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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): November 12, 1997
INTEGRATED ORTHOPAEDICS, INC.
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(Exact name of registrant as specified in its charter)
TEXAS
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(State or other jurisdiction of incorporation)
1-10677 76-0203483
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(Commission File Number) (I.R.S. Employer
Identification No.)
5858 Westheimer, Suite 500
Houston, Texas 77057
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(Address of principal executive office,
including zip code)
Registrant's telephone number, including area code: (713)225-5464
3 Riverway, Suite 1430, Houston, Texas 77056
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(former name or former address, if changed since last report)
The Exhibit Index is located at page 4 .
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 12, 1997, Integrated Orthopaedics, Inc. acquired the accounts
receivable and all of the outstanding capital stock of Winters, Kleinschmidt,
Frensilli, and Fleming, M.D.s, Ltd. ("WKFF"). When acquired, WKFF owned a long
term management agreement with the medical practice conducted by Westside
Orthopaedic Clinic (a Professional Corporation) ("Westside"), a six physician
orthopaedic medicine practice located in Marrero, Louisiana. In exchange, the
Company delivered aggregate consideration, of approximately $3,739,000,
including (i) cash, assumed liabilities and estimated transaction costs of
approximately $2,111,000, (ii) non-negotiable subordinated convertible
promissory notes of approximately $1,085,000, and (iii) 142,402 shares of the
Company's common stock. The purchase price was determined after arms-length
negotiations between the Company and the physician owners of WKFF. The cash
portion of the transaction was funded from the Company's existing cash reserves.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Pro forma financial information.
To be filed on Form 8-K/A as soon as practicable, but not later than
60 days after this Form 8-K is filed.
Exhibits.
1.* Stock Purchase Agreement by and among Integrated Orthopaedics,
Inc. Jack L. Winters, M.D., A.G. Kleinschmidt, Jr., M.D., Joseph
J. Frensilli, M.D., Robert A. Fleming, Jr., M.D., Chris J.
DiGrado, M.D., and Ralph P. Katz, M.D. dated November 12, 1997.
* Schedules and exhibits have been omitted from the above listed agreement.
The Company agrees to furnish a supplementary copy of any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTEGRATED ORTHOPAEDICS, INC.
(Registrant)
Date: November 26, 1997 By /s/ Ronald E. Pierce
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Ronald E. Pierce
President
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EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
1 Stock Purchase Agreement by and among Integrated 5
Orthopaedics, Inc. Jack L. Winters, M.D., A.G.
Kleinschmidt, Jr., M.D., Joseph J. Frensilli, M.D.,
Robert A. Fleming, Jr., M.D., Chris J. DiGrado, M.D.,
and Ralph P. Katz, M.D. dated November 12, 1997.
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STOCK PURCHASE AGREEMENT
BY AND AMONG
INTEGRATED ORTHOPAEDICS, INC.;
JACK L. WINTERS, M.D.;
A.G. KLEINSCHMIDT, JR., M.D.;
JOSEPH J. FRENSILLI, M.D.;
ROBERT A. FLEMING, JR., M.D.;
CHRIS J. DIGRADO, M.D.; AND
RALPH P. KATZ, M.D.
NOVEMBER 12, 1997
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TABLE OF CONTENTS
Page
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1. DEFINITIONS............................................................ 1
"Acquisition Price"................................................. 1
"Acquired Company".................................................. 1
"Affiliate"......................................................... 1
"Applicable Contract"............................................... 1
"Best Efforts"...................................................... 2
"Breach"............................................................ 2
"Buyer"............................................................. 2
"Closing"........................................................... 2
"Closing Date"...................................................... 2
"Code".............................................................. 2
"Consent"........................................................... 2
"Contemplated Transactions"......................................... 2
"Contract".......................................................... 3
"Damages"........................................................... 3
"Employment Agreements"............................................. 3
"Encumbrance"....................................................... 3
"Environment"....................................................... 3
"Environmental, Health, and Safety Liabilities"..................... 3
"Environmental Law"................................................. 4
"ERISA"............................................................. 5
"Existing Practice"................................................. 5
"Facilities"........................................................ 5
"Financial Statements".............................................. 5
"GAAP".............................................................. 5
"Governmental Authorization"........................................ 5
"Governmental Body"................................................. 5
"Hazardous Activity"................................................ 5
"Hazardous Materials"............................................... 6
"HSR Act"........................................................... 6
"Indemnified Persons"............................................... 6
"Intellectual Property Assets"...................................... 6
"Interim Financial Statements"...................................... 6
"IOI"............................................................... 6
"IOI Securities".................................................... 6
"IRS"............................................................... 6
"Knowledge"......................................................... 6
"Legal Requirement"................................................. 6
"Management Services Agreement"..................................... 6
"Medical Assets".................................................... 6
"Medical Practice".................................................. 7
"Occupational Safety and Health Law"................................ 7
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"Order"............................................................ 7
"Ordinary Course of Business"...................................... 7
"Organizational Documents"......................................... 8
"Person"........................................................... 8
"Plan"............................................................. 8
"Proceeding"....................................................... 8
"Related Person"................................................... 8
"Release".......................................................... 9
"Representative"................................................... 9
"Securities Act"................................................... 9
"Sellers".......................................................... 9
"Subsidiary"....................................................... 9
"Tax".............................................................. 10
"Tax Return"....................................................... 10
"Threat of Release"................................................ 10
"Threatened"....................................................... 10
2. TRANSFER OF SHARES; CASH PAYMENT; CLOSING............................. 10
2.1 Delivery by IOI.................................................. 10
2.2 Closing.......................................................... 11
2.3 Closing Obligations.............................................. 11
3. REPRESENTATIONS AND WARRANTIES OF SELLERS............................. 12
3.1 Organization and Good Standing................................... 12
3.2 Authority; No Conflict........................................... 13
3.3 Capitalization................................................... 14
3.4 Financial Statements............................................. 14
3.5 Books and Records................................................ 15
3.6 Title to Properties; Encumbrances................................ 15
3.7 Condition and Sufficiency of Assets.............................. 16
3.8 Accounts Receivable.............................................. 16
3.9 Inventory........................................................ 16
3.10 No Liabilities................................................... 16
3.11 Taxes............................................................ 17
3.12 No Material Adverse Change....................................... 18
3.13 Employee Benefits................................................ 18
3.14 Compliance with Legal Requirements; Governmental Authorizations.. 24
3.15 Legal Proceedings; Orders........................................ 25
3.16 Absence of Certain Changes and Events............................ 26
3.17 Contracts; No Defaults........................................... 27
3.18 Insurance........................................................ 30
3.19 Environmental Matters............................................ 32
3.20 Employees........................................................ 34
3.21 Labor Disputes; Compliance....................................... 35
3.22 Intellectual Property............................................ 35
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3.23 Certain Payments................................................. 38
3.24 Disclosure....................................................... 38
3.25 Relationships With Related Persons............................... 39
3.26 Investment Representations....................................... 39
3.27 Brokers or Finders............................................... 40
3.28 Spousal Interests................................................ 40
3.29 925 Avenue C..................................................... 40
4. REPRESENTATIONS AND WARRANTIES OF BUYER............................... 40
4.1 Organization and Good Standing................................... 41
4.2 Authority; No Conflict........................................... 41
4.3 Investment Intent................................................ 41
4.4 Certain Proceedings.............................................. 41
4.5 Brokers or Finders............................................... 41
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE............................ 42
5.1 Access and Investigation......................................... 42
5.2 Operation of the Business of the Acquired Company................ 42
5.3 Negative Covenant................................................ 42
5.4 Required Approvals............................................... 42
5.5 Notification..................................................... 43
5.6 Payment of Indebtedness by Related Persons....................... 43
5.7 No Negotiation................................................... 43
5.8 Acquisition Audit................................................ 43
5.9 Termination of Employee Plans.................................... 43
5.10 Best Efforts..................................................... 44
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.............................. 44
6.1 Approvals of Governmental Bodies................................. 44
6.2 Best Efforts..................................................... 44
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE................... 44
7.1 Accuracy of Representations...................................... 44
7.2 Seller's Performance............................................. 45
7.3 Consents......................................................... 45
7.4 Additional Documents............................................. 45
7.5 No Proceedings................................................... 45
7.6 No Claim Regarding Stock Ownership or Sale Proceeds.............. 45
7.7 No Prohibition................................................... 46
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.................. 46
8.1 Accuracy of Representations...................................... 46
8.2 Buyer's Performance.............................................. 46
8.3 Consents......................................................... 46
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8.4 Additional Documents............................................ 46
8.5 No Injunction................................................... 47
9. TERMINATION........................................................... 47
9.1 Termination Events.............................................. 47
9.2 Effect of Termination........................................... 47
10. INDEMNIFICATION; REMEDIES............................................. 47
10.1 Survival........................................................ 47
10.2 Indemnification and Reimbursement by Seller..................... 48
10.3 Indemnification and Reimbursement by Sellers - Environmental
Matters......................................................... 49
10.4 Indemnification and Reimbursement by Buyer...................... 49
10.5 Time Limitations................................................ 50
10.6 Limitations on Amount - Seller.................................. 50
10.7 Limitations on Amount - Buyer................................... 50
10.8 Procedure for Indemnification - Direct Claims................... 50
10.9 Procedure for Indemnification -- Third Party Claims............. 51
11. GENERAL PROVISIONS.................................................... 52
11.1 Noncompetition.................................................. 52
11.2 Expenses........................................................ 53
11.3 Public Announcements............................................ 53
11.4 Notices......................................................... 53
11.5 Jurisdiction; Service of Process................................ 53
11.6 Further Assurances.............................................. 54
11.7 Waiver.......................................................... 54
11.8 Entire Agreement and Modification............................... 54
11.9 Schedule........................................................ 54
11.10 Assignments, Successors, and No Third-Party Rights.............. 54
11.11 Severability.................................................... 55
11.12 Section Headings, Construction.................................. 55
11.13 Time of Essence................................................. 55
11.14 Governing Law................................................... 55
11.15 Counterparts.................................................... 55
11.16 Tax Returns 55
SCHEDULE I MEDICAL CONTRACTS..........................................
SCHEDULE 2.1(d) ASSUMED LIABILITIES........................................
SCHEDULE 3.1 CORPORATE INFORMATION......................................
SCHEDULE 3.2(b) CONFLICT...................................................
EXHIBIT 3.3 CAPITALIZATION.............................................
SCHEDULE 3.6 REAL PROPERTY..............................................
SCHEDULE 3.9 INVENTORY..................................................
SCHEDULE 3.11 TAXES......................................................
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SCHEDULE 3.13(b)(i) COMPANY PLANS, COMPANY OTHER
BENEFIT OBLIGATION.............................
SCHEDULE 3.13(b)(ii) ERISA AFFILIATES...............................
SCHEDULE 3.13(b)(iii) MULTI-EMPLOYER PLANS...........................
SCHEDULE 3.13(b)(iv) POST RETIREMENT BENEFITS.......................
SCHEDULE 3.14 COMPLIANCE.....................................
SCHEDULE 3.15 LEGAL PROCEEDINGS..............................
SCHEDULE 3.16 ABSENCE OF CHANGES.............................
SCHEDULE 3.17(a) APPLICABLE CONTRACTS...........................
SCHEDULE 3.17(b) EXCEPTIONS.....................................
SCHEDULE 3.17(c) EXCEPTIONS.....................................
SCHEDULE 3.17(d) EXCEPTIONS.....................................
SCHEDULE 3.18(b) SELF-INSURANCE & RISK-TAKING...................
SCHEDULE 3.18(c) LOSS EXPERIENCE................................
SCHEDULE 3.18(d) INSURANCE POLICIES.............................
SCHEDULE 3.19 ENVIRONMENTAL MATTERS..........................
SCHEDULE 3.20(a) EMPLOYEES, OFFICERS, AND DIRECTORS.............
SCHEDULE 3.20(e) DEPARTING EMPLOYEES, OFFICERS, AND DIRECTORS...
SCHEDULE 3.20(f) SEVERANCE AGREEMENTS...........................
SCHEDULE 3.22(b) INTELLECTUAL PROPERTY..........................
SCHEDULE 3.22(c)(ii) WORKERS NOT FOR HIRE...........................
SCHEDULE 3.22(d) PATENTS........................................
SCHEDULE 3.22(e) TRADEMARKS.....................................
SCHEDULE 3.22(f) COPYRIGHTS.....................................
SCHEDULE 3.25 RELATED PERSONS................................
EXHIBIT 3.26(f)(i) PRIVATE PLACEMENT MEMORANDUM...................
EXHIBIT 3.26(f)(ii) IOI SECURITIES.................................
SCHEDULE 4.2(b) BUYER AUTHORITY................................
EXHIBIT 5.6 RELATED PERSONS................................
EXHIBIT 7.4(a) SELLERS' LEGAL OPINION.........................
EXHIBIT 7.4(b) BILL OF SALE OF EQUIPMENT......................
EXHIBIT 8.4(a) BUYER'S LEGAL OPINION..........................
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of November 12, 1997
by and between Integrated Orthopaedics, Inc. ("IOI") ("Buyer"), Jack L. Winters,
M.D., A.G. Kleinschmidt, Jr., M.D., Joseph J. Frensilli, M.D., Robert A.
Fleming, Jr., M.D., Chris J. DiGrado, M.D., and Ralph P. Katz, M.D. as the
direct or indirect beneficial owners of the Acquired Company (collectively the
"Sellers" and individually "Winters," "Kleinschmidt," "Frensilli," "Fleming,"
"DiGrado," and "Katz," respectively).
RECITALS
WHEREAS, Sellers own all of the issued and outstanding capital stock or
interests of the Acquired Company;
WHEREAS, IOI is a publicly traded company; and
WHEREAS, Sellers wish to sell and IOI wishes to buy all of the issued and
outstanding interests and capital stock of the Acquired Company in exchange for
the Acquisition Price and the other consideration set forth in this Agreement on
the terms set forth in this Agreement.
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUISITION PRICE" -- that combination of cash, stock, debt and other
consideration referenced in Section 2.1.
"ACQUIRED COMPANY" -- IOI Management Services of Louisiana, Inc., a
Louisiana business corporation specifically including all rights, titles,
interests, liabilities, and obligations of its predecessor, the Existing
Practice, except for the rights, titles, interests, liabilities and obligations,
known or unknown contingent or otherwise, relating to (1) the accounts
receivable of the Existing Practice or (2) the Medical Assets.
"AFFILIATE" -- any Person, other than an individual or Governmental Body,
that controls, is controlled by, or under common control with another Person,
other than an individual or Governmental Body.
"APPLICABLE CONTRACT" -- any Contract (a) under which Acquired Company has
or may acquire any rights, (b) under which Acquired Company has or may become
subject to any obligation or liability, or (c) by which Acquired Company or any
of the assets owned or used by Acquired Company is or may become bound.
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"BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible; provided, however, that a Person required
to use his Best Efforts under this Agreement will not be required to take
actions that would result in a materially adverse change in the benefits to such
Person of this Agreement and the Contemplated Transactions.
"BREACH" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"BUYER" -- as defined in the first paragraph of this Agreement.
"CLOSING" -- as defined in Section 2.2.
"CLOSING DATE" -- the date and time as of which the Closing actually takes
place.
"CODE" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by
this Agreement, including:
(a) the sale of the accounts receivable of the Existing Practice to
IOI immediately before the conversion;
(b) the creation of Medical Practice by the Sellers and the sale of
Medical Assets from the Existing Practice to Medical Practice
(including the assumption of all liabilities and obligations,
known or unknown contingent or otherwise, relating in any way to
the Medical Assets) on or before the Closing Date, except for
those liabilities expressly assumed by Buyer under Section
2.1(d));
(c) The sale of certain equipment by Winters, Kleinschmidt, Fresilli,
Fleming, Klaimer, Russo, and Farris Equipment Partnership to the
Existing Practice prior to its conversion;
(d) the conversion of Existing Practice by the Sellers into the
Acquired Company, a business corporation;
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(e) the execution of a Management Services Agreement between Medical
Practice and the Acquired Company;
(f) delivery by the Sellers of all the issued and outstanding capital
stock of the Acquired Company to IOI;
(g) the payment by IOI to Winters, Kleinschmidt, Frensilli, Fleming,
DiGrado and Katz of the Acquisition Price;
(h) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(i) IOI's acquisition, ownership, and the exercise of control over
the Acquired Company.
"CONTRACT" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES" -- as defined in Section 10.2.
"EMPLOYMENT AGREEMENTS" -- as defined in Section 2.3.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting (in the case of any security), transfer, receipt of income, or exercise
of any other attribute of ownership.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, remedial, or inspection costs and expenses arising
under Environmental Law or Occupational Safety and Health Law;
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(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action,
including any cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by applicable
Environmental Law or Occupational Safety and Health Law (whether
or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural
resources damages; or
(d) any other compliance, corrective, or remedial measures required
under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action" will include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW" -- any Legal Requirement designed:
(a) to advise appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances
or materials, violations or discharge limits, or other
prohibitions and of the commencements of activities, such as
resource extraction or construction, that could have significant
impact on the Environment;
(b) to prevent or acceptably minimize the release of pollutants or
hazardous substances or materials into the Environment;
(c) to reduce the quantities, prevent the release, and minimize the
hazardous characteristics of wastes that are generated;
(d) to assure that products are designed, formulated, packaged, or
used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) to protect resources, species, or ecological amenities;
(f) to acceptably minimize the risks inherent in transportation of
hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) to clean up pollutants that have been released, prevent the
threat of release, or pay the costs of such clean up or
prevention; or
(h) to make responsible parties pay private parties, or groups of
them, for damages done to their health or Environment, or to
permit self-appointed representatives of the public interest to
recover for injuries done to public assets.
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"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"EXISTING PRACTICE" -- Winters, Kleinschmidt, Frensilli, and Fleming,
M.D.'s, Ltd. (A Professional Corporation).
"FACILITIES" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by the Acquired Company (or any
predecessor Person) and any buildings, plants, structures, or equipment
currently or formerly owned, leased, or operated by the Acquired Company (or any
predecessor Person).
"FINANCIAL STATEMENTS" -- as defined in Section 3.4.
"GAAP" -- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirements.
"GOVERNMENTAL BODY" -- any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official,
or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HAZARDOUS ACTIVITY" -- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Company.
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"HAZARDOUS MATERIALS" -- any substance that is now or will foreseeably
be listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"INDEMNIFIED PERSONS" -- as defined in Section 10.2.
"INTELLECTUAL PROPERTY ASSETS" -- as defined in Section 3.22.
"INTERIM FINANCIAL STATEMENTS" -- as defined in Section 3.4.
"IOI" -- Integrated Orthopaedics, Inc.
"IOI SECURITIES" -- shall mean collectively IOI Common Stock and Non-
negotiable Subordinated Convertible Notes.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter or a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
the business of the Acquired Company.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"MANAGEMENT SERVICES AGREEMENT" -- that one certain contract of even
date herewith between Medical Practice and the Acquired Company, in a form
approved by Buyer.
"MEDICAL ASSETS" -- the following assets and their associated
liabilities and obligations belonging to Existing Practice to be sold to Medical
Practice as part of the Contemplated Transactions:
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(a) all right, title and interest in, to or under, or possession of,
all drugs, pharmaceuticals, products, substances, items or devices
whose purchase, possession, maintenance, administration, prescription
or security requires the authorization or order of a licensed health
care provider or requires a permit, registration, certification or any
other governmental authorization held by a licensed health care
provider as specified under any federal or state law;
(b) all names, trade names, assumed names, trademarks, and service
marks, (or variations thereof), including, but not limited to, the
names "Westside Orthopaedic Clinic" and any derivations thereof;
(c) all medical licenses and permits to the extent unassignable to a
nonmedical corporation that are held by Sellers;
(d) all interest in those commitments, contracts, leases, and
agreements described on Schedule I hereto;
(e) all warranties and guaranties of manufacturers, contractors,
Sellers, or suppliers, if any, that pertain to these Medical Assets;
and
(f) All patient medical records including patient billing records and
files existing prior to the Closing Date.
"MEDICAL PRACTICE" -- Westside Orthopaedic Clinic (A Professional
Corporation) to be formed as part of the Contemplated Transactions and whose
shareholders are to be Winters, Frensilli, Fleming, DiGrado and Katz.
"OCCUPATIONAL SAFETY AND HEALTH LAW" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (such as
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day
operations of such Person;
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(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons
exercising similar authority), is not required to be specifically
authorized by the parent company (if any) of such Person, and
does not require any other separate or special authorization of
any nature; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization,
in the ordinary course of the normal day-to-day operations of
other Persons that are in the same line of business as such
Person.
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN" -- as defined in Section 3.13.
"PROCEEDING" -- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or any one or more members of such individual's
Family;
(c) any Person in such which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
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With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under
common control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity); and
(e) any Related Person of any individual described in Clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"RELEASE" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment.
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT" -- the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
"SELLERS" -- as defined in the first paragraph of this Agreement.
"SUBSIDIARY" -- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
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"TAX" -- any tax (including any excise tax, payroll tax, income tax,
capital gains tax, value added tax, sales or use tax, franchise tax, property or
inventory tax, gift tax, or estate tax), levy, assessment, tariff, duty
(including any customs duty), deficiency, or other fee, and any related charge
or amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Body.
"TAX RETURN" -- any return (including an information return), report,
statement, schedule, notice, form or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"THREATENED" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or otherwise
pursued in the future.
2. TRANSFER OF SHARES; CASH PAYMENT; CLOSING
2.1 DELIVERY BY IOI. Subject to the terms and conditions of this
Agreement, at the Closing Sellers will sell and transfer to IOI all of the
outstanding shares of common stock of the Acquired Company and IOI undertakes
the following:
(a) the delivery by IOI to Winters of 31,207 shares of IOI common stock,
to Kleinschmidt of 8,858 shares of IOI common stock, to Frensilli of
31,207 shares of IOI common stock, to Fleming of 32,874 shares of IOI
common stock, to DiGrado of 19,127 shares of IOI common stock, and to
Katz of 19,127 shares of IOI common stock; and
(b) the delivery by IOI to Winters of a non-negotiable subordinated,
convertible note in the amount of $142,932, to Kleinschmidt of a non-
negotiable subordinated, convertible note in the amount of $67,500, to
Frensilli of a non-negotiable subordinated, convertible note in the
amount of $142,932, to Fleming of a non-negotiable subordinated,
convertible note in the amount of $250,500, to DiGrado of a non-
negotiable subordinated, convertible note in the amount of $240,618,
and to Katz of a non-negotiable subordinated, convertible note in the
amount of $240,618; and
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(c) the delivery by IOI to Winters of cash in the amount of $218,437, to
Kleinschmidt of cash in the amount of $84,028, to Frensilli of cash
in the amount of $218,437, to Fleming of cash in the amount of
$373,770, to DiGrado of cash in the amount of $257,814, and to Katz of
cash in the amount of $257,814; and
(d) The assumption by IOI of those liabilities identified on Schedule
2.1(d), which are represented by Sellers not to exceed in the
aggregate $62,201.
2.2 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place on the later of (i) November ____, 1997 and (ii) the
date that is two business days following the termination of the applicable
waiting period under the HSR Act, or at such other time and place as the parties
may mutually agree. Subject to the provisions of Section 9, failure to
consummate the purchase and sale provided for in this Agreement on the date and
time and at the place determined pursuant to this Section 2.2 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
2.3 CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to or exchange with Buyer:
(i) fully executed bills of sale and assignment to IOI of the
accounts receivable of the Existing Practice;
(ii) articles of incorporation as filed with the Louisiana Secretary
of State of Medical Practice together with an original duplicate of the
corporate bylaws, fully executed option agreement, an original duplicate of
the buy-sell agreement, and an original duplicate of the written consent in
lieu of initial organizational meeting;
(iii) fully executed sale agreement transferring to Medical Practice
the Medical Assets of the Existing Practice;
(iv) evidence of the Management Services Agreement between Medical
Practice and the Acquired Company;
(v) fully executed terminations and mutual releases of all existing
agreements between each Seller and the Existing Practice, effective as of
the Closing Date;
(vi) evidence of the termination of all the employees of the Existing
Practice except as set forth on Schedule 3.20(e);
(vii) fully executed employment agreements between Medical Practice and
Jack L. Winters, M.D., A.G. Kleinschmidt, Jr., M.D., Joseph J. Frensilli,
M.D., Robert A. Fleming, Jr., M.D., Chris J. DiGrado, M.D., and Ralph P.
Katz, M.D., effective as of the Closing Date;
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(viii) articles of amendment as filed with the Louisiana Secretary of
State for the Existing Practice to have been converted into the Acquired
Company, together with all corporate, tax, and financial records and books
of the Acquired Company including, but not limited to articles of
incorporation as filed with the Louisiana Secretary of State, corporate
bylaws, and corporate minutes and resolutions of the board of directors and
shareholders;
(ix) written resignations of the directors and officers of the
Acquired Company and the Existing Practice;
(x) certificates representing all the outstanding and issued
capital stock of the Acquired Company, duly endorsed (or accompanied by
duly executed stock powers), for transfer to IOI together with all
corporate records and books of the Acquired Company including, but not
limited to articles of incorporation as filed with the Louisiana Secretary
of State, corporate bylaws, and corporate minutes and resolutions of the
board of directors and shareholders; and
(xi) a certificate executed by Sellers representing and warranting
to Buyer that each of Sellers' representations and warranties in this
Agreement was accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Schedules that
were delivered by Sellers to Buyer prior to the Closing Date in accordance
with Section 5.5).
(b) Buyer will deliver or exchange:
(i) the Acquisition Price (except that certificates of IOI common
stock may be issued by Buyer up to fifteen (15) working days after the
Closing Date); and
(ii) a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all respects as of the Closing Date as if
made on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING.
(a) Schedule 3.1 contains a complete and accurate list for the Acquired
Company of its name, its jurisdiction of incorporation, other jurisdictions in
which it is authorized to do business, and its capitalization (including the
identity of each stockholder and the number of shares held by each). The
Acquired Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and
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authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts. The Acquired Company is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents
of the Acquired Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers enforceable against them in accordance with its terms. Upon the
execution and delivery or exchange by Sellers or the Acquired Company of this
Agreement and the documents set forth in Sections 2.3, 7.4, and otherwise
(collectively, the "Sellers' Closing Documents"), the Sellers' Closing Documents
will constitute the legal, valid, and binding obligations of Sellers,
enforceable against them in accordance with their respective terms. Sellers
have the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and the Sellers' Closing Documents and to
perform their obligations under this Agreement and the Sellers' Closing
Documents.
(b) Except as set forth in Schedule 3.2(b), neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired Company, or (B)
any resolution adopted by the board of directors or the stockholders of the
Acquired Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Acquired Company or
any Seller, or any of the assets owned or used by the Acquired Company, may
be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, the
Acquired Company;
(iv) cause IOI or the Acquired Company to become subject to, or to
become liable for the payment of, any Tax;
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(v) cause any of the assets owned by the Acquired Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Acquired Company.
Except as set forth in Schedule 3.2(b), no Seller or Acquired Company is or will
be required to give any notice to or obtain Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
(c) Sellers are acquiring IOI shares for their own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act. With the exception of Katz, each Seller is an "accredited investor" as
such term is defined in Rule 501(a) under the Securities Act.
3.3 CAPITALIZATION. The authorized equity securities of the Acquired
Company are as reflected on Exhibit 3.3, which also reflects that portion
thereof which are issued and outstanding and the par value thereof, the record
and beneficial ownership of all such issued and outstanding shares. Sellers are
and will be on the Closing Date the record and beneficial owners and holders of
all such issued and outstanding shares, free and clear of all Encumbrances. All
of the outstanding equity securities and other securities of the Acquired
Company are owned of record and beneficially by the Acquired Company or Sellers,
free and clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears upon any certificate representing equity
securities of the Acquired Company. All of the outstanding equity securities of
the Acquired Company have been duly authorized and validly issued and are fully
paid and nonassessable. There are no Contracts relating to the issuance, sale,
or transfer of any equity securities or other securities of the Acquired
Company. None of the outstanding equity securities or other securities of the
Acquired Company was issued in violation of the Securities Act or any other
applicable state or federal securities laws or any other Legal Requirement. The
Acquired Company does not own, nor has any Contract to acquire, any equity
securities or other securities of any Person (other than Acquired Company) or
any direct or indirect equity or ownership interest in any other business.
3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) audited
balance sheets of the Acquired Company at December 31, 1996 and 1995, and the
related statements of income, changes in stockholders' equity, and changes in
cash for each of the fiscal years then ended (the "Financial Statements"), and
(b) an unaudited balance sheet and the related statements of income, changes in
stockholders' equity, and changes in cash of the Acquired Company as of
September 30, 1997 (the "Interim Financial Statements") in each case with the
notes and with the reports
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thereon of independent certified public accountants admitted to practice before
the Securities and Exchange Commission. Such financial statements and notes
fairly present the financial condition, revenues, expenses, changes in
stockholders' equity and cash position, and the results of operations of the
Acquired Company as of the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP. The financial
statements referred to in this Section 3.4 reflect the consistent application of
such accounting principles throughout the periods involved. No financial
statements of any Person other than the Acquired Company are required by GAAP to
be included in the financial statements of the Acquired Company.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Acquired Company, all of which have been made
available to Buyer, are complete and accurate and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. The minute book of the Acquired Company
contains accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Boards of Directors, and committees of
the Boards of Directors of the Acquired Company, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute book. At the
Closing, the book and records will be in the possession of the Acquired Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Schedule 3.6 contains a complete
and accurate list of all real property, leaseholds, or other interests therein
owned by the Acquired Company. Sellers have delivered or made available to
Buyer copies of the deeds and other instruments (as recorded) by which the
Acquired Company acquired such real property and interests, and copies of all
title insurance policies, opinions, abstracts, and surveys in the possession of
Sellers or the Acquired Company and relating to such property or interests. The
Acquired Company owns (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that it purports to own located in the facilities owned or
operated by the Acquired Company or reflected as owned in the books and records
of the Acquired Company, including all of the properties and assets reflected in
the Financial Statements and the Interim Financial Statements (except for assets
held under capitalized leases disclosed or not required to be disclosed in
Schedule 3.6 and personal property sold since the date of the Financial
Statements and the Interim Financial Statements, as the case may be, in the
Ordinary Course of Business or as set forth in the Contemplated Transactions),
and all of the properties and assets purchased or otherwise acquired by the
Acquired Company since the date of the Financial Statements (except for personal
property acquired and sold since the date of the Financial Statements in the
Ordinary Course of Business and consistent with past practice) which
subsequently purchased or acquired properties and assets (other than inventory
and short-term investments) are listed in Schedule 3.6. All material properties
and assets reflected in the Financial Statements and the Interim Financial
Statements are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the Financial Statements or the Interim Financial Statements as
securing specified liabilities or obligations, with respect to which no
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default (or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the Interim Financial
Statements (such mortgages and security interests being limited to the property
or assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default exists, (c) liens
for current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of the Acquired Company, and (ii) zoning laws
and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto. All buildings, plants, and structures owned
by the Acquired Company lie wholly within the boundaries of the real property
owned by the Acquired Company and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants,
structures, and equipment of the Acquired Company are structurally sound, are in
good operating condition and repair, and are adequate for the uses to which they
are being put, and none of such buildings, plants, structures, or equipment is
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The building, plants,
structures, and equipment of the Acquired Company are sufficient for the
continued conduct of the Acquired Company's businesses after the Closing in
substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE. As of the Closing Date all accounts receivable
of the Acquired Company (formerly the Existing Practice) have been sold to IOI
under separate terms and conditions of Accounts Receivable Bills of Sale and
Assignment of even date herewith and the cash proceeds from such sales
distributed to Sellers. There are no accounts receivable of the Acquired
Company to be sold to IOI under this Stock Purchase Agreement.
3.9 INVENTORY. All inventory of the Acquired Company, whether or not
reflected in the Financial Statements or the Interim Financial Statements,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the
Financial Statements or the Interim Financial Statements or on the accounting
records of the Acquired Company as of the Closing Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market net
realizable value on a first in, first out basis. Except as set forth in Schedule
3.9, the quantities of each item of inventory (whether raw materials, work-in-
process, or finished goods) are not excessive, but are reasonable in the present
circumstances of the Acquired Company.
3.10 NO LIABILITIES. Except as set forth in Schedule 2.1(d), the Acquired
Company has no liabilities, guaranties or obligations of any nature (whether
known or unknown and whether absolute, accrued, contingent, or otherwise).
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3.11 TAXES.
(a) The Acquired Company has filed or caused to be filed (on a timely
basis) all Tax Returns that are or were required to be filed by or with respect
to the Acquired Company, separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements. Sellers have delivered to Buyer
copies of, and Schedule 3.11 contains a complete and accurate list of, all such
Tax Returns filed since January 1, 1990. The Acquired Company has paid, or made
provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Sellers or the Acquired Company, except such Taxes, if any, as are
listed in Schedule 3.11 and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
Financial Statements and the Interim Financial Statements.
(b) The United States federal and state income Tax Returns of the Acquired
Company subject to such Taxes have been audited by the IRS or relevant state tax
authorities or are closed by the applicable statute of limitations for all
taxable years through 1994. Schedule 3.11 contains a complete and accurate list
of all audits of all such Tax Returns, including a reasonably detailed
description of the nature and outcome of each audit. All deficiencies proposed
as a result of such audits have been paid, reserved against, settled, or, as
described in Schedule 3.11, are being contested in good faith by appropriate
proceedings. Schedule 3.11 describes all adjustments to the United States
federal income Tax Returns filed by the Acquired Company or any group of
corporations including the Acquired Company for all taxable years since 1990,
and the resulting deficiencies proposed by the IRS. Except as described in
Schedule 3.11, the Acquired Company has not given or been requested to give
waivers or extensions (or is or would be subject to a waiver or extension given
by any other Person) of any statute of limitations relating to the payment of
Taxes of the Acquired Company or for which the Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to the Acquired Company's liability for Taxes.
There exists no proposed tax assessment against the Acquired Company except as
disclosed in the Financial Statements, Interim Financial Statements, or in
Schedule 3.11. No consent to the application of Section 341(f)(2) of the Code
has been filed with respect to any property or assets held, acquired, or to be
acquired by the Acquired Company. All Taxes that the Acquired Company is or was
required by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by the Acquired Company after the date
of this Agreement. The Acquired Company, within the five-year period preceding
the Closing Date, has not been part of a consolidated federal income tax return.
(e) The Acquired Company has filed or caused to be filed all federal
excise tax returns that are or were required to be filed and the Acquired
Company has paid, or made provision for
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the payment of, all excise taxes that have or may have become due pursuant to
those Tax Returns or otherwise or pursuant to any assessment received by the
Acquired Company, except for those as to which are being contested in good faith
(as listed in Schedule 3.11) or those as to which adequate reserve has been
provided in the Financial Statements or the Interim Financial Statements.
3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Financial
Statements, or the Interim Financial Statements, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of the Acquired Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
3.13 EMPLOYEE BENEFITS.
(a) As used in this Section 3.13, the following terms have the meanings set
forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by the Acquired Company or an ERISA Affiliate of the
Acquired Company.
"Company Plan" means all Plans of which the Acquired Company or an ERISA
Affiliate of the Acquired Company is or was a Plan Sponsor, or to which the
Acquired Company or an ERISA Affiliate of the Acquired Company otherwise
contributes or has contributed, or in which the Acquired Company or an ERISA
Affiliate of the Acquired Company otherwise participates or has participated.
All references to Plans are to Company Plans unless the context requires
otherwise.
"Multi-Employer Plan" has the meaning given in ERISA (S) 3(37)A.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of Code (S) 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA (S) 3(2)(A).
"Plan" has the meaning given in ERISA (S) 3(3).
"Plan Sponsor" has the meaning given in ERISA (S) 3(16)(B).
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"Qualified Plan" means any Plan that meets or purports to meet the
requirements or Code (S) 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. (S) 1301 et seq.
"VEBA" means voluntary employees' beneficiary association under Code (S)
501(c)(9).
"Welfare Plan" has the meaning given in ERISA (S) 3(1).
(b) (i) Schedule 3.13(b)(i) contains a complete and accurate list of all
Company Plans, Company Other Benefit Obligations, and Company VEBAs, and
identifies as such all Company Plans that are (A) defined benefit Pension
Plans, (B) Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer
Plans.
(ii) Schedule 3.13(b)(ii) contains a complete and accurate list of
(A) all ERISA Affiliates of the Acquired Company, and (B) all Plans of
which any such ERISA Affiliate is or was a Plan Sponsor, in which any such
ERISA Affiliate participates or has participated, or to which any such
ERISA Affiliate contributes or has contributed.
(iii) Schedule 3.13(iii) sets forth, for each Multi-Employer Plan, as
of its last valuation date, the amount of potential withdrawal liability of
the Acquired Company and the Acquired Company's other ERISA Affiliates,
calculated according to information made available pursuant to ERISA (S)
4221(e).
(iv) Schedule 3.13(iv) sets forth a calculation of the liability of
the Acquired Company for post-retirement benefits other than pensions, made
in accordance with Financial Accounting Statement 106 of the Financial
Accounting Standards Board, regardless of whether the Acquired Company is
required by this Statement to disclose such information.
(v) Schedule 3.13(b)(iii) sets forth the financial cost of all
obligations owed under any Company Plan or Company Other Benefit Obligation
that is not subject to the disclosure and reporting requirements of ERISA.
(c) Sellers have delivered to Buyer:
(i) all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation, Company VEBA and of any related trust and
any related funding obligation, including (A) all plan descriptions and
summary plan descriptions of Company Plans for which Sellers or the
Acquired Company are required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries and
descriptions furnished to participants and beneficiaries regarding Company
Plans and, Company Other Benefit Obligations and Company VEBAs for which a
plan description or summary plan description is not required;
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(ii) all current personnel, payroll, and employment manuals and
policies;
(iii) any collective bargaining agreements pursuant to which
contributions have been or are being made or obligations incurred
(including both pension and welfare benefits) by the Acquired Company and
the ERISA Affiliates of the Acquired Company;
(iv) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
(v) all registration statements filed with respect to any Company
Plan;
(vi) all insurance policies purchased by or to provide benefits
under any Company Plan;
(vii) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors that
relate to any Company Plan, Company Other Benefit Obligation, or Company
VEBA;
(viii) all reports submitted within the four years preceding the date
of this Agreement by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with respect to any
Company Plan, Company Other Benefit Obligation or Company VEBA;
(ix) all notifications to employees of their rights under ERISA (S)
601 et seq. and IRC (S) 4980B;
(x) the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan, including all schedules thereto and the
opinions of independent accountants;
(xi) all notices that were given by or to the IRS, the PBGC, or the
Department of Labor to the Acquired Company, any ERISA Affiliate of the
Acquired Company, or any Company Plan within the four years preceding the
date of this Agreement;
(xii) with respect to Qualified Plans and VEBAs, the most recent
determination letter for each Plan of the Acquired Company that is a
Qualified Plan; and
(xiii) with respect to Title IV Plans, the Form PBGC-1 filed for each
of the three most recent plan years.
(d) (i) The Acquired Company has performed all of its respective
obligations under all Company Plans and Company Other Benefit Obligations.
The Acquired Company has made appropriate entries in its financial records
and statements for all
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obligations and liabilities under such Plans, VEBAs, and Obligations that
have accrued but are not due.
(ii) No statement, either written or oral, has been made by the
Acquired Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit
Obligation and that could have an adverse economic consequence to the
Acquired Company or to Buyer.
(iii) The Acquired Company, with respect to all Company Plans,
Company Other Benefits Obligations, and Company VEBAs, is, and each Company
Plan, Company Other Benefit Obligation, and Company VEBAs, is, in full
compliance with ERISA, the Code, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section 3.13, and with
any applicable collective bargaining agreement.
(A) No transaction prohibited by ERISA (S) 406 and no
"prohibited transaction" under Code (S) 4975(c) have
occurred with respect to any Company Plan.
(B) No Seller or Acquired Company has any liability to the IRS
with respect to any Plan.
(C) No Seller or Acquired Company has any liability under
ERISA (S) 502 or (S) 4071.
(D) All filings required by ERISA and the IRC as to each Plan
have been timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have been
timely provided.
(E) All contributions and payments made or accrued with
respect to all Company Plans, Company Other Benefit
Obligations, and Company VEBAs are deductible under Code
(S) 162 or (S) 404. No amount, or any asset of any Company
Plan, is subject to tax as unrelated business taxable
income.
(iv) Each Company Plan can be terminated within thirty days, without
payment of any additional contribution or amount and without the vesting or
acceleration of any benefits promised by such Plan.
(v) To Sellers' or the Acquired Company's Knowledge, no event has
occurred or circumstance exists that could result in a material increase in
premium costs of Company Plans and Company Other Benefit Obligations that
are insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
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(vi) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Company
Plan or Company Other Benefit Obligation, is pending or, to Sellers'
Knowledge, is Threatened.
(vii) Each Qualified Plan of the Acquired Company is qualified in
form and operation under Code (S) 401(a); each trust or Company VEBA for
each such Plan is exempt from federal income tax under Code (S) 501(a). No
event has occurred or circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan or trust.
(viii) The Acquired Company and each ERISA Affiliate of the Acquired
Company has met the minimum funding standard, and has made all
contributions required, under ERISA (S) 302 and IRC (S) 402.
(ix) No Company Plan is subject to Title IV of ERISA.
(x) The Acquired Company has paid all amounts due to the PBGC
pursuant to ERISA (S) 4007.
(xi) Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has ceased operations at any facility or has withdrawn
from any Title IV Plan in a manner that would subject any entity or Sellers
to liability under ERISA (S) 4062(e), (S) 4063, or (S) 4064.
(xii) Except as contemplated by Section 5.9, neither Acquired Company
nor any ERISA Affiliate of the Acquired Company has filed a notice of
intent to terminate any Plan or has adopted any amendment to treat a Plan
as terminated. The PBGC has not instituted proceedings to treat any Company
Plan as terminated. No event has occurred or circumstance exists that may
constitute grounds under ERISA (S) 4042 for the termination of, or the
appointment of a trustee to administer, any Company Plan.
(xiii) No amendment has been made, or is reasonably expected to be
made, to any Plan that has required or could require the provision of
security under ERISA (S) 307 or IRC (S) 401(a)(29).
(xiv) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred or
circumstance exists that may result in an accumulated funding deficiency as
of the last day of the current plan year of any such Plan.
(xv) The actuarial report for each Pension Plan of the Acquired
Company and each ERISA Affiliate of the Acquired Company fairly presents
the financial condition and the results of operations of each such Plan in
accordance with GAAP.
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(xvi) Since the last valuation date for each Pension Plan of the
Acquired Company and each ERISA Affiliate of the Acquired Company, no event
has occurred or circumstance exists that would increase the amount of
benefits under any such Plan or that would cause the excess of Plan assets
over benefit liabilities (as defined in ERISA (S) 4001) to decrease, or the
amount by which benefit liabilities exceed assets to increase.
(xvii) No reportable event (as defined in ERISA (S) 4043 and in
regulations issued thereunder) has occurred.
(xviii) Neither the Sellers nor Acquired Company has Knowledge of any
facts or circumstances that may give rise to any liability of any Seller,
the Acquired Company, or Buyer to the PBGC under Title IV of ERISA.
(xix) Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has ever established, maintained, or contributed to or
otherwise participated in, or had an obligation to maintain, contribute to,
or otherwise participate in, any Multi-Employer Plan.
(xx) Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has withdrawn from any Multi-Employer Plan with respect to
which there is any outstanding liability as of the date of this Agreement.
No event has occurred or circumstance exists that presents a risk of the
occurrence of any withdrawal from, or the participation, termination,
reorganization, or insolvency of, any Multi-Employer Plan that could result
in any liability of either the Acquired Company or Buyer to a Multi-
Employer Plan.
(xxi) Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has received notice from any Multi-Employer Plan that it
is in reorganization or is insolvent, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any
excise tax, or that such Plan intends to terminate or has terminated.
(xxii) No Multi-Employer Plan to which the Acquired Company or any
ERISA Affiliate of the Acquired Company contributes or has contributed is a
party to any pending merger or asset or liability transfer or is subject to
any proceeding brought by the PBGC.
(xxii) Except to the extent required under ERISA (S) 601 et seq. and
Code (S) 4980B, the Acquired Company provides no health or welfare benefits
for any retired or former employee or is obligated to provide health or
welfare benefits for any retired or former employee or is obligated to
provide health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(xxiv) The Acquired Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired and
active employees.
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(xxv) Sellers and the Acquired Company have complied with the
provisions of ERISA (S) 601 et seq. and Code (S) 4980B.
(xxvi) No payment that is owed or may become due to any director,
officer, employee, or agent of the Acquired Company will be nondeductible
to the Acquired Company or subject to tax under Code (S) 280G or (S) 4999;
nor will the Acquired Company be required to "gross up" or otherwise
compensate any such person because of the imposition of any excise tax on a
payment to such person.
(xxvii) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any benefit.
3.1 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Schedule 3.14:
(i) the Acquired Company is, and at all times has been, in full
compliance with each Legal Requirement that is or was applicable to it or
to the conduct or operation of its business or the ownership or use of any
of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Acquired Company of, or a failure on the part of the
Acquired Company to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of the Acquired Company to undertake, or
to bear all or any portion of the cost of, any remedial action of any
nature; and
(iii) the Acquired Company has not received at any time any notice
or other communication (whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement,
or (B) any actual, alleged, possible, or potential obligation on the part
of the Acquired Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Schedule 3.14 contains a complete and accurate list of each
Governmental Authorization that is held by the Acquired Company or that
otherwise relates to the business of, or to any of the assets owed or used by,
the Acquired Company. Each Governmental Authorization listed or required to be
listed in Schedule 3.14 is valid and in full force and effect. Except as set
forth in Schedule 3.14:
(i) the Acquired Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 3.14;
(ii) no event has occurred or circumstance exists that may (with
or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or
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a failure to comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Schedule 3.14, or (B)
result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule 3.14;
(iii) the Acquired Company has not received at any time any notice
or other communication (whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or requirement of
any Governmental Authorization, (B) any actual, proposed, possible, or
potential revocation, withdrawal, suspension, cancellation, termination of,
or modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Government Authorizations listed or required to be listed in
Schedule 3.14 have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.14 collectively constitute
all of the Governmental Authorizations necessary to permit the Acquired Company
to lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit the Acquired Company to own and use its
assets in the manner in which it currently owns and uses such assets.
3.1 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against the Acquired Company or
any Seller or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, the Acquired Company; or
(ii) That challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of Sellers and the Acquired Company, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstances exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
Sellers have delivered to Buyer copies of all pleadings, correspondence, and
other documents relating to each Proceeding listed in Schedule 3.15;
The Proceedings listed in Schedule 3.15 will not have a material adverse
effect on the business, operations, assets, condition, or prospects of the
Acquired Company.
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(b) Except as set forth in Schedule 3.15:
(i) there is no Order to which the Acquired Company, or any of the
assets owned or used by the Acquired Company, is subject;
(ii) no Seller is subject to any Order that relates to the business
of, or any of the assets owned or used by, the Acquired Company; and
(iii) to the Knowledge of Sellers and the Acquired Company, no
officer, director, agent, or employee of the Acquired Company is subject to
any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to
the business of the Acquired Company.
(c) Except as set forth in Schedule 3.15:
(i) the Acquired Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Order to which
it, or any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order
to which the Acquired Company, or any of the assets owned or used by the
Acquired Company, is subject; and
(iii) the Acquired Company has not received at any time any notice or
other communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any
Order to which the Acquired Company, or any of the assets owned or used by
the Acquired Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Schedule 3.16, since the date of the Interim Financial Statements, the Acquired
Company has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Acquired Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of the
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by the Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Acquired Company;
(c) payment or increase by the Acquired Company of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business)
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employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Acquired Company;
(e) damage to or destruction or loss of any asset or property of the
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, joint venture, credit, or similar agreement, or (ii) any Contract
or transaction involving a total remaining commitment by the Acquired Company
taken together of at least Five Thousand Dollars ($5,000.00);
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Acquired Company taken together in excess of Five Thousand Dollars ($5,000.00);
(i) incurrence of any indebtedness, assumption of any liability, or
issuance of any guarantee of the indebtedness or liability of a Person;
(j) change in the accounting methods used by the Acquired Company; or
(k) agreement, whether oral or written, by the Acquired Company to do any
of the foregoing.
3.17 CONTRACTS; NO DEFAULTS.
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers
have delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services
or delivery of goods or materials by the Acquired Company taken together or
to the Acquired Company taken together of an amount or value in excess of
Five Thousand Dollars ($5,000.00);
(ii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
the Acquired Company taken together in excess of Five Thousand Dollars
($5,000.00);
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(iii) each lease, rental or occupancy agreement, license, and other
Applicable Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or personal property
(except personal property leases having a value per item or aggregate
payments of less than Five Thousand Dollars ($5,000.00) and with terms of
less than one year);
(iv) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure any of the
Intellectual Property Assets;
(v) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a
group of employees relating to wages, hours, and other conditions of
employment;
(vi) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Acquired Company with any other Person;
(vii) each Applicable Contract containing covenants that in any way
purport to restrict the Acquired Company's business activity or limit the
freedom of the Acquired Company to engage in any line of business or to
compete with any Person;
(viii) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by the Acquired Company to be responsible for consequential
damages;
(xi) each Applicable Contract for capital expenditures in excess of
Five Thousand Dollars ($5,000.00);
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the
Acquired Company other than in the Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Schedule 3.17(a) sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of the Acquired Company under
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the Contracts, and the Acquired Company's offices where details relating to the
Contracts are located.
(b) Except as set forth in Schedule 3.17(b) or as is set forth in the
Contemplated Transactions:
(i) no Seller nor any Related Person of Seller has or may acquire
any rights under, and no Seller has or may become subject to any obligation
or liability under, any Contract that relates to the business of, or any of
the assets owned or used by, the Acquired Company; and
(ii) to the Knowledge of Sellers and the Acquired Company, no
officer, director, agent, employee, consultant, or contractor of the
Acquired Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Acquired Company, or (B) assign to the
Acquired Company or to any other Person any rights to any invention,
improvement, or discovery.
(c) Except as set forth in Schedule 3.17(c):
(i) each Contract identified or required to be identified in
Schedule 3.17(a) is in full force and effect and is valid and enforceable
in accordance with its terms and that no arrangements exist which are not
reflected on the Financial Statements and the Interim Financial Statements,
and that no default exists under any such agreements; and
(ii) no Contract identified or required to be identified in Schedule
3.17(a) contains any term or requirement that is unreasonable,
extraordinary, or not customary in the industries in which the Acquired
Company operates.
(d) Except as set forth in Schedule 3.17(d):
(i) Acquired Company is, and at all times since January 1, 1995 has
been, in full compliance with all applicable terms and requirements of each
Contract under which such Acquired Company has or had any obligation or
liability in excess of Five Thousand Dollars ($5,000.00) or by which such
Acquired Company or any of the assets owned or used by such Acquired
Company with a value in excess of Five Thousand Dollars ($5,000.00) is or
was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Acquired Company has or had any rights
and involving any obligation or liability in excess of Five Thousand
Dollars ($5,000.00) is, and at all times since January 1, 1995 has been, in
full compliance with all applicable terms and requirements of such
Contract;
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(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result
in a violation or breach of, or give the Acquired Company or other Person
the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; and
(iv) the Acquired Company has not given to or received from any
other Person, at any time since January 1, 1995, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any
Contract involving any obligation or liability in excess of Five Thousand
Dollars ($5,000.00);
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to the
Acquired Company under current or completed Contracts with any Person and no
such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Acquired Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.18 INSURANCE.
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which
the Acquired Company is a party or under which the Acquired Company, or any
director of the Acquired Company, is or has been covered at any time within
the three years preceding the date of this Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the Acquired Company's
financial statements with regard to the adequacy of such entity's coverage
or of the reserves for claims.
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(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement by or affecting the Acquired
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by the Acquired Company; and
(iii) all obligations of the Acquired Company to provide coverage to
third parties (for example, under leases or service agreements) and
identifies the policy under which such coverage is provided.
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and
each of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of One Thousand Dollars ($1,000.00) which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance,
and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 3.18(d):
(i) All policies to which the Acquired Company is a party or that
provide coverage to the Acquired Company or officer or director thereof:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound and
reputable;
(C) taken together, provide adequate insurance coverage for
the assets and the operations of the Acquired Company for
all risks to which the Acquired Company is normally
exposed;
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(D) are sufficient for compliance with all Legal Requirements
and Contracts to which the Acquired Company is a party or
by which any of them is bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the
Acquired Company.
(ii) No Seller or the Acquired Company has received (A) any refusal
of coverage or any notice that a defense will be afforded with reservation
of rights, or (B) any notice of cancellation or any other indication that
any insurance policy is no longer in full force or effect or that the
issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Acquired Company has paid all premiums due, and has
otherwise performed all of its obligations, under each policy to which the
Acquired Company is a party or that provides coverage to the Acquired
Company or director thereof.
(iv) The Acquired Company has given notice to the insurer of all
claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 3.19:
(a) The Acquired Company is, and at all times prior to the date hereof has
been, in full compliance with, and has not been and is not in violation of or
liable under, any Environmental Law. No Seller or the Acquired Company has any
basis to expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or Threatened order,
notice, or other communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner or operator of
any Facilities, or any actual or potential violation or failure to comply with
any Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or the Acquired Company has had an
interest, or with respect to any property or Facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used, or
processed by Sellers, the Acquired Company, or any other Person for whose
conduct they are or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and the Acquired
Company, Threatened claims, Encumbrances, or other restrictions of any nature,
resulting from any Environmental, Health, and Safety Liabilities or arising
under or pursuant to any Environmental
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Law, with respect to or affecting any of the Facilities or any other properties
and assets (whether real, personal, or mixed) in which Sellers or the Acquired
Company has or had an interest.
(c) No Seller or the Acquired Company has Knowledge of any basis to
expect, nor has any of them or any other Person for whose conduct they are or
may be held responsible, received, any Order, notice, communication, inquiry,
warning, citation, summons, directive, or any other indication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which Sellers or the Acquired Company had an interest, or with respect to any
property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used, or processed by Sellers, the Acquired
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) No Seller or the Acquired Company, or any other Person for whose
conduct they are or may be held responsible, has any Environmental, Health and
Safety Liabilities with respect to the Facilities or, to the Knowledge of
Sellers and the Acquired Company, with respect to any other properties and
assets (whether real, personal, or mixed) in which Sellers or the Acquired
Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. No
Seller, the Acquired Company, any other Person for whose conduct they are or may
be held responsible, or to the Knowledge of Sellers and the Acquired Company,
any other Person, has permitted or conducted, or is aware of, any Hazardous
Activity conducted with respect to the Facilities or any other properties or
assets (whether real, personal, or mixed) in which Sellers or the Acquired
Company has or had an interest except in full compliance with all applicable
Environmental Law.
(f) There has been no Release or, to the Knowledge of Sellers and the
Acquired Company, Threat of Release, of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the Facilities, or from or by any other properties and
assets (whether real, personal, or mixed) in which Sellers or the Acquired
Company has or had an interest, or to the Knowledge of Sellers and the Acquired
Company any geologically or hydrologically adjoining property, whether by
Sellers, the Acquired Company, or any other Person.
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(g) Sellers have delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by Sellers or the Acquired Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by Sellers, the Acquired Company, or any other Person for whose conduct they are
or may be held responsible, with Environmental Laws.
3.20 EMPLOYEES.
(a) Schedule 3.20(a) contains a complete and accurate list of the
following information for each employee director, and officer of the Acquired
Company, including each employee on leave of absence or layoff status: employer;
name; job title; current compensation paid or payable and any change in
compensation since January 1, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under, and amounts vested or
earned or to which an employee is entitled under, the Acquired Company's
pension, retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan.
(b) No former or current employee or current or former officer or director
of the Acquired Company is a party to, or is otherwise bound by, any agreement
or arrangement, including any confidentiality, non-competition, or proprietary
rights agreement, between such employee, officer or director and any other
entity or person ("Proprietary Rights Agreement") that in any way adversely
affected, affects, or will affect (i) the performance of his duties as an
employee, officer or director of the Acquired Company, or (ii) the ability of
the Acquired Company to conduct its business, including any Proprietary Rights
Agreement with Sellers or the Acquired Company by any such employee or director.
(c) Schedule 3.20(a) also contains a complete and accurate list of the
following information for each retired employee or director of the Acquired
Company, or their dependents, receiving benefits or scheduled to receive
benefits in the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other benefits.
(d) Except as set forth in Schedule 3.20(a), neither the Acquired Company,
nor any Person acting directly or indirectly on behalf of the Acquired Company,
has any written employment agreements with any Person, or any written
compensation plan (excluding those set forth in the Schedule provided under
Section 3.20(a) above.
(e) Except as set forth in Schedule 3.20(e) or as set forth in the
Contemplated Transactions, to Sellers' Knowledge, no director, officer, or other
key employee of the Acquired Company intends to terminate his employment with
the Acquired Company.
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(f) Except as set forth in Schedule 3.20(f), the Acquired Company has not
incurred and shall not incur any termination, severance, or similar payment as a
result of the Contemplated Transactions.
3.21 LABOR DISPUTES; COMPLIANCE. The Acquired Company is not and has not
been a party to any collective bargaining or other labor Contract. There has
not been, there is not presently pending or existing, and there is not
Threatened any strike, slowdown, picketing, work stoppage, labor arbitration or
proceeding in respect of the grievance of any employee, application or complaint
filed by an employee or union with the National Labor Relations Board, Equal
Employment Opportunity Commission, or any comparable Governmental Body,
organizational activity, or other labor dispute against or affecting the
Acquired Company or its premises, and no application for certification of a
collective bargaining agent is pending or is Threatened. No event has occurred
or circumstance exists that could provide the basis for any work stoppage or
other labor dispute. There is no lockout of any employees by the Acquired
Company, and no such action is contemplated by the Acquired Company. The
Acquired Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. The Acquired Company is not liable for the payment of any taxes,
fines, penalties, or other amounts, however designated, for failure to comply
with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets. With the exception of Medical Assets,
the term "Intellectual Property Assets" includes:
(i) all fictional business names, trading names, registered and
unregistered trademarks, service marks, and applications (collectively,
"Marks");
(ii) all patents, patent applications, and inventions and
discoveries that be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
that are material to the Acquired Company's businesses (collectively,
"Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask
Works"); and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Acquired Company as licensee or licensor.
(b) Agreements. Schedule 3.22(b) contains a complete and accurate list
and summary description, including any royalties paid or received by the
Acquired Company, of all agreements
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relating to the Intellectual Property Assets to which the Acquired Company is a
party or by which the Acquired Company is bound except for any license implied
by the sale of a product and perpetual, paid-up licenses for mass market
software programs under which the Acquired Company is a licensee. There are no
outstanding and, to Sellers' Knowledge, no Threatened disputes or disagreements
with respect to any such agreement.
(c) Know-How Necessary for the Business.
(i) The Intellectual Property Assets are all those necessary for
the operation of the Acquired Company's businesses as they are currently
conducted. The Acquired Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free and clear
of all liens, security interests, charges, encumbrances, equities, and
other adverse claims, and has the right to use without payment to a third
party all of the Intellectual Property Assets.
(ii) Except as set forth in Schedule 3.22(c)(ii) all former and
current employees of the Acquired Company have executed written Contracts
with the Acquired Company that assign to the Acquired Company all rights to
any inventions, improvements, discoveries, or information relating to the
business of the Acquired Company. No employee of the Acquired Company has
entered into any Contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee
to transfer, assign, or disclose information concerning his work to anyone
other than the Acquired Company.
(d) Patents.
(i) Schedule 3.22(d) contains a complete and accurate list and
summary description of any Patents owned by Sellers or the Acquired Company
and used in the business of the Acquired Company. The Acquired Company is
the owner of all right, title, and interest in and to each of the Patents,
free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims.
(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable,
and are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the Closing Date.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Sellers' Knowledge,
there is no potentially interfering patent or patent application of any
third party.
(iv) No Patent is infringed or, to Sellers' Knowledge, has been
challenged or threatened in any way. None of the products manufactured and
sold, nor any process or know-how used, by the Acquired Company infringes
or is alleged to infringe any patent or other proprietary right of any
other Person.
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(v) All products made, used, or sold under the Patents have been
marked with the proper patent notice.
(e) Trademarks
(i) Schedule 3.22(e) contains a complete and accurate list and
summary description of all Marks owned or licensed to the Acquired Company.
The Acquired Company is the owner of all right, title, and interest in and
to each of the Marks owned or licensed to the Acquired Company, free and
clear of all liens, security interests, charges, encumbrances, equities,
and other adverse claims.
(ii) All Marks owned or licensed to the Acquired Company have been
registered with the United States Patent and Trademark Office and are
currently in compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and incontestability
and renewal applications), are valid and enforceable, and are not subject
to any maintenance fees or taxes or actions falling due within ninety days
after the Closing Date.
(iii) No Mark owned or licensed to the Acquired Company has been or
is now involved in any opposition, invalidation, or cancellation and, to
Sellers' Knowledge, no such action is Threatened with the respect to any of
the Marks.
(iv) To Sellers' Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark owned or licensed to the Acquired Company is infringed
or, to Sellers' Knowledge, has been challenged or threatened in any way.
None of the Marks used by the Acquired Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any third party.
(f) Copyrights
(i) Schedule 3.22(f) contains a complete and accurate list and
summary description of all copyrights owned or licensed to the Acquired
Company. The Acquired Company is the owner of all right, title, and
interest in and to each of the Copyrights owned or licensed to the Acquired
Company, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) All the Copyrights owned or licensed to the Acquired Company
have been registered and are currently in compliance with formal legal
requirements, are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days after
the date of Closing.
(iii) No Copyright owned or licensed to the Acquired Company is
infringed or, to Sellers' Knowledge, has been challenged or threatened in
any way. None of the
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subject matter of any of the Copyrights owned or licensed to the Acquired
Company infringes or is alleged to infringe any copyright of any third
party.
(g) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use
without reliance on the special knowledge or memory of others.
(ii) Sellers and the Acquired Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of their
Trade Secrets.
(iii) The Acquired Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade Secrets
are not part of the public knowledge or literature, and, to Sellers'
Knowledge, have not been used, divulged, or appropriated either for the
benefit of any Person (other than the Acquired Company) or to the detriment
of the Acquired Company. No Trade Secret is subject to any adverse claim
or has been challenged or threatened in any way.
3.23 CERTAIN PAYMENTS. Neither the Acquired Company, Seller or director,
officer, agent, nor employee of the Acquired Company or Seller, nor any other
Person associated with or acting for or on behalf of the Acquired Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Acquired Company or any
Affiliate of the Acquired Company, or (iv) in violation of any Legal
Requirement, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of the Acquired Company.
3.24 DISCLOSURE.
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Schedules and Exhibits omits to state a material fact necessary
to make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to any Seller that has specific application to
any Seller or the Acquired Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as any Seller can
reasonably foresee, materially threatens, the assets,
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business, prospects, financial condition, or results of operations of the
Acquired Company (on a consolidated basis) that has not been set forth in this
Agreement or its Exhibits and Schedules.
3.25 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in Schedule
3.25, no Seller or any Related Person of Sellers or of the Acquired Company has,
has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the Acquired Company's
business. No Seller or any Related Person of Sellers or of the Acquired Company
owns, or has owned, of record or as a beneficial owner, an equity interest or
any other financial or profit interest in any Person that has (i) had business
dealings or a material financial interest in any transaction with the Acquired
Company other than business dealings or transactions conducted in the Ordinary
Course of Business with the Acquired Company at substantially prevailing market
prices and on substantially prevailing market terms, or (ii) engaged in
competition with the Acquired Company with respect to any line of the products
or services of the Acquired Company (a "Competing Business") in any market
presently served by the Acquired Company. Except as set forth in Schedule 3.25,
no Seller or any Related Person of Sellers or of the Acquired Company is a party
to any Contract with, or has any claim or right against, the Acquired Company.
3.26 INVESTMENT REPRESENTATIONS.
(a) Sellers are acquiring the IOI Securities to be issued to Sellers as
purchase price consideration, in accordance with this Agreement, for their own
account for investment and not with a view toward, or for sale in connection
with, any distribution thereof, and have no present or contemplated agreement,
undertaking, arrangement, indebtedness or commitment providing for the
disposition thereof, except in accordance with a distribution thereof registered
under the Securities Act.
(b) Sellers understand that because the IOI Securities to be issued have
not been registered under the Securities Act, Sellers cannot dispose of any or
all of such IOI Securities unless such IOI Securities are subsequently
registered under the Securities Act or exemptions from such registration are
available. Sellers further understand that IOI may, as a condition to the
transfer of any of such IOI Securities, require that the request for transfer be
accompanied by an opinion of counsel, in form and substance satisfactory to IOI,
to the effect that the proposed transfer does not result in a violation of the
Securities Act, unless such transfer is covered by an effective registration
statement under the Securities Act. Sellers acknowledge and understand that the
certificates for the IOI Securities will bear a legend substantially to such
effect. Sellers acknowledge and understand that Sellers have no independent
right to require IOI to register the IOI Securities.
(c) Each Seller either alone or together with their representatives is
knowledgeable and experienced in business and financial matters and capable of
evaluating the merits and risks of the investment in such IOI Securities, is
able to bear the economic risk of loss of its investment in IOI, has been
granted the opportunity to make a thorough investigation of the affairs of IOI,
and has availed himself of such opportunity either directly or through
authorized representatives.
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(d) Each Seller has been advised that such IOI Securities have not been
and are not being registered under the Securities Act or under the "blue sky"
laws of any jurisdiction and that IOI in issuing such IOI Securities is relying
upon, among other things, the representations and warranties of Sellers
contained in this Section 3.26 in concluding that each such issuance is a
"private offering" and does not require compliance with the registration
provisions of the Securities Act.
(e) Each Seller is an individual.
(f) Each Seller has read the Private Placement Memorandum attached as
Exhibit 3.26(f)(i) and the IOI securities filings attached as Exhibit
3.26(f)(ii) (the "IOI Securities Filings") and has had an opportunity to ask
questions of and receive answers from IOI or a person or persons acting on IOI's
behalf, concerning the IOI Securities (consideration, etc.) investment, and all
such questions have been answered to each Seller's full satisfaction. Each
Seller has had an opportunity to obtain all additional information necessary to
verify the accuracy of the foregoing. No Seller has received representations or
warranties (other than any contained in this Agreement) from IOI or any of its
affiliates, employees or agents, and, in making their investment decision, each
Seller is relying solely on the information contained in the Private Placement
Memorandum and the IOI Securities Filings and investigations made by Sellers.
3.27 BROKERS OR FINDERS. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
3.28 SPOUSAL INTERESTS. Katz represents and warrants that he is not and
has never been married or entered into a relationship that would give rise to an
assertion of marital or other property rights in any of the interests of Katz
being transferred in this Stock Purchase Agreement or any of the Contemplated
Transactions or their related transactions. Winters and spouse shall execute a
separate affidavit in lieu of the spousal waiver provided herein and as provided
in other documents of the Contemplated Transactions.
3.29 925 Avenue C. Sellers represent and warrant that the Existing
Practice is a subtenant under an agreement for 925 Avenue C, Marrero, Louisiana
with Winters, Kleinschmidt, Frensilli, Fleming, and Klaimer Real Estate
Partnership ("Sublessor"). With respect to such sublease Sellers represent and
warrant (1) Existing Practice has duly and timely performed all of its
responsibilities under the sublease including the payment of rent due up to and
including the Closing Date, (2) Existing Practice has not defaulted nor has any
default been alleged against Existing Practice under the sublease, (3) the
Sublessor has no claim, charge, lien, defense, set-off, or counterclaim against
Existing Practice, (4) the sublease shall expire on March 31, 1998, (5) the
landlord to the Sublessor shall extend the underlying lease to March 31, 1998,
and (5) the landlord to Sublessor will not object to the sublease or the
assignment of the sublease by operation of law under this Stock Purchase
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
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Buyer represents to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a business corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of this Agreement (together with any other
required agreements to be signed and delivered at Closing, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal, valid, and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform their obligations under this Agreement and the Buyer's
Closing Documents.
(b) Except as set forth in Schedule 4.2 (b), neither the execution and
delivery of this Agreement by Buyer nor the consummation or performance of any
of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any provisions of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
or
(iv) any Contract to which Buyer is a party or by which Buyer may be
bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT. Buyer is acquiring the Acquired Company's stock
for its own account and not with a view to its distribution within the meaning
of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or
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other similar payment in connection with this Agreement and will indemnify and
hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause the Acquired Company and its
Representatives to, (a) afford Buyer and its Representatives (collectively,
"Buyer's Advisors") full and free access to each Acquired Company's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Buyer and Buyer's Advisors with copies of
all such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE ACQUIRED COMPANY. Other than as set
forth in the Contemplated Transactions, between the date of this Agreement and
the Closing Date, Sellers will, and will cause the Acquired Company to:
(a) conduct the business of the Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of the Acquired Company, keep available the services of the current
officers, employees, and agents of the Acquired Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Acquired
Company;
(c) confer with Buyer concerning operational matters of a material nature;
and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Acquired Company.
5.3 NEGATIVE COVENANT. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers will
not, and will cause the Acquired Company not to, without the prior consent of
Buyer, take any affirmative action, or fail to take any reasonable action within
their or its control, as a result of which any of the changes or events listed
in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS. As promptly as practicable after the date of this
Agreement, Sellers will, and will cause the Acquired Company to, make all
filings required by Legal Requirements to be made by them in order to consummate
the Contemplated Transactions (including all filings under the HSR Act). Between
the date of this Agreement and the Closing Date, Sellers will, and will cause
the Acquired Company to, (a) cooperate with Buyer with respect to all filings
that Buyer elects to make or is required by Legal Requirements to make in
connection
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with the Contemplated Transactions, and (b) cooperate with Buyer in obtaining
all consents identified in Schedule 4.2 (including taking all actions requested
by Buyer to cause early termination of any applicable waiting period under the
HSR Act).
5.5 NOTIFICATION. Between the date of this Agreement and the Closing
Date, each Seller will promptly notify Buyer in writing if such Sellers or the
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Sellers' representations and warranties as of the
date of this Agreement, or if such Seller or the Acquired Company becomes aware
of the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in any Schedule
or Exhibit if the Schedule or Exhibit were dated the date of the occurrence or
discovery of any such fact or condition, Sellers will promptly deliver to Buyer
a supplement to the Schedule specifying such change. During the same period,
each Seller will promptly notify Buyer of the occurrence of any Breach of any
covenant of Sellers in this Section 5 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS. Except as expressly
provided in Exhibit 5.6 hereto, Sellers will cause all indebtedness of any
Related Person to the Acquired Company to be paid in full prior to Closing.
5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause the Acquired
Company and each of its Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to, or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than Buyer) relating
to any transaction involving the (1) sale of the business or assets (other than
in the Ordinary Course of Business or as set forth in the Contemplated
Transactions) of the Acquired Company; (2) sale of any of the capital stock or
interest of the Acquired Company other than as set forth in the Contemplated
Transactions; (3) any merger, consolidation, business combination, or similar
transaction involving the Acquired Company, the management of all or part of the
Acquired Company, Medical Practice, or Sellers; or (4) any business arrangement
similar to any part of the Contemplated Transactions.
5.8 ACQUISITION AUDIT. Sellers shall obtain an acquisition audit prior to
Closing consisting of the Financial Statements and Interim Financial Statements
of the Acquired Company as described in Section 3.4 audited by certified public
accountants of a firm that is admitted to practice before the Securities and
Exchange Commission. The Financial Statements and Interim Financial Statements
shall be sufficient to support IOI's 8K financial disclosure requirements. The
costs and expenses of this acquisition audit shall be borne in equal halves
between Buyer and Sellers.
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5.9 TERMINATION OF EMPLOYEE PLANS. Sellers shall cause the Acquired
Company to either terminate all Company Plans, Company Other Benefit
Obligations, Pension Plan, Plan, Qualified Plan, Title IV Plans, and Welfare
Plans on or before the Closing Date, or transfer all liabilities and obligations
of such Plans and Obligations arising on or after the Closing Date to the
Medical Practice. Sellers shall bear all costs associated with such
terminations and transfers and shall undertake all filings required with such
actions.
5.10 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Sellers will use their Best Efforts to cause the conditions in Sections 7
and 8 to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after
the date of this Agreement, Buyer will, and will cause each of its Related
Persons to, make all filings required by Legal Requirements to be made by them
to consummate the Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date, Buyer will, and
will cause each Related Person to, cooperate with Sellers with respect to all
filings that Sellers are required by Legal Requirements to make in connection
with the Contemplated Transactions, and (ii) cooperate with Sellers in obtaining
all consents identified in Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of their
businesses or to incur any other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS. Except as set forth in the proviso to Section 6.1,
between the date of this Agreement and the Closing Date, Buyer will use its Best
Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS.
(a) All of Sellers' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Schedule.
(b) Each of Sellers' representations and warranties in Sections 3.3, 3.4,
3.12, and 3.24 must have been accurate in all respects as of the date of this
Agreement, and must be accurate in all respects as of the Closing Date as if
made on the Closing Date, without giving effect to any supplement to the
Schedule.
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7.2 SELLER'S PERFORMANCE.
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each Seller must have delivered each of the documents required to be
delivered by such Seller pursuant to Section 2.3(a), and each of the other
covenants and obligations in Sections 5.4 and 5.8 must have been performed and
complied with in all respects.
7.3 CONSENTS. Each of the Consents identified in Schedule 3.2, and each
of the Consents identified in Schedule 4.2, must have been obtained and must be
in full force and effect.
7.4 ADDITIONAL DOCUMENTS. Sellers must have caused the following
documents to be delivered to Buyer:
(a) an opinion of Sellers' counsel, dated the Closing Date, in the form of
Exhibit 7.4(a);
(b) a bill of sale of certain equipment from Winters, Kleinschmidt,
Frensilli, Fleming, Klaimer, Russo and Farris Equipment Partnership to the
Existing Practice in the form set forth in Exhibit 7.4(b); and
(c) such other documents as Buyer may reasonably request for the purpose
of (i) enabling its counsel to provide the opinion referred to in Section
8.4(a), (ii) evidencing the accuracy of any of Sellers' representations and
warranties, (iii) evidencing the performance by Sellers of, or the compliance by
Sellers with, any covenant or obligation required to be performed or complied
with by such Seller, (iv) evidencing the satisfaction of any condition referred
to in this Section 7, or (v) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have
been commenced or Threatened against Buyer, or against any Person affiliated
with Buyer, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, the Acquired Company, or (b) is entitled to all or any
portion of the Purchase Price payable for the Shares.
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7.7 NO PROHIBITION. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2 BUYER'S PERFORMANCE.
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.3 and must have made the cash payments
and delivered the notes required to be made by Buyer pursuant to Section 2.1.
8.3 CONSENTS. Each of the Consents identified in Schedule 3.2 must have
been obtained and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS. Buyer must have caused the following documents
to be delivered to Sellers:
(a) an opinion of Buyer's counsel, dated the Closing Date, in the form of
Exhibit 8.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose
of (i) enabling their counsel to provide the opinion referred to in Section
7.4(a), (ii) evidencing the accuracy of any representation or warranty of Buyer,
(iii) evidencing the performance by Buyer of, or the compliance by Buyer with,
any covenant or obligation required to be performed or complied with by Buyer,
(ii) evidencing the satisfaction of any condition referred to in this Section 8,
or (v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
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8.5 NO INJUNCTION. There must not be in effect any Legal Requirement or
any injunction or other Order that (a) prohibits the sale of the Shares by
Sellers, and (b) has been adopted or issued, or has otherwise become effective,
since the date of this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or
(ii) by Sellers, if any of the conditions in Section 8 have not been
satisfied of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Sellers to comply
with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before November
14, 1997 or such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1, 11.2 and 11.3 will survive; provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL. All representations, warranties, covenants, and obligations
in this Agreement, the schedules and exhibits, the supplements to the schedules
and exhibits, the certificate delivered pursuant to Section 7.4(b), and any
other certificate or document delivered pursuant to this Agreement will survive
the Closing; the right to indemnification, reimbursement,
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or other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any Knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of the Agreement or the Closing Date,
about the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, reimbursement, or other remedy based on such representations,
warranties, covenants, and obligations.
10.2 INDEMNIFICATION AND REIMBURSEMENT BY SELLERS. Sellers, jointly and
severally, in solidarity, will indemnify and hold harmless Buyer, the Acquired
Company, and its respective Representatives, stockholders, controlling persons,
and affiliates (collectively, the "Indemnified Persons"), and will reimburse the
Indemnified Persons, for any loss, liability, claim, damage, (including
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising from or in
connection with:
(a) any Breach of any representation or warranty made by Sellers in this
Agreement (without giving effect to any supplement to the schedules or
exhibits), the schedules and exhibits, the supplements to the schedules and
exhibits, the certificate delivered pursuant to Section 2.3(a)(xi) (for this
purpose, that certificate will be deemed to have stated that Sellers'
representations and warranties in this Agreement are accurate as of the Closing
Date as if made on the Closing Date without giving effect to any supplement to
the schedules and exhibits, unless the certificate expressly stated that the
matters disclosed in a supplement have caused the condition specified in Section
7.1 not to be satisfied), or any other certificate or document delivered by
Sellers pursuant to this Agreement;
(b) any Breach by any Seller of any covenant or obligation of such Seller
in this Agreement;
(c) any product sold by or any services provided by the Acquired Company,
including the Existing Practice, prior to the Closing Date;
(d) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by any such Person with any Seller or the Acquired Company (or any
Person acting on their behalf) in connection with any of the Contemplated
Transactions; or
(e) all obligations and liabilities known or unknown, contingent or
otherwise, relating in any way to the operation of the Existing Practice on or
before the Closing Date except for those liabilities expressly assumed by Buyer
under Section 2.1(d).
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
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10.3 INDEMNIFICATION AND REIMBURSEMENT BY SELLERS - ENVIRONMENTAL MATTERS.
In addition to the provisions of Section 10.2, Sellers, jointly and severally,
in solidarity, will indemnify and hold harmless Buyer, the Acquired Company, and
the other Indemnified Persons, and will reimburse Buyer, the Acquired Company,
and any other Indemnified Person, for any Damages (including costs of cleanup,
containment, or other remediation) arising from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any time on or
prior to the Closing Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers or the Acquired Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities or such
other properties and assets at any time on or prior to the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers or the Acquired Company or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers or the Acquired Company or by any other Person for whose
conduct they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of Sellers or the
Acquired Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Acquired Company prior to the Closing Date, or from Hazardous
Material that was (i) present or suspected to be present on or before the
Closing Date on or at the Facilities (or present or suspected to be present on
any other property, if such Hazardous Material emanated or allegedly emanated
from any of the Facilities and was present or suspected to be present on any of
the Facilities on or prior to the Closing Date) or (ii) Released or allegedly
Released by Sellers or the Acquired Company or any other Person for whose
conduct they are or may be held responsible, at any time on or prior to the
Closing Date.
Buyer will be entitled to control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect
to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.9 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 INDEMNIFICATION AND REIMBURSEMENT BY BUYER. Buyer will indemnify and
hold harmless Sellers, and will reimburse Sellers, for any Damages arising from
or in connection with (a) any Breach of any representation or warranty made by
Buyer in this Agreement or in any certificate delivered by Buyer pursuant to
this Agreement, (b) any Breach by Buyer of any covenant or obligation of Buyer
in this Agreement, or (c) any claim by any Person for brokerage
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or finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Buyer (or any Person
acting on its behalf) in connection with any of the Contemplated Transactions.
10.5 TIME LIMITATIONS. If the Closing occurs, Buyer will have no liability
(for indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior to
the Closing Date, unless on or before two years after the Closing Date Buyer is
given notice of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by Sellers. If Closing occurs, Buyer may make a
claim against Sellers at any time with respect to any representation or warranty
of Sellers or covenant or obligation to be performed by Sellers.
10.6 LIMITATIONS ON AMOUNT - SELLERS. Sellers will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a), (c) or, to the extent relating to any failure to perform or comply prior to
the Closing Date, clause (b) of Sections 10.2 and 10.3 until the total of all
Damages with respect to such matters exceeds One Thousand Dollars ($1,000.00),
and then only for the amount by which such Damages exceed One Thousand Dollars
($1,000.00). However, this Section 10.6 will not apply to any Breach of any of
Sellers' representations and warranties of which any Seller had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional Breach by any Seller of any covenant or obligation. Notwithstanding
anything in this Agreement to the contrary, no individual Seller shall be liable
in an amount greater than the value of the Acquisition Price, allocated to
Seller as set forth in Section 2.1(a) through (d). For purposes of this Section
the value of the liabilities assumed under Section 2.1(d) shall be allocated
among the Sellers in the same proportion as the aggregate compensation paid to
each Seller as the Acquisition Price set forth in Sections 2.1(a) through (c).
For purposes of this Section the term "value of the Acquisition Price" shall
mean the aggregate values recorded in Sections 2.1(b) through (d) and the
product of the number of shares recorded in Section 2.1(a) multiplied by Five
Dollars and 08/100 ($5.08).
10.7 LIMITATIONS ON AMOUNT - BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) of Section 10.4 until the total of all Damages with respect to such
matters exceeds One Thousand Dollars ($1,000.00), and then only for the amount
by which such Damages exceed One Thousand Dollars ($1,000.00). However, this
Section 10.7 will not apply to any intentional Breach of any of Buyer's
representations and warranties of which Buyer had knowledge at any time prior to
the date on which such representation and warranty is made or any intentional
Breach by Buyer of any covenant or obligation, and Buyer will be liable for all
Damages with respect to such Breaches.
10.8 PROCEDURE FOR INDEMNIFICATION - DIRECT CLAIMS. Upon notice to Sellers
specifying in reasonable detail the basis for such claim, Buyer may make demand
upon Sellers to indemnify the Acquired Company for any undisclosed liability or
obligation or cost of any undisclosed litigation or losses related thereto, to
which Buyer or the Acquired Company may be entitled under this Section 10, on a
dollar-for-dollar basis. Such claims shall be paid within thirty (30) days of
demand having been made therefor by Buyer. If any disagreement exists regarding
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the validity or amount of any such claims, they shall be resolved by submission
of such disagreement to binding arbitration conducted in accordance with the
rules of the American Arbitration Association and to be conducted in Houston,
Texas. Neither the exercise of nor the failure to exercise such right of claim
or to give a notice of a Claim will constitute an election of remedies or limit
Buyer in any manner in the enforcement of any other remedies that may be
available to them.
10.9 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 10.2,
10.4, or (to the extent provided in the last sentence of Section 10.3) Section
10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying part of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 10.9(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, (ii)
the indemnifying party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding, or (iii) a substantial portion
(i.e. one-third) of the claim(s) are not subject to indemnification), to assume
the defense of such Proceeding and provide indemnification with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party will not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Section for any fees of other counsel or any other
expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the indemnified party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnifying party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
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(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any court
in which a Proceeding is properly brought and maintained against any Indemnified
Person for purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such Proceeding or the matters alleged therein, and
agree that process may be served on Sellers with respect to such a claim
anywhere in the world.
11. GENERAL PROVISIONS
11.1 NONCOMPETITION. Sellers recognize that Buyer's decision to enter into
this Agreement is induced primarily because of the covenants and assurances made
by Sellers in this Agreement; that Sellers' covenant not to compete is necessary
to ensure the continuation of the business and the reputation of Buyer; and that
irrevocable harm and damage will be done to Buyer if Sellers compete with Buyer
within certain specified areas. Therefore, in consideration of the promises of
Buyer in this Agreement, Sellers covenant and agree that during the term of the
Management Services Agreement, and for a period of one (1) year after the
termination or expiration of the Management Services Agreement, Sellers, through
Existing Practice or individually, shall not directly or indirectly own, manage,
operate, control, or be otherwise associated with, participate in the management
or control of, be employed by, consult with, lend funds to, lend Sellers' or
Existing Practice's name to, receive any remuneration from or maintain any
interest whatsoever in any enterprise (i) having to do with the provision,
distribution, marketing, promotion, or advertising of any type of management or
administrative services or products to third parties in competition with the
Buyer within Jefferson Parish or any Parish in which Existing Practice provides
medical services (the "Existing Practice Area") or (ii) offering any type of
service(s) or product(s) to third parties similar to those offered by the Buyer
in the Existing Practice Area.
If Sellers breach any obligation of this Section, in addition to any other
remedies available under this Agreement, at law or in equity, Buyer shall be
entitled to enforce this Agreement by injunctive relief and by specific
performance of this Agreement, such relief to be without the necessity of
posting a bond, cash or otherwise. Sellers acknowledges the damages that would
result from a violation of this Section 11 would be Two Hundred Fifty Thousand
Dollars ($250,000.00). Sellers shall pay to Buyer in cash this amount within
thirty (30) days after Buyer notify Sellers that Sellers has breached this
Section 11 or after a final binding judgement.
If any provision of this restrictive covenant is held by a court of
competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the
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restrictive covenant shall be reformed to comply with the time period,
geographic area, or restricted activity that would be held enforceable.
11.2 EXPENSES. Except as otherwise set forth in this Agreement, each party
to this Agreement will pay its own expenses and disbursements and its own
agents, representatives, and accountants. Each party shall pay its own HSR Act
filing fees, if any. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.3 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines. Unless
consented to by Buyer in advance or required by Legal Requirements, prior to the
Closing Sellers shall, and shall cause the Acquired Company to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person. Sellers and Buyer will consult with each other
concerning the means by which the Acquired Company's employees, customers, and
supplies and others having dealings with the Acquired Company will be informed
of the Contemplated Transactions, and Buyer will have the right to be present
for any such communication.
11.4 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been fully
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
IOI: Integrated Orthopaedics, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Attention: President
Facsimile Number: (713) 361-2000
Medical Practice
925 Avenue C
Marrero, Louisiana 70072
Facsimile Number: (504) 347-7307
11.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the State of Texas,
County of Harris, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of Texas, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action
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or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
11.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.7 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
11.9 SCHEDULES AND EXHIBITS.
(a) The disclosures in the schedules and exhibits , and those in any
supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body
of this Agreement and those in the Schedules (other than an exception expressly
set forth as such in the Schedules with respect to a specifically identified
representative or warranty), the statements in the body of this Agreement will
control.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Sellers may not
assign any of their rights under this Agreement without the prior consent of
Buyer, which will not be unreasonably withheld. Buyer may assign any of its
rights under this Agreement. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed
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or referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
11.11 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
11.13 TIME OF ESSENCE. With regard to all dates and tie periods set forth
or referred to in this Agreement, time is of the essence.
11.14 GOVERNING LAW. This Agreement will be governed by and construed under
the laws of the State of Texas without regard to conflicts of laws principles.
11.15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.16 TAX RETURNS. Sellers shall file or cause to be filed a final United
States federal tax return for the Acquired Company up through the Closing Date
within the legally required time period for such filing (including extensions)
following the Closing Date and shall deliver to Buyer a certified copy of the
return and all workpapers within ten (10) working days of such filing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INTEGRATED ORTHOPAEDICS, INC.
By: /s/ RONALD E. PIERCE
--------------------------
Ronald E. Pierce
President and Chief Operating Officer
JACK L. WINTERS, M.D. /s/ JACK L. WINTERS, M.D.
---------------------------
A.G. KLEINSCHMIDT, JR., M.D. /s/ A. G. KLEINSCHMIDT, M.D.
-----------------------------
JOSEPH J. FRENSILLI, M.D. /s/ JOSEPH J. FRENSILLI, M.D.
------------------------------
ROBERT A. FLEMING, JR., M.D. /s/ ROBERT A. FLEMING, JR., M.D.
----------------------------------
CHRIS J. DIGRADO, M.D. /s/ CHRIS J. DIGRADO, M.D.
----------------------------
RALPH P. KATZ, M.D. /s/ RALPH P. KATZ, M.D.
-------------------------
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