardware and internally developed software systems
and third-party supplied software, owned or licensed and utilized by the Company
in its business are "Year 2000 Compliant," i.e., they shall be capable of
performing proper date-related processing prior to, in or beyond the year 2000,
and shall not cease to operate or operate abnormally or incorrectly as a result
of not being Year 2000 Compliant where such cessation or abnormal or incorrect
operating may have an adverse impact on its operations.
5.34 Investment Intent. Each of the Shareholders are acquiring the
Parent Preferred Shares for such Shareholder's own account for investment and
not with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof, except (i) in an offering covered by a
registration statement filed with the SEC under the Securities Act covering such
shares or (ii) pursuant to an applicable exemption under the Securities Act. In
acquiring the Parent Preferred Shares, neither of the Shareholders is offering
or selling or will offer or sell, for the Parent in connection with any
distribution of the Parent Preferred Shares, and neither of the Shareholders has
a participation or will participate in any such undertaking or in any
underwriting of such an undertaking except in compliance with applicable federal
and state securities laws. Each of the Shareholders acknowledges that such
Shareholder or such Shareholder's representatives have been furnished with
substantially the same kind of information regarding the Company and its
business,
26
<PAGE> 32
assets, results of operation, and financial condition as would be contained in a
registration statement prepared in connection with a public sale of the Parent
Preferred Share. Each of the Shareholders further represents that such
Shareholder has had an opportunity to ask questions of and receive answers from
Parent regarding Parent and its business, assets, results of operation, and
financial condition and the terms and conditions of the issuance of the Parent
Preferred Shares. Each of the Shareholders acknowledges that such Shareholder is
able to fend for himself or herself, can bear the economic risk of its
investment in the Parent Preferred, and has such knowledge and experience in
financial and business matters that such Shareholder is capable of evaluating
the merits and risks of an investment in the Parent Preferred Shares. Each of
the Shareholders is an "accredited investor" as such term is defined in
Regulation D under the Securities Act.
5.35 Restricted Securities. Each of the Shareholders understands that
the Parent Preferred Shares have not been registered pursuant to the Securities
Act or any applicable state securities laws, that the Parent Preferred Shares
will be characterized as "restricted securities" under federal securities laws,
and that under such laws and applicable regulations the Parent Preferred Shares
cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom. In this connection, each of the
Shareholders represents that such Shareholder is familiar with Rule 144
promulgated under the Securities Act, as currently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. Stop transfer
instructions may be issued to the transfer agent for securities of Parent (or a
notation may be made in the appropriate records of the Company) in connection
with the Parent Preferred Shares.
5.36 Legend. It is agreed and understood by each of the Shareholders
that the certificates representing the Parent Preferred Shares shall each
conspicuously set forth on the face or back
27
<PAGE> 33
thereof, in addition to any legends required by applicable law or other
agreement, a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
5.37 Frost Loans. The amount of the Frost Loans set forth in Section
2.2 is true and correct.
5.38 Tax Treatment. Shareholders acknowledge that they are represented
by counsel in this transaction and are not relying on any statements or
representations from Parent or its agents with respect to the treatment of this
transaction as a tax-free reorganization under the Code.
ARTICLE 6
COVENANTS
6.1 Inspection. From the date hereof to the Closing, Shareholders shall
give and cause the Company to give to Parent and its officers, attorneys,
accountants and representatives free, full and complete access on reasonable
notice during reasonable business hours to all books, records, tax returns,
files, correspondence, personnel, facilities and properties of the Company;
provide Parent and its officers, attorneys, accountants and representatives all
information and material pertaining to the business and affairs of the Company
as Parent may deem reasonably necessary or appropriate; without limiting the
generality of the foregoing, cause the Company to permit Hein & Associates,
L.L.P. to
28
<PAGE> 34
audit the Company's financial statements for a fiscal period ended not later
than December 31, 1999; and use their reasonable efforts to afford Parent and
its officers, attorneys, accountants and representatives the opportunity to meet
with the customers, employees and vendors of the Company to discuss the
business, condition (financial or otherwise), operations and prospects of the
Company; provided, however, that neither Parent nor any of its representatives
shall contact any customer or vendor of the Company without the prior consent of
Shareholders. At the Closing, Shareholders shall deliver to Parent the originals
of all minute books and stock transfer records of the Company. Any investigation
by Parent or its officers, attorneys, accountants or representatives shall not
in any manner affect the representations and warranties of Shareholders and the
Company contained herein.
6.2 Compliance by the Company and Shareholders. From the date hereof to
the Closing, neither the Shareholders nor the Company shall take or fail to take
any action, which action or failure to take such action would cause the
representations and warranties made by Shareholders and the Company herein to be
untrue or incorrect as of the Closing.
6.3 Satisfaction of All Conditions Precedent to the Obligations of
Parent. From the date hereof to the Closing, each Shareholder and the Company
shall use his, her or its best efforts to cause all conditions precedent to the
obligations of Parent hereunder to be satisfied by the Closing.
6.4 No Solicitation. From the date hereof to the Closing, neither the
Company nor any Shareholder shall offer any of the Shares, or the Company (or a
material part of its assets in one transaction or a series of transactions) for
sale or lease, or solicit offers to buy or lease the Shares, or the Company (or
a material part of its assets in one transaction or in a series of related
transactions) or hold discussions with or provide any information to any party
(other than Parent) looking toward such an offer or solicitation or toward a
merger, share exchange, consolidation or
29
<PAGE> 35
combination of the Company with or into another entity or any similar
transaction. From the date hereof to the Closing, Shareholders shall not, and
shall not allow the Company to, enter into any agreement with any party other
than Parent with respect to the sale, lease or other disposition of either the
capital stock or the assets of the Company or with respect to any merger, share
exchange, consolidation, combination or similar transaction involving the
Company.
6.5 Notice of Developments. From the date hereof to the Closing,
Shareholders and the Company shall notify Parent of any material problems or
developments with respect to the business, operations or prospects of the
Company.
6.6 Notice by Shareholders and the Company of Breach. From the date
hereof to the Closing, Shareholders and the Company shall, immediately upon
becoming aware thereof, give detailed written notice to Parent of the occurrence
of, or the impending or threatened occurrence of, any event which would cause or
constitute a breach, or would have caused or constituted a breach had such event
occurred or been known to any Shareholder or the Company prior to the date of
this Agreement, of any of their covenants, agreements, representations or
warranties contained or referred to herein or in any document delivered in
accordance with the terms hereof.
6.7 Notice by Shareholders and the Company of Litigation. From the date
hereof to the Closing, immediately upon becoming aware thereof, Shareholders and
the Company shall notify Parent of (a) any suit, action or proceeding to which
the Company becomes a party or which is threatened against the Company, (b) any
order or decree or any complaint praying for an order or decree restraining or
enjoining the consummation of this Agreement or the transactions contemplated
hereby, or (c) any notice from any tribunal of its intention to institute an
investigation into, or to institute a suit or proceeding to restrain or enjoin
the consummation of, this Agreement or the
30
<PAGE> 36
transactions contemplated hereby or to nullify or render ineffective this
Agreement or such transactions if consummated.
6.8 Updating Information. As of the Closing, Shareholders and the
Company shall update all information set forth in the schedules attached to this
Agreement.
6.9 Interim Operations of the Company.
(a) From the date hereof to the Closing, Shareholders shall
cause the Company to conduct its businesses only in the ordinary course
consistent with past practices, and the Company shall not, unless
Parent gives its prior written approval, (i) amend or otherwise change
its certificate or articles of incorporation or by-laws, as each such
document is in effect on the date hereof, (ii) issue or sell, or
authorize for issuance or sale, additional shares of any class of
capital stock or issue, grant or enter into any subscription, option,
warrant, right, convertible security or other agreement or commitment
of any character obligating the Company to issue securities, (iii) in
the case of the Company, declare, set aside, make or pay any dividend
or other distribution with respect to its capital stock, (iv) redeem,
purchase or otherwise acquire, directly or indirectly, any of its
capital stock, (v) authorize any capital expenditures, or sell, pledge,
dispose of or encumber, or agree to sell, pledge, dispose of or
encumber, any assets of the Company, except for sales of assets in the
ordinary course of business, (vi) acquire (by merger, share exchange,
consolidation, combination or acquisition of stock or assets) any
corporation, partnership or other business organization or division
thereof or enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing, (vii) incur any
indebtedness for borrowed money (other than pursuant to credit, loan or
other financing agreements, facilities or arrangements in effect on the
date
31
<PAGE> 37
hereof), issue any debt securities or enter into or modify any
contract, agreement, lease, commitment or arrangement with respect
thereto, (viii) enter into any new contract, agreement, lease or
commitment, or amend or terminate any existing contract, agreement,
lease or commitment, other than in the ordinary course of business,
(ix) enter into, amend or terminate any employment or consulting
agreement with any director, officer, consultant or key employee of the
Company, enter into, amend or terminate any employment agreement with
any other person otherwise than in the ordinary course of business, or
take any action with respect to the grant or payment of any severance
or termination pay other than pursuant to policies or agreements of the
Company in effect on the date hereof, (x) enter into, extend or renew
any lease for office or other space otherwise than in the ordinary
course of business, (xi) except as required by law, adopt, amend or
terminate any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any officer or employee of the Company, or
withdraw from any multi-employer plan so as to create any liability
under Article IV of ERISA to any entity, (xii) grant any increase in
compensation, or grant or make any bonus or other compensatory
payments, to any director, officer or consultant of the Company, (xiii)
grant any increase in compensation to any other employee of the
Company, except in the ordinary course of business consistent with past
practice, or (xiv) change its accounting practices or principles.
(b) From the date hereof to the Closing, Shareholders shall
cause the Company to use its best efforts to preserve intact the
business organization of the Company, to keep available in all material
respects the services of their present officers and key employees, to
32
<PAGE> 38
preserve intact their banking relationships and credit facilities, to
preserve intact their relationships with their customers and suppliers,
to preserve the goodwill of those having business relationships with
them, and to comply with all applicable laws.
6.10 Resignations of Directors. Shareholders shall cause all directors
of the Company to deliver their written resignations to Parent, which
resignations shall be effective at or before the Closing and shall be in form
and substance satisfactory to Parent. Each such resignation shall state that the
Company is not in any way indebted or obligated to the resigning party for
termination pay, loans, advances or otherwise, except for accrued salary (if
any).
6.11 Employment Agreement - Carl S. Moses. On the Closing Date, the
Company and Carl S. Moses will enter into an Employment Agreement (the
"Employment Agreement - Carl S. Moses") in the form attached hereto as Exhibit
A.
6.12 Employment Agreement - Cynthia A. Moses. On the Closing Date, the
Company and Cynthia A. Moses will enter into an Employment Agreement (the
"Employment Agreement - Cynthia A. Moses") in the form attached hereto as
Exhibit B.
6.13 Closing and Holdback Agreement. On the Closing Date, the Parent,
the Company and the Shareholders shall enter into the Closing and Holdback
Agreement in the form attached hereto as Exhibit C (the "Closing and Holdback
Agreement").
6.14 Registration Rights. If Parent proposes to register any securities
held by Joe B. Park under the Securities Act within the two (2) year period
commencing on the Closing Date (other than a registration on Form S-4 or Form
S-8, or any other form used solely in connection with an employee benefit or
stock ownership plan) and the registration form to be used may be used for the
registration of the Parent Preferred Shares (a "Piggyback Registration"), then
Parent will give prompt
33
<PAGE> 39
written notice to the Shareholders of its intention to effect such a
registration (each a "Piggyback Notice"). The Company will include in such
registration that number of Parent Preferred Shares which the Shareholders
request that the Company include in such registration pursuant to written notice
given to the Company within fifteen (15) days after the date of sending of the
Company's Piggyback Notice; provided, however, that the proportion that such
number of Parent Preferred Shares to be registered bears to the total number of
Parent Preferred Shares then held by the Shareholders shall not exceed the
proportion that the securities to be registered by Parent on behalf of Joe B.
Park in such Piggyback Registration bears to the total number of securities then
held by Joe B. Park.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Parent. The obligations of Parent to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, or written waiver by Parent, of each of the following conditions:
(a) The representations and warranties of Shareholders and the
Company contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of
the Closing Date; Shareholders and the Company shall have performed and
complied in all material respects with all agreements required by this
Agreement to be performed or complied with by Shareholders and the
Company at or prior to the Closing Date; and Parent shall have received
a certificate, dated as of the Closing Date, signed by Shareholders and
the President of the Company to the foregoing effects;
34
<PAGE> 40
(b) No action or proceeding shall have been instituted or
threatened for the purpose or with the probable or reasonably likely
effect of enjoining or preventing the consummation of this Agreement or
seeking damages on account thereof;
(c) Parent shall have received an opinion of Cribbs &
McFarland, counsel for the Company and Shareholders, dated as of the
Closing Date, in the form attached hereto as Exhibit D;
(d) Prior to the Closing, there shall not have occurred any
material adverse change in the financial condition, business,
prospects, properties, results of operations, cash flow or capital
expenditures of the Company since December 31, 1999; and the business
of the Company shall have been conducted only in the ordinary course
consistent with past practices;
(e) Parent shall have received the minute books and stock
transfer records contemplated by Section 4.1 hereof and the
resignations contemplated by Section 4.10 hereof;
(f) All consents and approvals (if any) required in connection
with the execution, delivery and performance of this Agreement shall
have been obtained;
(g) All necessary action (corporate or otherwise) shall have
been taken by Shareholders and the Company to authorize, approve and
adopt this Agreement and the consummation and performance of the
transactions contemplated hereby, and Parent shall have received a
certificate, dated as of the Closing Date, of the President of the
Company to the foregoing effect;
(h) Parent shall have received from each Shareholder or his or
her duly appointed agent and attorney-in-fact the stock certificate or
certificates representing all of the Shares
35
<PAGE> 41
owned by such Shareholder duly endorsed for transfer or accompanied by
stock powers duly executed in blank;
(i) Parent shall have entered into a loan or financing
arrangement with a lender of its choice for an amount of not less than
$700,000 on terms acceptable to Parent in its sole discretion;
(j) Parent shall have completed its due diligence review of
the business, assets, liabilities, operations, finances, properties,
prospects, books and records of the Company and found the results
thereof to be satisfactory to Parent in its sole but reasonable
business judgment;
(k) Each of the Shareholders and the Company shall have
executed and delivered each agreement, instrument and document required
to be executed by such party in connection herewith;
(l) Parent shall have entered into such employment and
noncompetition agreements with the persons listed on Schedule 7.1(m)
attached hereto as it deems appropriate; and
(m) Shareholders and the Company shall have delivered to
Parent such good standing certificates, officers' certificates and
similar documents and certificates as counsel for Parent shall have
reasonably requested prior to the Closing Date.
The decision of Parent to consummate the transactions contemplated by this
Agreement without the satisfaction of any of the preceding conditions shall not
constitute a waiver of any of Shareholders' and/or the Company's
representations, warranties, covenants or indemnities herein.
7.2 Conditions to Obligations of Shareholders and the Company. The
respective obligations of Shareholders and the Company to consummate the
transactions contemplated by this
36
<PAGE> 42
Agreement are subject to the fulfillment, or written waiver by Shareholders and
the Company, of each of the following conditions:
(a) Parent's representations and warranties contained in this
Agreement shall be true and correct in all material respects at and as
of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date; all
agreements to be performed hereunder by Parent at or prior to the
Closing Date shall have been performed in all material respects; and
Shareholders and the Company shall have received a certificate, dated
as of the Closing Date, signed by the President of Parent to the
foregoing effects;
(b) No action or proceeding shall have been instituted or
threatened for the purpose or with the probable or reasonably likely
effect of enjoining or preventing the consummation of this Agreement or
seeking damages on account thereof;
(c) Parent shall have delivered to Shareholders the
consideration for the Shares in accordance with Section 2.1 hereof;
(d) Shareholders shall have received satisfactory evidence the
Parent is prepared to comply with the provisions of Section 2.2 at the
Closing;
(e) All consents and approvals (if any) required in connection
with the execution, delivery and performance of this Agreement shall
have been obtained;
(f) All necessary action (corporate or otherwise) shall have
been taken by Parent to authorize, approve and adopt this Agreement and
the consummation and performance of the transactions contemplated
hereby, and Shareholders shall have received a certificate, dated as of
the Closing Date, of the President of Parent to the foregoing effect;
37
<PAGE> 43
(g) Parent shall have executed and delivered each agreement,
instrument and document required to be executed by it in connection
herewith; and
(h) Parent shall have delivered to Shareholders and the
Company such good standing certificates, officers' certificates and
similar documents and certificates as counsel for the Company and
Shareholders shall have reasonably requested prior to the Closing Date.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification.
(a) Shareholders jointly and severally agree to indemnify and
hold harmless Parent (and, following the Closing, the Company) and each
officer, director, employee, representative and affiliate of Parent and
the Company (collectively, the "Parent Indemnified Parties") from and
against any and all damages, losses, claims, liabilities, demands,
charges, suits, penalties, costs and expenses (including court costs
and reasonable attorneys' fees and expenses incurred in investigating
and preparing for any litigation or proceeding) (collectively,
"Indemnifiable Costs") which any of the Parent Indemnified Parties may
sustain, or to which any of the Parent Indemnified Parties may be
subjected, arising out of any breach or default by any Shareholder or
the Company of or under any of its, his or her representations,
warranties, covenants, agreements, waivers or other provisions of this
Agreement or any agreement, document or instrument executed in
connection herewith.
(b) Parent agrees to indemnify and hold harmless Shareholders
and each representative and affiliate of Shareholders (collectively,
the "Shareholder Indemnified Parties")
38
<PAGE> 44
from and against any and all Indemnifiable Costs which any of the
Shareholder Indemnified Parties may sustain, or to which any of the
Shareholder Indemnified Parties may be subjected, arising out of any
breach or default by Parent of or under any of its representations,
warranties, covenants, agreements, waivers or other provisions of this
Agreement or any agreement, document or instrument executed in
connection herewith.
(c) For purposes of this Article 8, Parent Indemnified Parties
and Shareholder Indemnified Parties are collectively referred to as the
"Indemnified Parties".
(d) No indemnification shall be required to be made by any
Indemnifying Party pursuant to this Article 8 unless, and then only to
the extent, that the aggregate amount of all Indemnified Costs asserted
against the Indemnifying Party exceeds $2,500.
8.2 Defense of Third-Party Claims. An Indemnified Party shall give
prompt written notice to each party hereto who or which is obligated to provide
indemnification hereunder (for purposes of this Article 6, an "Indemnifying
Party") with a copy of such written notice of the commencement or assertion of
any action, proceeding, demand or claim by a third party (collectively, a
"third-party action") in respect of which such Indemnified Party shall seek
indemnification hereunder. Any failure so to notify the Indemnifying Parties
shall not relieve the Indemnifying Parties from any liability that they may have
to the Indemnified Party under this Article 8 unless the failure to give such
notice materially and adversely prejudices the Indemnifying Parties. The
Indemnifying Parties shall have the right to assume control of the defense of,
settle or otherwise dispose of such third-party action on such terms as they
deem appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its, his or
her own expense, to participate in the defense of such third-party
action; provided, however, that the Indemnifying
39
<PAGE> 45
Parties shall, if the Indemnified Party is otherwise entitled to
indemnification hereunder, pay the attorneys' fees of the Indemnified
Party if (i) the employment of separate counsel shall have been
authorized in writing by any such Indemnifying Party in connection with
the defense of such third-party action, (ii) the Indemnifying Parties
shall not have employed counsel reasonably satisfactory to the
Indemnified Party to have charge of such third-party action, (iii) the
Indemnified Party shall have reasonably concluded that there may be
defenses available to it, him or her which are different from or
additional to those available to the Indemnifying Parties, or (iv) the
Indemnified Party's counsel shall have advised the Indemnified Party in
writing with a copy to the Indemnifying Parties, that there is a
conflict of interest that could make it inappropriate under applicable
standards of professional conduct to have common counsel; provided,
further, that in no event shall the Indemnifying Parties be required to
pay the attorneys' fees of the Indemnified Parties for more than one
firm of attorneys (and one firm of local counsel, if required) in any
one third-party action or group of related third-party actions;
(b) The Indemnifying Parties shall obtain the prior written
approval of the Indemnified Party before entering into or making any
settlement, compromise, admission or acknowledgment of the validity of
such third-party action or any liability in respect thereof if,
pursuant to or as a result of such settlement, compromise, admission or
acknowledgment, injunctive or other equitable relief would be imposed
against the Indemnified Party or if, in the opinion of the Indemnified
Party, such settlement, compromise, admission or acknowledgment could
have a material adverse effect on its business or, in the case of an
Indemnified Party who is a natural person, on his or her assets or
interests;
40
<PAGE> 46
(c) No Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
each Indemnified Party of a release from all liability in respect of
the specific matter which is being settled or upon which judgment is to
be entered; and
(d) No Indemnifying Party shall be entitled to control (but
shall be entitled to participate at his, her or its own expense in the
defense of), and the Indemnified Party shall be entitled to have sole
control over, the defense or settlement, compromise, admission or
acknowledgment of any third-party action (i) as to which such
Indemnifying Party fails to assume the defense within a reasonable
length of time, or (ii) to the extent the third-party action seeks an
order, injunction or other equitable relief against the Indemnified
Party which, if successful, would materially adversely affect the
business, operations, assets or financial condition of the Indemnified
Party; provided, however, that the Indemnified Party shall make no
settlement, compromise, admission or acknowledgment which would give
rise to liability on the part of any Indemnifying Party without the
prior written consent of such Indemnifying Party.
The parties hereto shall extend reasonable cooperation in connection with the
defense of any third-party action pursuant to this Article 8 and, in connection
therewith, shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested.
8.3 Direct Claims. In any case in which an Indemnified Party seeks
indemnification hereunder which is not subject to Section 8.3 hereof because no
third-party action is involved, the Indemnified Party shall notify each
Indemnifying Party of any Indemnifiable Costs which he, she or
41
<PAGE> 47
it claims are subject to indemnification hereunder. The failure of the
Indemnified Party to exercise promptness in such notification shall not amount
to a waiver of such claim unless the resulting delay materially prejudices the
position of the Indemnifying Parties with respect to such claim.
8.4 Tax Audits. In the event of an audit of a Return of the Company
with respect to which an Indemnified Party might be entitled to indemnification
pursuant to Section 8.1 hereof, the Company shall have the right to control the
defense and conduct of any and all such audits which may result in the
assessment of additional Taxes against the Company and any and all subsequent
proceedings in connection therewith, including appeals. All decisions whether to
contest any such audit or the results thereof shall be made by the Company in
good faith and without regard to its rights to indemnification hereunder. The
Indemnifying Parties shall cooperate fully in all matters relating to any such
audit or other Tax proceeding and shall execute and file any and all consents,
powers of attorney and other documents as shall be reasonably necessary in
connection therewith.
ARTICLE 9
MISCELLANEOUS
9.1 Collateral Agreements, Amendments and Waivers. This Agreement
(together with the documents delivered pursuant hereto) supersedes all prior
documents, understandings and agreements, oral or written, relating to this
transaction (including, without limitation, that certain Letter of Intent
executed by the parties hereto), and constitutes the entire understanding among
the parties with respect to the subject matter hereof. Any modification or
amendment to, or waiver of, any provision of this Agreement (or any document
delivered pursuant to this Agreement unless otherwise expressly provided
therein) may be made only by an instrument in writing executed by the party
against whom enforcement thereof is sought.
42
<PAGE> 48
9.2 Successors and Assigns. Neither Parent's, the Company's nor any
Shareholder's rights or obligations under this Agreement may be assigned without
the written consent of the other parties hereto (except that Parent may assign
its rights and obligations to any affiliate (as defined in Rule 144 promulgated
under the Securities Act) or lender thereof without the written consent of
Shareholders or the Company); provided, however, that any such assignment shall
not relieve Parent from its obligations hereunder). Any assignment in violation
of the foregoing shall be null and void. Subject to the preceding sentences of
this Section 9.2, the provisions of this Agreement (and, unless otherwise
expressly provided therein, of any document delivered pursuant to this
Agreement) shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns.
9.3 Expenses.
(a) Except as set forth in Section 9.3(b) below, each party
hereto shall be solely responsible for its, his or her own legal,
accounting and other fees and expenses incurred by such party in
connection with the negotiation and execution of this Agreement and all
other documents ancillary to this Agreement, and the transactions
contemplated by this Agreement;
(b) Notwithstanding the provisions of Section 9.3(a) above,
the Company shall be responsible for the first $4,000 of expenses
incurred by the Company and the Sellers in connection with the
transactions contemplated by this Agreement, and the Shareholders shall
be jointly and severally responsible for the payment of all such fees
and expenses of the Company and Sellers in excess of $4,000.
9.4 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement
43
<PAGE> 49
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement.
9.5 Information and Confidentiality. Each party hereto agrees that such
party shall hold in strict confidence all information and documents received
from any other party hereto, and if the Closing does not occur each such party
shall return to the other parties hereto all such documents then in such
receiving party's possession without retaining copies; provided, however, that
each party's obligations under this Section 9.5 shall not apply to (a) any
information or document required to be disclosed by law, (b) any information or
document in the public domain other than because of the wrongful actions of the
disclosing party, or (c) any information or document that Parent discloses to
any potential lender to or investor in Parent. In addition, and without limiting
the generality of the foregoing, the parties further agree that press releases
or other public announcements by the parties hereto concerning this Agreement
and the transactions contemplated hereby shall be mutually agreed to as to
content prior to their release, and that Parent shall afford the Company at
least two days' notice (or if two days' notice is not reasonably practicable,
then such other notice as is reasonably practicable under the circumstances)
prior to issuing any such press releases or public announcements.
9.6 Waiver. No failure or delay on the part of any party in exercising
any right, power or privilege hereunder or under any of the documents delivered
in connection with this Agreement shall operate as a waiver of such right, power
or privilege; nor shall any single or partial exercise of any such right, power
or privilege preclude any other or future exercise thereof or the exercise of
any other right, power or privilege.
44
<PAGE> 50
9.7 Notices. Any notices required or permitted to be given under this
Agreement (and, unless otherwise expressly provided therein, under any document
delivered pursuant to this Agreement) shall be given in writing and shall be
deemed received (a) when personally delivered to the relevant party at such
party's address as set forth below, (b) if sent by mail (which must be certified
or registered mail, postage prepaid), when received or rejected by the relevant
party at such party's address indicated below, or (c) if sent by facsimile
transmission, when confirmation of delivery is received by the sending party:
Parent: Park Pharmacy Corporation
Attn: Thomas R. Baker
10711 Preston Road, Suite 250
Dallas, Texas 75230
Fax: (214) 692-9924
With a copy to: Carrington, Coleman, Sloman & Blumenthal, L.L.P.
Attn: John W. Wesley, Esq.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Fax: (214) 855-1333
The Company: Total Pharmacy Supply, Inc.
2016 East Randol Mill Road
Suite 403
Arlington, Texas 76011
With a copy to: Cribbs & McFarland
Attn: James A. Cribbs
1000 West Abram
Arlington, Texas 76013
Fax: (817) 275-7810
Shareholders: Carl S. Moses
Cynthia A. Moses
2016 East Randol Mill Road
Suite 403
Arlington, Texas 76011
45
<PAGE> 51
With a copy to: Cribbs & McFarland
Attn: James A. Cribbs
1000 West Abram
Arlington, Texas 76013
Fax: (817) 275-7810
Each party may change its address for purposes of this Section 9.7 by proper
notice to the other parties.
9.8 Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, all representations and
warranties shall survive the Closing Date for a period of two (2) years
following such date.
9.9 Further Assurances. At, and from time to time after, the Closing,
at the request of Parent but without further consideration, each Shareholder
shall execute and deliver such other instruments of conveyance, assignment,
transfer and delivery and take such other action as Parent may reasonably
request in order more effectively to consummate the transactions contemplated
hereby.
9.10 No Third-Party Beneficiaries. Other than the Indemnified Parties
not a party hereto and any lender of Parent, no person or entity not a party to
this Agreement shall be deemed to be a third-party beneficiary hereunder or
entitled to any rights hereunder.
9.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
9.12 Remedies Not Exclusive. Except to the extent expressly provided
otherwise herein, the rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law or equity.
46
<PAGE> 52
[remainder of page intentionally left blank]
47
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in one or more counterparts (all of which shall constitute one and the
same agreement) as of the day and year first above written.
PARK PHARMACY CORPORATION
By: /s/ Thomas R. Baker
------------------------------------------
Thomas R. Baker, Chief Executive Officer
and President
TOTAL ACQUISITION CORPORATION
By: /s/ Thomas R. Baker
------------------------------------------
Its: President
TOTAL PHARMACY SUPPLY, INC.
By: /s/ Carl S. Moses
------------------------------------------
Its: President
/s/ Carl S. Moses
---------------------------------------------
Carl S. Moses
/s/ Cynthia A. Moses
---------------------------------------------
Cynthia A. Moses
48
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 300
<SECURITIES> 0
<RECEIVABLES> 418,022
<ALLOWANCES> (34,100)
<INVENTORY> 246,540
<CURRENT-ASSETS> 664,862
<PP&E> 44,295
<DEPRECIATION> (84,574)
<TOTAL-ASSETS> 709,157
<CURRENT-LIABILITIES> 692,316
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 15,841
<TOTAL-LIABILITY-AND-EQUITY> 709,157
<SALES> 3,253,110
<TOTAL-REVENUES> 3,253,110
<CGS> 2,073,034
<TOTAL-COSTS> 3,109,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,627
<INCOME-PRETAX> 115,884
<INCOME-TAX> 0
<INCOME-CONTINUING> 115,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,884
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CLOSING AND HOLDBACK AGREEMENT
This Closing and Holdback Agreement ("Agreement") is made and entered
into this 31st day of March, 2000, by and among Park Pharmacy Corporation, a
Colorado corporation ("Parent"), Total Acquisition Corporation, a Texas
corporation ("Merger Sub"), Total Pharmacy Supply, Inc., a Texas corporation
(the "Company"), and Carl S. Moses and Cynthia A. Moses (collectively, the
"Shareholders").
WHEREAS, Parent, Merger Sub, the Company and the Shareholders are
parties to that certain Agreement and Plan of Merger dated as of even date
herewith (the "Merger Agreement"), pursuant to which Merger Sub is being merged
with and into the Company, with the Company being the Surviving Corporation and
becoming a wholly owned subsidiary of Parent; and
WHEREAS, Parent, Merger Sub, the Company and the Shareholders have
agreed that Parent may hold back from the consideration payable to Shareholders
at the Closing ten percent (10%) of the Parent Preferred Shares as determined
pursuant to Section 2.1 of the Merger Agreement, as security for Parent's right
to be reimbursed for costs, expenses and losses arising out of breaches of
representations, warranties and/or covenants of the Shareholders and/or the
Company; and
WHEREAS, capitalized terms used herein, unless otherwise indicated,
shall have the respective meanings ascribed to them in the Merger Agreement.
In connection with the consummation of the transactions contemplated by
the Merger Agreement, the parties hereto agree as follows:
1. Holdback. At the Closing, Parent shall deduct from the consideration
to be paid to Shareholders for the Shares ten percent (10%) of the Parent
Preferred Shares as determined pursuant to Section 2.1 of the Merger Agreement
(the "Holdback"). The Holdback shall be held by Parent until the one year
anniversary of the Closing or later, as provided below.
2. Holdback Claim Procedure. Shareholders and the Company have made
various representations, warranties, and covenants in the Merger Agreement. This
Agreement has been executed and delivered, and the Holdback hereunder is being
made, for the purpose of providing reimbursement to Parent for costs, expenses
and losses arising out of breaches by Shareholders and/or the Company of any
such representations, warranties or covenants.
2.1 Initiation of Holdback Claim Procedure. If Parent has a
claim that any of the representations, warranties or covenants of Shareholders
and/or the Company has been breached, Parent shall give notice of such claim to
Shareholders stating the amount it believes it is entitled to charge against the
Holdback (reasonably estimated if necessary) as reimbursement for any damages,
losses, claims, liabilities, demands, charges, suits, penalties, costs and
expenses (each being a "Loss") arising out of such breach (a "Claim Notice")
within forty-five (45) days after first becoming aware
<PAGE> 2
of such Loss. Each Claim Notice shall specify in reasonable detail each
individual item giving rise to any such claim included in the amount so stated,
the date such item was paid or properly accrued, the basis for any anticipated
liability and the nature of the breach of the representation, warranty, or
covenant, to which each such item is related.
2.2 Shareholders' Objection. Unless the Shareholders by
written notice (a "Claim Objection Notice") to Parent objects to the charge
against the Holdback requested in a Claim Notice within forty-five (45) days
after the receipt by the Shareholders of such Claim Notice (the "Claim Objection
Period"), Parent shall be entitled to keep forever, and the Shareholders shall
not be entitled to, that number of Parent Preferred Shares having a value equal
to the Loss (as reasonably estimated by Parent if necessary), based on the value
of the Parent Preferred Shares on the Closing Date as provided under Section 2.1
of the Merger Agreement. A Claim Objection Notice shall state in reasonable
detail the basis for the objection and the portion, if any, of the claimed
charge to the Holdback as to which the Shareholders do not object.
2.3 Negotiated Settlement of Claims. In the event that the
Shareholders do deliver a Claim Objection Notice with respect to any claim or
claims made in any Claim Notice, the Shareholders and the Parent shall, within
the thirty (30) day period beginning as of the date of the receipt by the Parent
of the Claim Objection Notice, attempt in good faith to agree upon the proper
resolutions of each of such claims. If the parties should so agree, a memorandum
(a "Memorandum") setting forth such agreement shall be prepared and signed by
both parties, and in such event, the Parent shall be entitled to keep forever,
and the Shareholders shall not be entitled to, that number of Parent Preferred
Shares having a value equal to the Loss (as agreed to by the parties pursuant to
such Memorandum), based on the value of the Parent Preferred Shares on the
Closing Date as provided under Section 2.1 of the Merger Agreement.
2.4 Arbitration. If no agreement can be reached after good
faith negotiation within the thirty (30) day period specified in Section 2.3 or
such extended period as Parent and the Shareholders shall mutually agree upon in
writing, the matter shall be submitted to and reviewed by an arbitrator in
accordance with the rules and procedures of the American Arbitration
Association. The decision of the arbitrator as to the validity and amount of any
claim shall be conclusive and binding upon Parent and the Shareholders. The
Parent shall be entitled to make charges against the Holdback in accordance with
such decision. The arbitrator's decision may be used as a basis for entry of
judgment in any jurisdiction.
3. Payments from the Holdback.
3.1 Distribution of Holdback. Subject to the provisions of
Section 3.2, on the one year anniversary of the Closing Date (the "Distribution
Date"), Parent shall distribute to the Shareholders any Parent Preferred Shares
remaining in the Holdback, less that number of Parent Preferred Shares having a
value equal to any Pending Claims (based on the value of the Parent Preferred
Shares on the Closing Date as provided in Section 2.1 of the Merger Agreement)
outstanding on such Distribution Date. Parent shall be entitled to retain that
portion of the Parent Preferred Shares in the Holdback equal to one hundred
percent (100%) of such unsatisfied Pending
-2-
<PAGE> 3
Claims, plus accrued interest thereon from the date of the Claim Notice(s), and
only the remaining balance of Parent Preferred Shares shall be delivered to the
Shareholders. With respect to such Pending Claims, this Agreement shall remain
in effect until such claims have been resolved in accordance with the procedures
set forth in Section 2 of this Agreement.
3.2 Subsequent Distributions. Promptly following the expiration of the
Claim Objection Period described in Section 2.2, in cases covered by Section 2.1
of this Agreement, or the execution of a Memorandum under Section 2.3, or the
decision of an arbitrator under Section 2.4 relating to any Pending Claim
outstanding on the Distribution Date (each such date a "Subsequent Distribution
Date"), Parent shall:
(i) retain such portion of the Holdback that it is entitled to
under an unchallenged Claim Notice or pursuant to a Memorandum or
decision of an arbitrator; and
(ii) deliver to Shareholders that portion of the Holdback, if
any, equal to the excess of (x) the Holdback (after payment of the
amount set forth in clause (i) above) over (y) the amount of all
remaining Pending Claims outstanding on such Subsequent Distribution
Date.
4. Termination of the Agreement.
This Agreement shall terminate upon the disposition of the full amount
of the Holdback pursuant to the provisions of Section 3 of this Agreement.
5. Miscellaneous Provisions.
5.1 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered personally, when received if sent by facsimile
transmission, on the date after deposit with an overnight courier if deposited,
postage prepaid, addressed as follows or on the third day after mailing if
mailed by certified or registered mail, postage prepaid, addressed as follows
(or addressed to such other address as may be requested in writing from time to
time by a party desiring to change the address to which such communications are
to be delivered or mailed):
Parent: Park Pharmacy Corporation
Attn: Thomas R. Baker
10711 Preston Road, Suite 250
Dallas, Texas 75230
Fax: (214) 692-9924
-3-
<PAGE> 4
With a copy to: Carrington, Coleman, Sloman & Blumenthal, L.L.P.
Attn: John W. Wesley, Esq.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Fax: (214) 855-1333
The Company: Total Pharmacy Supply, Inc.
2016 East Randol Mill Road
Suite 403
Arlington, Texas 76011
Shareholders: Carl S. Moses
Cynthia A. Moses
2016 East Randol Mill Road
Suite 403
Arlington, Texas 76011
Any notices required to be given to any party to this Agreement shall
be given contemporaneously to all of the parties to this Agreement.
5.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed entirely within such State and shall be
binding on the successors and assigns of the parties herein.
5.3 Entire Agreement. This Agreement is entered into and
delivered pursuant to the Merger Agreement and sets forth the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
5.4 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
5.5 Waivers and Amendments. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or conditions
hereof may be waived, only by a written instrument signed by all of the parties,
or, in the case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
5.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
-4-
<PAGE> 5
5.7 Further Assurances. Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonable,
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
5.8 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
5.9 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
written above.
"PARENT" "THE COMPANY"
PARK PHARMACY CORPORATION, TOTAL PHARMACY SUPPLY, INC.,
a Colorado corporation a Texas corporation
By: /s/ Thomas R. Baker By: /s/ Carl S. Moses
---------------------------- --------------------------------
Name: Thomas R. Baker Name: Carl S. Moses
Title: President Title: President
"MERGER SUB" "SHAREHOLDERS"
TOTAL ACQUISITION CORPORATION,
a Texas corporation /s/ Carl S. Moses
------------------------------------
Carl S. Moses
By: /s/ Thomas R. Baker
----------------------------
Name: Thomas R. Baker /s/ Cynthia A. Moses
Title: President ------------------------------------
Cynthia A. Moses
-5-
