SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 30, 1999
HEALTHSTAR CORP.
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(Exact name of registrant as specified in its charter)
Delaware 0-19499 91-1934592
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
15720 North Greenway-Hayden Loop, Suite 1,
Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (480) 451-8575
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
SALE OF NATIONAL HEALTH BENEFITS & CASUALTY CORP. ("NHBC")
On December 30, 1999, HealthStar Corp. ("we" or "us") sold all of the
assets of its wholly owned subsidiary National Health Benefits & Casualty Corp.
("NHBC") to Carlmont Capital Group, Inc., a privately held company based in
Chula Vista, California. We made this sale pursuant to the terms of an Asset
Purchase Agreement, dated December 28, 1999 by and among us, National Health
Benefits & Casualty Corp. and Carlmont Capital Group, Inc.
In this transaction, we sold all of the assets of NHBC and we received as
consideration $1,500,000 in cash at closing and an earnout agreement that may
provide up to an additional $300,000 in cash, based on cash flows of NHBC over
the next 18 months. We used $1,350,000 of the cash proceeds to pay down
indebtedness owed to Harris Trust and Savings Bank, which has now been reduced
to $1,325,000. In connection with the pay down, Harris Bank agreed to extend the
maturity date of the Company's credit facility to February 29, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information (unaudited)
(i) Pro Forma Condensed Consolidated Balance Sheet (September 30,
1999);
(ii) Pro Forma Condensed Consolidated Statement of Operations (Year
ended March 31, 1999);
(iii) Pro Forma Condensed Consolidated Statement of Operations (For
Six Months ended September 30, 1999); and
(iv) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
(c) Exhibits
Exhibit No.
10.1 Asset Purchase Agreement by and among National Health Benefits
& Casualty Corp., HealthStar Corp. and Carlmont Capital Group,
Inc. dated December 28, 1999.
99.1 Pro Forma Financial Information identified of Item 7(b).
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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.
HEALTHSTAR CORP.,
a Delaware corporation
Date January 13, 2000 By /s/ Steven A. Marcus
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Steven A. Marcus
Vice President and Chief Financial
Officer
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EXHIBIT INDEX
EXHIBIT NO.
10.1 Asset Purchase Agreement by and among National Health Benefits &
Casualty Corp., HealthStar Corp. and Carlmont Capital Group, Inc.
dated December 28, 1999.
99.1 Pro Forma Financial Information identified of Item 7(b).
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ASSET PURCHASE AGREEMENT
BY AND AMONG
NATIONAL HEALTH BENEFITS & CASUALTY CORP.
AS SELLER,
AND
HEALTHSTAR CORP.
AS PARENT
AND
CARLMONT CAPITAL GROUP, INC.
AS BUYER
DATED AS OF DECEMBER 28, 1999
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TABLE OF CONTENTS
SECTION PAGE
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ARTICLE I. DEFINITIONS...................................................... 1
ARTICLE II. PURCHASE AND SALE OF PURCHASED ASSETS........................... 5
2.1 Assets to be Purchased......................................... 5
2.2 Excluded Assets................................................ 5
2.3 Assumption of Liabilities...................................... 6
2.4 Purchase Price................................................. 6
2.5 Payment of Purchase Price...................................... 6
2.6 Closing........................................................ 6
2.7 Seller's Closing Deliveries.................................... 6
2.8 Buyer's Closing Deliveries..................................... 7
2.9 Earnout Payment................................................ 7
2.10 Seller's Employees............................................ 8
2.11 Further Assurances............................................ 9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT............ 9
3.1 Corporate Authority and Ownership of Seller.................... 9
3.2 Corporate Authority and Ownership of Parent.................... 10
3.3 Litigation and Related Matters................................. 10
3.4 Title to Personal Property - Owned............................. 11
3.5 Real and Personal Property - Leased............................ 11
3.6 Intellectual Property.......................................... 11
3.7 Taxes.......................................................... 11
3.8 Financial Statements........................................... 11
3.9 No Broker...................................................... 11
3.10 Absence of Certain Changes.................................... 12
3.11 Compliance with Law; Licenses and Permits..................... 12
3.12 Insurance..................................................... 12
3.13 Contracts..................................................... 12
3.14 Transactions with Related Persons............................. 12
3.15 Labor Relations............................................... 12
3.16 Compliance with ERISA......................................... 13
3.17 Environmental Matters......................................... 13
3.18 Full Disclosure............................................... 13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER......................... 13
4.1 Corporate Authority and Ownership of Buyer..................... 13
4.2 No Litigation Concerning Agreement............................. 14
4.3 No Broker...................................................... 14
4.4 Full Disclosure................................................ 14
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ARTICLE V. CONDUCT OF THE BUSINESS PENDING CLOSING.......................... 15
5.1 Business in Ordinary Course.................................... 15
5.2 Preservation of Business....................................... 15
5.3 Insurance and Maintenance of Property.......................... 15
5.4 Books and Records.............................................. 15
ARTICLE VI. ADDITIONAL COVENANTS OF SELLER.................................. 15
6.1 Full Access.................................................... 15
6.2 Bulk Sales Law................................................. 15
6.3 Consents; Assignments.......................................... 16
ARTICLE VII. ADDITIONAL COVENANTS OF BUYER.................................. 16
7.1 Financing Commitment; Solvency................................. 16
7.2 Insurance...................................................... 16
7.3 Access to Books and Records.................................... 16
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF BUYER............................ 17
8.1 Representations and Warranties of Seller and Parent............ 17
8.2 Necessary Action............................................... 17
8.3 Performance of this Agreement.................................. 17
8.4 Related Party Liabilities...................................... 17
8.5 Delivery of Seller's Closing Documents......................... 17
8.6 No Consistent Requirements..................................... 17
ARTICLE IX. CONDITIONS TO OBLIGATIONS OF SELLER AND PARENT.................. 18
9.1 Representations and Warranties of Buyer........................ 18
9.2 Necessary Action............................................... 18
9.3 Consent of Parent's Lender..................................... 18
9.4 Performance of this Agreement.................................. 18
9.5 Delivery of Buyer's Closing Documents.......................... 18
9.6 Payment of Purchase Price...................................... 18
9.7 No Inconsistent Requirements................................... 18
ARTICLE X. CONFIDENTIALITY.................................................. 18
10.1 Obligations of Confidentiality................................ 18
10.2 Definition of Confidential Information........................ 19
ARTICLE XI. INDEMNIFICATION AND INSURANCE................................... 19
11.1 Indemnification of Buyer...................................... 19
11.2 Indemnification of Seller..................................... 20
11.3 Indemnification Procedures.................................... 20
11.4 Computation of Claims......................................... 21
11.5 Exclusive Remedy.............................................. 21
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ARTICLE XII. SURVIVAL OF CERTAIN PROVISIONS................................ 21
ARTICLE XIII. TERMINATION................................................... 21
13.1 Termination................................................... 21
13.2 Effect of Termination......................................... 22
ARTICLE XIV. MISCELLANEOUS.................................................. 22
14.1 Notices....................................................... 22
14.2 Binding Agreement; Assignment................................. 23
14.3 Entire Agreement; Amendments.................................. 23
14.4 Severability.................................................. 23
14.5 Counterparts.................................................. 24
14.6 Headings; Interpretation...................................... 24
14.7 Remedies; No Waiver........................................... 24
14.8 Governing Law................................................. 24
14.9 Payment of Fees and Expenses.................................. 24
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TABLE OF EXHIBITS
Exhibit A................................ Assignment and Assumption of Contracts
Exhibit B................................ Bill of Sale and Assignment
Exhibit C................................ Seller and Parent Certificates
Exhibit D................................ Buyer Certificate
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TABLE OF SCHEDULES
Schedule 2.1(a)....................Assigned Contracts
Schedule 3.3.......................Litigation
Schedule 3.5.......................Real and Personal Property - Leased
Schedule 3.6.......................Patents, Trademarks and Intellectual Property
Schedule 3.7.......................Taxes
Schedule 3.8.......................Financial Statements
Schedule 3.10......................Absence of Certain Changes
Schedule 3.11......................Compliance with Law; Licenses and Permits
Schedule 3.12......................Insurance
Schedule 3.13......................Contracts
Schedule 3.14......................Transactions with Related Persons
Schedule 3.15......................Labor Relations
Schedule 3.16......................Compliance with ERISA
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of this 28th day of December, 1999, by and among NATIONAL HEALTH BENEFITS &
CASUALTY CORP., a corporation organized under the laws of the State of Nevada
("SELLER"), HEALTHSTAR CORP., a corporation organized under the laws of the
State of Delaware ("PARENT"), and CARLMONT CAPITAL GROUP, INC., a corporation
organized under the laws of the State of California ("BUYER").
RECITALS:
A. Seller is engaged in, among other things, promoting management of group
healthcare services, workers' compensation claims and automobile accident
medical claims for property and casualty insurers, third-party administrators
and self-insured employers (collectively, the "BUSINESS").
B. Buyer desires to purchase substantially all of the assets of Seller used
in connection with the Business and to assume certain liabilities of Seller
related thereto, and Seller desires to sell and transfer to Buyer such assets
and to assign to Buyer such liabilities, all upon and subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I.
DEFINITIONS
In addition to the terms defined in the Preamble and Recitals to this
Agreement, as used in this Agreement, the following capitalized terms shall have
the respective meanings specified in this Article I.
1.1 "ACTION" has the meaning specified in Section 11.3 hereof.
1.2 "AFFILIATE" means a Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the Person referred to. In this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of
securities, by contract, or otherwise.
1.3 "ANCILLARY AGREEMENTS" has the meaning specified in Section 3.1(b)
hereof.
1.4 "ASSIGNED CONTRACTS" has the meaning specified in Section 2.1(a)
hereof.
1.5 "ASSIGNMENT AND ASSUMPTION AGREEMENT" means the form of Assignment and
Assumption of Contracts attached hereto as EXHIBIT A.
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1.6 "ASSUMED LIABILITIES" has the meaning specified in Section 2.3 hereof.
1.7 "BALANCE SHEET DATE" means July 31, 1999.
1.8 "BILL OF SALE" means the form of Bill of Sale and Assignment attached
hereto as EXHIBIT B.
1.9 "BUYER INDEMNIFIED LOSSES" has the meaning specified in Section 11.1
hereof.
1.10 "BUYER INDEMNIFIED PARTIES" has the meaning specified in Section 11.1
hereof.
1.11 "CLOSING" means the consummation of the transactions contemplated by
this Agreement.
1.12 "CLOSING DATE" means December 30, 1999 or, if the conditions to
Closing are not by then satisfied, such date within ten (10) business days
following satisfaction of such conditions (other than conditions to be satisfied
at Closing according to the terms hereof), or such other date, as the parties
may agree in writing.
1.13 "CLOSING PURCHASE PRICE" has the meaning specified in Section 2.4
hereof.
1.14 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
1.15 "CONFIDENTIAL INFORMATION" has the meaning specified in Section 10.2
hereof.
1.16 "CONTRACT" means any contract, agreement, arrangement, understanding,
lease, evidence of indebtedness, binding commitment or other instrument entered
into or made by or on behalf of Seller, or to which Seller is a party or by
which Seller or the Purchased Assets are bound.
1.17 "EARNOUT PAYMENT" has the meaning specified in Section 2.9(a) hereof.
1.18 "EBITDA" means earnings before interest, taxes, depreciation and
amortization.
1.19 "EMPLOYEES" means all salaried and hourly employees of the Business
employed by Seller prior to the Closing.
1.20 "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws,
regulations, rules, ordinances, orders, judgments and Permits relating to
pollution or protection of the environment or human health and safety,
including, without limitation, laws and regulations relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Materials and all laws and regulations with
regard to recordkeeping, notification, disclosure and reporting requirements
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respecting Hazardous Materials, and all laws and regulations relating to
endangered or threatened species of fish, wildlife and plants and the management
or use of natural resources.
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.22 "EXCLUDED RECEIVABLE" has the meaning specified in Section 2.2 hereof.
1.23 "FINANCIAL STATEMENTS" has the meaning specified in Section 3.8
hereof.
1.24 "GAAP" means United States generally accepted accounting principles
consistently applied.
1.25 "HAZARDOUS MATERIALS" means any pollutants, contaminants, hazardous
substances, hazardous chemicals, toxic substances, hazardous wastes, infectious
wastes, radioactive materials, petroleum (including crude oil or any fraction
thereof), asbestos in any form or condition, polychlorinated biphenyls, or solid
wastes or other hazardous materials, including without limitation those defined
as any of the foregoing in, or regulated as such under, any Environmental Law,
including, without limitation, petroleum and asbestos.
1.26 "INITIAL MEASUREMENT PERIOD" has the meaning specified in Section
2.9(a) hereof.
1.27 "INTELLECTUAL PROPERTY" has the meaning specified in Section 2.1(c)
hereof.
1.28 "JULY BALANCE SHEET" means the unaudited balance sheet of Seller dated
as of the Balance Sheet Date.
1.29 "LAW" means any statute, law, treaty, ordinance, rule, regulation,
instrument, directive, decree, order, or injunction of any governmental or
quasi-governmental body or authority, or any court, and includes rules or
regulations of any regulatory or self-regulatory authority compliance with which
is required by law.
1.30 "LIABILITY" or "LIABILITIES" means any liabilities or obligations of a
Person, whether or not required to be reflected on the financial statements of
such Person.
1.31 "LIEN" means any lien, security interest, mortgage, option, lease,
tenancy, occupancy, covenant, condition, easement, pledge, hypothecation,
charge, claim, restriction, or other encumbrance of every kind and nature.
1.32 "LOSSES" has the meaning specified in Section 11.1 hereof.
1.33 "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means an event,
change or occurrence which has, or would reasonably be expected to have, a
material adverse effect, individually or in the aggregate, on the business,
assets, liabilities, condition (financial or otherwise) or results of operations
of a Person.
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1.34 "NEUTRAL AUDITORS" has the meaning set forth in Section 2.9(e) hereof.
1.35 "NOTICE OF DISPUTE" has the meaning set forth in Section 2.9(d)
hereof.
1.36 "PERMITS" has the meaning set forth in Section 3.11 hereof.
1.37 "PERSON" means any natural person, corporation, partnership, limited
liability company, limited liability partnership, joint venture, association or
other legal entity, and any governmental or regulatory authority or body.
1.38 "PERSONAL PROPERTY" has the meaning specified in Section 2.1(d)
hereof.
1.39 "PLANS" has the meaning specified in Section 3.16(a) hereof.
1.40 "POST-CLOSING FINANCIAL STATEMENTS" has the meaning set forth in
Section 2.9(c) hereof.
1.41 "PURCHASE PRICE" has the meaning specified in Section 2.4 hereof.
1.42 "PURCHASED ASSETS" has the meaning specified in Section 2.1 hereof.
1.43 "RECEIVABLES" has the meaning specified in Section 2.1(b) hereof.
1.44 "RELEASE" shall mean any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater, and surface or subsurface strata) or
into or out of any property, including, without limitation, such movement of
Hazardous Materials through or in the air, soil, surface water, groundwater or
property.
1.45 "RESOLUTION PERIOD" has the meaning specified in Section 2.9(d)
hereof.
1.46 "SELLER INDEMNIFIED LOSSES" has the meaning specified in Section 11.2
hereof.
1.47 "SELLER INDEMNIFIED PARTIES" has the meaning specified in Section 11.2
hereof.
1.48 "SUBSEQUENT MEASUREMENT PERIOD" has the meaning specified in Section
2.9(b) hereof.
1.49 "SURVIVAL PERIOD" has the meaning specified in Article XII of this
Agreement.
1.50 "TARGET AMOUNT" has the meaning specified in Section 2.9(a) hereof.
1.51 "TAXES" shall mean all United States Federal, state and local taxes
upon the income of the Business, including any interest, penalties or additions
to tax that may become payable in respect thereof, arising before the Closing
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Date, and "Taxes" shall not include payroll and employee withholding taxes,
unemployment insurance, social security, sales and use taxes, excise taxes,
franchise taxes, gross receipts taxes, occupation taxes, real and personal
property taxes, stamp taxes and transfer taxes.
ARTICLE II.
PURCHASE AND SALE OF PURCHASED ASSETS
2.1 ASSETS TO BE PURCHASED. Subject to the terms and conditions contained
herein, on the Closing Date, Seller shall sell, transfer, deliver, convey and
assign to Buyer, and Buyer shall purchase and acquire from Seller, all of
Seller's right, title and interest in and to all of the assets and properties of
Seller of every kind and description related to the Business, wherever located,
other than the Excluded Receivable free and clear of all Liens (such assets
being herein referred to collectively as the "PURCHASED ASSETS"). The Purchased
Assets shall include, without limitation, the following assets:
(a) all Contracts of Seller related to the Business, including those
listed on SCHEDULE 2.1(A), (the "ASSIGNED CONTRACTS");
(b) all of Seller's accounts receivable related to the Business other
than the Excluded Receivable (collectively, the "Receivables");
(c) all of Sellers' proprietary information related to the Business,
including, without limitation: domain or URL names and Internet web pages, logos
and trade names related to the Business, trade secrets, technical information,
Confidential Information, proprietary rights and licenses, know-how, designs and
processes; and computer software developed by Seller and all improvements
thereto, including, without limitation, the assets listed on SCHEDULE 3.6 hereto
(collectively "INTELLECTUAL PROPERTY");
(d) all equipment, furniture, fixtures and supplies owned by Seller
and used in connection with the Business (collectively, "PERSONAL PROPERTY");
(e) all refunds, deposits, prepaid expenses and other prepaid items
related to the Business or the Purchased Assets;
(f) all Permits related to the Business, to the extent transferable to
Buyer; and
(g) copies of all books, records, files, financial statements and
supporting documents of Seller relating solely to the Business and the Purchased
Assets.
2.2 EXCLUDED ASSETS. Notwithstanding anything in this Agreement to the
contrary, the Purchased Assets do not and shall not include the intercompany
receivable owed to Seller by Parent and reflected on the July Balance Sheet in
the amount of $1,480,003 (the "EXCLUDED RECEIVABLE").
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2.3 ASSUMPTION OF LIABILITIES. On the terms and subject to the conditions
set forth in this Agreement, effective from and as of the Closing, Buyer shall
assume and thereafter shall pay and fully discharge the liabilities and
obligations of Seller under the Assigned Contracts, but only to the extent that
such liabilities or obligations accrue on or after the Closing Date
(collectively, "ASSUMED LIABILITIES"). Except as otherwise expressly provided in
the preceding sentence, Buyer shall not assume any debt, liability or obligation
of Seller, whether known or unknown, fixed or contingent.
2.4 PURCHASE PRICE. The purchase price payable by Buyer to Seller for the
Purchased Assets at the Closing shall be One Million Five Hundred Thousand
Dollars ($1,500,000) in cash (the "CLOSING PURCHASE PRICE"). The term "PURCHASE
PRICE" as used in this Agreement shall mean and include the Closing Purchase
Price and any Earnout Payment due to Seller pursuant to Section 2.9 hereof.
2.5 PAYMENT OF CLOSING PURCHASE PRICE. At the Closing on the Closing Date,
Buyer shall pay the Closing Purchase Price to Seller by wire transfer to the
account or accounts designated by Seller at least two (2) days prior to the
Closing.
2.6 CLOSING. The Closing shall take place at 10:00 a.m., local time, on the
Closing Date at the offices of Bryan Cave LLP, Two North Central Avenue, Suite
2200, Phoenix, Arizona 85004-4406 or at such other place and time as the parties
may agree in writing. All deliveries, payments and other transactions and
documents relating to the Closing shall be interdependent and none shall be
effective unless and until all are effective (except to the extent that the
party entitled to the benefit thereof has waived satisfaction or performance
thereof as a condition precedent to Closing).
2.7 SELLER'S CLOSING DELIVERIES. At the Closing on the Closing Date, Seller
shall sell, assign, transfer, convey and deliver to Buyer all of Seller's right,
title and interest in and to the Purchased Assets, free and clear of any and all
Liens, and in furtherance thereof, Seller shall deliver to Buyer:
(a) the Bill of Sale, duly executed by Seller;
(b) the Assignment and Assumption Agreement, duly executed by Seller;
(c) a check payable to Seller in the amount of $65,000, representing
Seller's cash on hand as of the Closing Date;
(d) a certificate of the President of each of Seller and Parent, dated
as of the Closing Date, substantially in the form attached hereto as EXHIBIT C;
and
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(e) such other certificates, documents and instruments as Buyer shall
reasonably request in order to consummate the transactions contemplated by this
Agreement.
2.8 BUYER'S CLOSING DELIVERIES. At the Closing on the Closing Date, Buyer
shall purchase and acquire all of Seller's right, title and interest in and to
the Purchased Assets and shall assume the Assumed Liabilities, and in
furtherance thereof, Purchaser shall deliver, or cause to be delivered, to
Seller:
(a) the Closing Purchase Price;
(b) the Assignment and Assumption Agreement, duly executed by Buyer;
(c) a certificate of the President of Buyer, dated as of the Closing
Date, substantially in the form attached hereto as EXHIBIT D; and
(d) such other certificates; documents and instruments as Seller shall
reasonably request in order to consummate the transactions contemplated by this
Agreement.
2.9 EARNOUT PAYMENT.
(a) INITIAL MEASUREMENT PERIOD. In the event that Seller's EBITDA for
the consecutive twelve (12) month period commencing on the first day of the
first full month following the Closing Date (the "INITIAL MEASUREMENT PERIOD")
is equal to or greater than Seven Hundred Thousand Dollars ($700,000) (the
"TARGET AMOUNT"), then Buyer shall pay to Seller, as additional consideration
for the sale of the Purchased Assets, the sum of Three Hundred Thousand Dollars
($300,000) in cash (the "EARNOUT PAYMENT") in accordance with paragraph (f) of
this Section 2.9.
(b) SUBSEQUENT MEASUREMENT PERIOD. If no Earnout Payment is due to
Seller pursuant to paragraph (a) of this Section 2.9, then Seller's EBITDA shall
be determined for the consecutive twelve (12) month period commencing on the
first day of the sixth (6th) month following the month in which the Closing
occurred (the "SUBSEQUENT MEASUREMENT PERIOD"). In the event that Seller's
EBITDA for the Subsequent Measurement Period is equal to or greater than the
Target Amount, then Buyer shall pay to Seller the Earnout Payment in accordance
with paragraph (f) of this Section 2.9.
(c) DELIVERY OF POST-CLOSING FINANCIAL STATEMENTS. Within thirty (30)
days following the end of the Initial Measurement Period and, if applicable, the
Subsequent Measurement Period, Buyer shall prepare and deliver to Seller and
Parent an unaudited balance sheet and related statements of income of Seller
which shall set forth Seller's EBITDA for the Initial Measurement Period or the
Subsequent Measurement Period, as the case may be (collectively, the
"POST-CLOSING FINANCIAL STATEMENTS"). The Post-Closing Financial Statements
shall be prepared in accordance with GAAP applied consistently with the
accounting policies and procedures used in the preparation of the Financial
Statements.
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(d) NOTICE OF DISPUTE. If Seller disputes the calculation of EBITDA
set forth in the Post-Closing Financial Statements, then Seller shall deliver to
Buyer, within thirty (30) days following Seller's receipt of the Post-Closing
Financial Statements, a written notice specifying in reasonable detail the basis
for Seller's dispute and setting forth the adjustment to EBITDA that Seller
believes should be made (a "NOTICE OF DISPUTE"). Unless Seller delivers a Notice
of Dispute within the period specified in the preceding sentence, Seller shall
be deemed to have accepted and agreed to the calculation of EBITDA reflected in
the Post-Closing Financial Statements. If Seller delivers a Notice of Dispute,
Buyer and Seller shall, within thirty (30) days following delivery of such
notice (the "RESOLUTION PERIOD"), attempt to resolve their differences, and any
resolution by them shall be in writing and shall be final, binding and
conclusive.
(e) RESOLUTION BY NEUTRAL AUDITORS. In the event that Buyer and Seller
are unable to resolve all disputes with respect to the Post-Closing Financial
Statements prior to the expiration of the Resolution Period, issues remaining in
dispute shall be submitted, as soon as practicable, to a firm of independent
public accountants of nationally recognized standing mutually acceptable to
Buyer and Seller that is not the regular accounting firm of either Buyer, Seller
or Parent (the "NEUTRAL AUDITORS"). The parties agree to execute a reasonable
engagement letter if requested by the Neutral Auditors. The Neutral Auditors
shall act as an expert and not as an arbitrator to determine only those issues
with respect to the Post-Closing Financial Statements which are still in
dispute. The Neutral Auditors' determination shall be made within thirty (30)
days after their selection, shall be set forth in a written statement delivered
to Buyer, Seller and Parent and shall be final, binding and conclusive and
enforceable in any court of competent jurisdiction. The fees and expenses of the
Neutral Auditors shall be allocated by the Neutral Auditors between Buyer, on
the one hand, and Seller and Parent on the other hand, in proportion to the
extent that either party did not prevail on its items in dispute; provided that
so long as a party complies in all material respects in good faith with the
procedures of this Section 2.9(e), such fees shall not include the other party's
outside counsel or accounting fees.
(f) TIMING OF EARNOUT PAYMENT. The Earnout Payment, if any, shall be
paid by wire transfer of immediately available funds to an account or accounts
designated by Seller within ten (10) days after Seller's EBITDA for the relevant
measurement period is finally agreed upon by Seller and Buyer or otherwise
determined to be final by the Neutral Auditors in accordance with Section 2.9(e)
hereof.
2.10 SELLER'S EMPLOYEES. Seller shall terminate all of its Employees
effective as of the Closing. Seller shall be solely responsible for Seller's
obligations with respect to its Employees for all periods prior to the Closing,
including, without limitation, severance payments, bonus and vacation
liabilities, pension and any other employee benefit plan liabilities,
withholding taxes (including FICA and FUTA taxes), and all other
employee-related costs, expenses and liabilities accruing prior to the Closing.
Effective as of the Closing, Buyer intends to hire all of Seller's Employees
with respect to the Business; PROVIDED, HOWEVER, that Buyer shall have a period
of thirty (30) days following the Closing in which to evaluate such Employees'
qualifications and performance. Seller agrees with Buyer that Seller shall fully
reimburse Buyer for any severance payments that may be due to former Employees
of Seller whose employment with Buyer is terminated by Buyer within such 30-day
period following the Closing. Except as otherwise provided in the preceding
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sentence, Buyer shall assume all liabilities and obligations following the
Closing for all Employees rehired by Buyer.
2.11 FURTHER ASSURANCES. Each party shall, at the request of any other
party from time to time and at any time, whether on or after the Closing Date,
and without further consideration, execute and deliver such assignments,
transfers, assumptions, conveyances, receipts, acknowledgments, acceptances and
assurances as may be reasonably necessary to procure for the party so
requesting, and its successors and assigns, any and all of the Purchased Assets
or the Assumed Liabilities, or otherwise to satisfy and perform the respective
obligations of the parties hereunder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT
Seller and Parent hereby jointly and severally represent and warrant to
Buyer as follows:
3.1 CORPORATE AUTHORITY AND OWNERSHIP OF SELLER.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada. Seller has all necessary
corporate power to own, lease and operate its properties and assets and to carry
on the Business as currently conducted. Seller is duly qualified to transact
business and is in good standing in all jurisdictions in which the nature of its
business or assets makes such qualification necessary, except where the failure
to be so qualified would not have a Material Adverse Effect.
(b) Seller has full corporate power and authority to execute, deliver
and perform this Agreement and the other agreements contemplated by the terms
hereof, including without limitation, the Bill of Sale and the Assignment and
Assumption Agreement (collectively, the "ANCILLARY AGREEMENTS") and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements have
been duly authorized by all necessary corporate action on the part of Seller,
and no further approval of the board of directors of Seller (or any committee
thereof) is necessary for the execution hereof or thereof or consummation of the
transactions contemplated hereby or thereby.
(c) This Agreement has been, and the Ancillary Agreements will be,
duly executed and delivered by Seller and constitute or will constitute valid,
legally binding and enforceable obligations of Seller, subject, in the case of
enforceability, to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to principles of equity regarding the
availability of equitable remedies.
(d) The execution and delivery of this Agreement and the Ancillary
Agreements by Seller and consummation by Seller of the transactions contemplated
hereby and thereby are not prohibited by, and do not violate in any material
respect any provision of, the Articles of Incorporation or Bylaws of Seller, or
violate any material provision or result in the breach of, or accelerate or
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permit the acceleration of the performance required by, or permit any other
party to terminate or alter the provisions of, any material term of any Contract
to which Seller is a party or which relates to the Business, other than such
violations, breaches or accelerations that will not, in the aggregate, have a
Material Adverse Effect on Seller's ability to perform its obligations
hereunder, and have not resulted in and will not result in the creation or
imposition of any material Lien on the Purchased Assets, and do not violate any
material Law, arbitration award, judgment or decree to which Seller is a party
or by which any of the Purchased Assets are bound.
3.2 CORPORATE AUTHORITY AND OWNERSHIP OF PARENT.
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Parent has all necessary
corporate power to own, lease and operate its properties and assets and to carry
on its business as currently conducted.
(b) Parent has full corporate power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Parent have
been duly authorized by all necessary corporate action on the part of Parent,
and no further approval of the board of directors of Parent (or any committee
thereof) is necessary for the execution hereof or the consummation of the
transactions contemplated hereby.
(c) This Agreement has been duly executed and delivered by Parent and
constitutes a valid, legally binding and enforceable obligation of Parent,
subject, in the case of enforceability, to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to principles of equity
regarding the availability of equitable remedies.
(d) The execution and delivery of this Agreement by Parent and
consummation by Parent of the transactions contemplated hereby are not
prohibited by, and do not violate in any material respect any provision of, the
Certificate of Incorporation or Bylaws of Parent, or violate any material
provision or result in the breach of, or accelerate or permit the acceleration
of the performance required by, or permit any other party to terminate or alter
the provisions of, any material term of any contract to which Parent is a party
or by which its properties and assets are bound, other than such violations,
breaches or accelerations that will not, in the aggregate, have a Material
Adverse Effect on Parent's ability to perform its obligations hereunder, and do
not violate any material Law, arbitration award, judgment or decree to which
Parent is a party or by which its properties and assets are bound.
3.3 LITIGATION AND RELATED MATTERS. Except as set forth on SCHEDULE 3.3,
there are no claims, actions, suits, legal proceedings or investigations pending
or, to the knowledge of Seller or Parent, threatened, against Seller which are
reasonably likely to have a Material Adverse Effect on the Business or on the
ability of Seller to consummate the transactions contemplated by this Agreement
and the Ancillary Agreements, nor is Seller subject to any outstanding order,
rule, decree or judgment of any court or governmental agency of competent
jurisdiction, which is reasonably likely to have a Material Adverse Effect on
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the Business or the transactions contemplated by this Agreement and the
Ancillary Agreements.
3.4 TITLE TO PERSONAL PROPERTY - OWNED. Seller does not own any real
property. Except for Liens for current taxes or assessments due but not yet
payable, Seller has good and marketable title to its material personal property
included in the Purchased Assets, free and clear of all Liens, and, except as
provided above, good and marketable title to such material personal property,
free and clear of all Liens, shall pass to Buyer at Closing.
3.5 REAL AND PERSONAL PROPERTY - LEASED. All material leases relating to
the Business pursuant to which Seller is a lessee or lessor of any real or
personal property are listed on SCHEDULE 3.5. All of such leases are in full
force and effect, all rental payments due under such leases have been paid and
there exist no material defaults by Seller under the terms of such leases, and
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements will not create any such default with respect to such
leases or result in the lessor having the right to terminate or alter the
material operative provisions of any such leases.
3.6 INTELLECTUAL PROPERTY. SCHEDULE 3.6 lists all material Intellectual
Property. Except as set forth on SCHEDULE 3.6, Seller owns, or to Seller's and
Parent's knowledge, holds valid license rights to, all Intellectual Property,
free and clear of all Liens. Except as set forth on SCHEDULE 3.6, (a) there are
no material actions, proceedings or infringement suits pending, or, to Seller's
and Parent's knowledge, threatened, with respect to any of the Intellectual
Property, and (b) no material licenses have been granted to any other Person
with respect to any of the Intellectual Property.
3.7 TAXES. Except as set forth on SCHEDULE 3.7, all Taxes have been or will
be paid by Seller and will not result in the imposition of any Lien on any of
the Purchased Assets which would have a Material Adverse Effect on the value
thereof or title thereto.
3.8 FINANCIAL STATEMENTS. Seller and Parent have delivered to Buyer (a) the
unaudited balance sheets and related unaudited statements of income of Seller at
and for each of the years ending March 31, 1998 and March 31, 1999, and (b) the
unaudited balance sheets and related statements of income of Seller at and for
the four (4) month period ended July 31, 1999, copies of which are attached as
Schedule 3.8 hereto (collectively, the "FINANCIAL STATEMENTS"). The balance
sheets included in the Financial Statements present fairly, in all material
respects, the financial position of Seller as of the respective dates thereof,
and the related statements of income included in the Financial Statements
present fairly, in all materials respects, the results of operations of Seller
for the respective periods or as of the respective dates set forth therein, in
each case in accordance with GAAP, consistently applied for all periods
presented except for the absence of footnote disclosures, statements of changes
in stockholders' equity, and report of independent accountants, each of which is
required under GAAP.
3.9 NO BROKER. Neither Seller nor Parent has retained a broker or finder in
connection with the transactions contemplated herein so as to give rise to any
valid claim against either Seller, Parent or Buyer for a finder's fee, brokerage
commission or similar payment.
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3.10 ABSENCE OF CERTAIN CHANGES. Other than as disclosed on SCHEDULE 3.10,
since the Balance Sheet Date, there has occurred no Material Adverse Change with
respect to Seller, the Business or the Purchased Assets.
3.11 COMPLIANCE WITH LAW; LICENSES AND PERMITS. Except as set forth on
SCHEDULE 3.11, to the knowledge of Seller and Parent, the Business has been
operated in compliance with all applicable Laws and with all permits, licenses,
authorizations or consents granted by any governmental authority or entity
(collectively "PERMITS"), the noncompliance with which would be likely to have a
Material Adverse Effect on Seller or the Business. Except as set forth on
SCHEDULE 3.11, no investigation or review by any governmental authority or
entity with respect to the Business is pending or, to the knowledge of Parent
and Seller, threatened, nor has any governmental authority or entity, to the
knowledge of Parent and Seller, indicated an intention to conduct the same. To
the knowledge of Parent and Seller, Seller has all material Permits necessary to
carry on the Business as currently conducted.
3.12 INSURANCE. SCHEDULE 3.12 sets forth: (i) each insurance policy
currently in effect with respect to the Purchased Assets or the Business under
which Seller is a beneficiary; (ii) the name of the insurer with which such
policy is carried; (iii) the liabilities covered thereunder; (iv) the amount of
coverage (including the amount of any deductible) thereunder; and (v) the period
of coverage thereunder. All premiums under each such insurance policy have been
duly paid to date and each such insurance policy is in full force and effect up
to the full amount of coverage indicated on SCHEDULE 3.12. Seller has not failed
to give any notice or present any claim thereunder in due and timely fashion or
as required by any of such insurance policies.
3.13 CONTRACTS. SCHEDULE 3.13 sets forth all Contracts to which Seller is a
party and which relate to the Business, and which (i) involve payments to be
made by or to Seller of amounts which, together with any payments previously
made, exceed $50,000 in any year or (ii) were entered into other than in the
ordinary course of the Business. All such Contracts are in full force and effect
and are binding obligations of Seller and, to the knowledge of Seller and
Parent, of the other parties thereto, and Seller and, to the knowledge of Seller
and Parent, the other parties thereto, have in all material respects performed
all obligations required to be performed by them and are not in default
thereunder.
3.14 TRANSACTIONS WITH RELATED PERSONS. Except as set forth on SCHEDULE
3.14, no officer, director or employee of Seller or Parent nor any relative of
any such officer, director or employee, is a party to or has an interest
(excluding equity interests in third parties), directly or indirectly, in any
Contract or commitment to which Seller is a party in connection with the
Business or by which any of the Purchased Assets are or may be bound, or has any
interest (excluding equity interests in third parties), directly or indirectly,
in any property, real or personal, tangible or intangible, used in the Business.
3.15 LABOR RELATIONS. Except as set forth on SCHEDULE 3.15, (i) Seller is
not a party to any collective bargaining agreement pertaining to the Business,
and no collective bargaining agreement with respect to any employees of the
Business is currently being negotiated by Seller; (ii) the Business has not
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experienced any work stoppage or any other material labor difficulty during the
three (3) years immediately preceding the date of this Agreement; and (iii)
there is no labor strike, slowdown, stoppage or material dispute actually
pending, or to the knowledge of Seller and Parent, threatened, against the
Business.
3.16 COMPLIANCE WITH ERISA.
(a) SCHEDULE 3.16 sets forth each "employee benefit plan" (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) which Seller maintains or contributes to with respect to its
Employees (collectively, the "Plans").
(b) To the knowledge of Seller and Parent, each Plan complies in all
material respects with all applicable Laws. No claims or actions by the Internal
Revenue Service, the Pension Benefit Guaranty Corporation, the Department of
Labor, any participant or beneficiary or any other Person currently are pending,
or to the knowledge of Seller and Parent, are threatened, with respect to any
Plan, other than claims for benefits in the ordinary course.
(c) Seller will not incur any liability under any Plan solely on
account of the consummation of the transactions contemplated hereby.
3.17 ENVIRONMENTAL MATTERS. To the knowledge of Seller and Parent, Seller
is not in violation of any applicable Environmental Laws, and no material
expenditures are or will be required in order to comply with any such existing
Environmental Laws. No Hazardous Materials are used or have been used, stored,
or disposed of by Seller or, to the knowledge of Seller or Parent, by any other
Person on any property leased or used by Seller.
3.18 FULL DISCLOSURE. No representation or warranty of Seller and Parent
contained in this Article III contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 CORPORATE AUTHORITY AND OWNERSHIP OF BUYER.
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Buyer has all necessary
corporate power to own, lease and operate its properties and assets and to carry
on its business as currently conducted.
(b) Buyer has full corporate power and authority to execute, deliver
and perform this Agreement and the Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
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execution, delivery and performance by Buyer of this Agreement and the Ancillary
Agreements have been duly authorized by all necessary corporate action on the
part of Buyer, and no further approval of the board of directors of Buyer (or
any committee thereof) is necessary for the execution hereof or thereof or
consummation of the transactions contemplated hereby or thereby.
(c) This Agreement has been, and the Ancillary Agreements will be,
duly executed and delivered by Buyer and constitute or will constitute valid,
legally binding, and enforceable obligations of Buyer, subject, in the case of
enforceability, to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to principles of equity regarding the
availability of equitable remedies.
(d) The execution and delivery of this Agreement and the Ancillary
Agreements by Buyer and consummation by Buyer of the transactions contemplated
hereby and thereby are not prohibited by, and do not violate in any material
respect any provision of, the Articles of Incorporation or Bylaws of Buyer, or
violate any material provision or result in the breach of, or accelerate or
permit the acceleration of the performance required by, or permit any other
party to terminate or alter the provisions of, any material term of any contract
to which Buyer is a party or by which its assets or properties are bound, other
than such violations, breaches or accelerations that will not, in the aggregate,
have a Material Adverse Effect on Buyer's ability to perform its respective
obligations hereunder, and do not violate any material Law, arbitration award,
judgment or decree to which Buyer is a party or by which any of the Purchased
Assets are bound.
4.2 NO LITIGATION CONCERNING AGREEMENT. As of the date of this Agreement,
there are no actions, suits or proceedings pending or, to Buyer's knowledge,
threatened, against Buyer which will have a Material Adverse Effect on Buyer's
ability to consummate the transactions contemplated by this Agreement.
4.3 NO BROKER. Buyer has not retained a broker or finder in connection with
the transactions contemplated herein so as to give rise to any valid claim
against Seller, Parent or Buyer for a finder's fee, brokerage commission or
similar payment.
4.4 FULL DISCLOSURE. No representation or warranty of Buyer contained in
this Article IV contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
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ARTICLE V.
CONDUCT OF THE BUSINESS PENDING CLOSING
5.1 BUSINESS IN ORDINARY COURSE. At all times prior to the Closing, without
the prior written consent of Buyer, Seller shall conduct the Business only in
the ordinary course consistent with past practice.
5.2 PRESERVATION OF BUSINESS. At all times prior to the Closing, Seller
shall carry on the Business diligently and substantially in the same manner as
heretofore conducted and shall use its reasonable best efforts to keep its
business organizations intact, including its present Employees and present
relationships with suppliers and customers and others having business relations
with Seller with respect to the Business.
5.3 INSURANCE AND MAINTENANCE OF PROPERTY. At all times prior to the
Closing, Seller shall cause all of the Purchased Assets and all property owned
or leased pursuant to the Assumed Liabilities to be insured against all ordinary
and insurable risks (except in respect of any leased property where the terms of
the lease do not impose on lessee the obligation to maintain insurance and where
the loss of such property would not materially adversely affect the Purchased
Assets or the conduct of the Business), and shall operate, maintain and repair
all of such property in a careful, prudent and efficient manner.
5.4 BOOKS AND RECORDS. Prior to the Closing, Seller shall maintain its
books and financial records in accordance with GAAP. Said books and financial
records shall fairly and accurately reflect the operations of Seller including,
without limitation, the operations of the Business.
ARTICLE VI.
ADDITIONAL COVENANTS OF SELLER
6.1 FULL ACCESS. Upon reasonable notice, representatives of Buyer
shall have reasonable access during normal business hours to the premises,
properties, books, records, contracts, tax records and documents of Seller
relating to the Business, and Seller shall furnish to Buyer such information in
respect of the Business as Buyer may from time to time reasonably request in
connection with its due diligence investigation of the Business prior to the
Closing. Buyer shall use reasonable efforts to promptly inform Seller of any
matters of which Buyer becomes aware that constitute a breach of the
representations and warranties pursuant to Article III hereof; provided that
Buyer's failure to so inform Seller of such matters shall in no way adversely
impact Buyer's right to indemnification as provided for in Article XI hereof.
6.2 BULK SALES LAW. Seller shall indemnify and hold Buyer harmless from and
against any and all claims relating to the failure to comply with the "bulk
sales law" of any applicable jurisdiction with respect to the sale and transfer
of the Purchased Assets as contemplated by this Agreement. Buyer hereby waives
compliance with the "bulk sales law" of any applicable jurisdiction with respect
to the transactions contemplated by this Agreement.
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6.3 CONSENTS; ASSIGNMENTS.
(a) Seller shall use its reasonable best efforts to obtain all
consents or approvals from parties to the Assigned Contracts and all consents,
licenses or Permits from governmental authorities, which are required by the
terms thereof or this Agreement for the consummation of the transactions
contemplated hereby; provided, that anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to transfer
any Assigned Contract or Permit if the attempted assignment thereof without the
consent of another Person would constitute a breach of, or a default under, or
in any other manner affect the rights of Seller or Buyer with respect to such
Assigned Contract or Permit. To the extent necessary, Buyer shall use its
reasonable best efforts to cooperate with Seller in obtaining such consents and
approvals, provided that Buyer shall not be required (i) to agree to any change
in the material terms and conditions of any Assigned Contract, or (ii) to pay
any fee or other monetary consideration to third parties from whom such consents
or approvals are requested.
(b) In the event and to the extent that Seller is unable to obtain,
prior to the Closing Date, any such necessary consent or approval to the
transfer of a Purchased Asset, Seller shall so advise Buyer and shall use its
best efforts, subject to Buyer's approval, to enter into an arrangement (to the
extent permitted by Law or any applicable Assigned Contract), whereby Buyer
shall, to the extent possible, obtain the benefits and assume the obligations of
such Purchased Asset without the assignment thereof, including subcontracting,
sublicensing or subleasing. If and when any such consent or approval
subsequently shall be obtained, Seller shall promptly assign all of its rights
and obligations under such Assigned Contract or Permit, as the case may be, to
Buyer without the payment of any further consideration.
ARTICLE VII.
ADDITIONAL COVENANTS OF BUYER
7.1 FINANCING COMMITMENT; SOLVENCY. Prior to the Closing, Buyer shall use
its best efforts to obtain from a bank or other third party lender debt
financing in the amount of up to One Million Five Hundred Thousand Dollars
($1,500,000) to enable Buyer to acquire the Purchased Assets at the Closing.
Prior to Closing, Buyer shall provide to Seller and Parent evidence reasonably
satisfactory to Seller and Parent that Buyer has sufficient working capital or
other funding to operate the Business as a going concern following the Closing.
7.2 INSURANCE. Prior to the Closing, Buyer shall procure and cause to be
maintained in full force and effect, insurance policies covering the Purchased
Assets and such Employees of the Business as are hired by Buyer, which insurance
coverage shall be in types and amounts comparable to the insurance coverage
maintained by or on behalf of Seller prior to Closing with respect to the
Business, including without limitation, property, casualty and worker's
compensation coverage.
7.3 ACCESS TO BOOKS AND RECORDS. From and after the Closing Date, Buyer
shall afford to Seller and representatives of Seller, at Seller's expense,
reasonable access and duplicating rights during normal business hours and upon
reasonable advance notice to all books and records within the possession or
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control of Buyer relating to the Business, the Purchased Assets or the Assumed
Liabilities as they existed prior to the Closing, insofar as such access is
reasonably required for a valid business purpose. Without limiting the
foregoing, access to such books and records may be requested by Seller pursuant
to this Section 7.2 for audit, accounting, claims, litigation and tax purposes.
Any information provided to Seller pursuant to this Section 7.2 shall be subject
to the provisions of Article X of this Agreement.
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions provided for in
this Agreement shall be subject to the satisfaction by Seller and Parent of each
of the following conditions on or prior to the Closing Date, subject to the
right of Buyer to waive any one or more of such conditions:
8.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT. Each of the
representations and warranties of Seller and Parent contained in this Agreement,
including the schedules hereto, shall be true and correct in all respects on the
date hereof and on the Closing Date as though such representations and
warranties were made on the Closing Date, except to the extent that such
representations and warranties are by their express provisions made as of the
date of this Agreement or another specific date.
8.2 NECESSARY ACTION. Seller and Parent shall have taken all necessary
corporate action to approve the execution and delivery by Seller and Parent of
this Agreement and the consummation of the transactions contemplated hereby.
8.3 PERFORMANCE OF THIS AGREEMENT. Seller and Parent shall have duly
performed or complied in all material respects with all of the obligations to be
performed or complied with by each of them under the terms of this Agreement on
or prior to the Closing Date.
8.4 RELATED PARTY LIABILITIES. As of the Closing Date, no amounts shall be
owing to, and no Liabilities shall exist in favor of, any officer, director,
employee or stockholder of Seller, other than Liabilities incurred in the
ordinary course of business of Seller consistent with past practice.
8.5 DELIVERY OF SELLER'S CLOSING DOCUMENTS. Seller shall have executed and
delivered, or stand ready to execute and deliver, to Buyer each of the
agreements, documents and instruments specified in Section 2.7 of this
Agreement.
8.6 NO INCONSISTENT REQUIREMENTS. No legal action by any public authority
or other Person enjoining or prohibiting the transactions contemplated hereby
shall be in effect.
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ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF SELLER AND PARENT
The obligations of Seller and Parent to consummate the transactions
provided for in this Agreement shall be subject to the satisfaction by Buyer of
each of the following conditions on or prior to the Closing Date, subject to the
right of Seller and Parent to waive any one or more of such conditions:
9.1 REPRESENTATIONS AND WARRANTIES OF BUYER. Each of the representations
and warranties of Buyer contained in this Agreement, including the schedules
hereto, shall be true and correct in all respects on the date hereof and on the
Closing Date as though such representations and warranties were made on the
Closing Date, except to the extent that such representations and warranties are
by their express provisions made as of the date of this Agreement or another
specific date.
9.2 NECESSARY ACTION. Buyer shall have taken all necessary corporate action
to approve the execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby.
9.3 CONSENT OF PARENT'S LENDER. Parent shall have obtained the written
consent of Harris Trust and Savings Bank to the consummation of the transaction
contemplated by this Agreement.
9.4 PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly performed or
complied in all material respects with all of the obligations to be performed or
complied with by it under the terms of this Agreement on or prior to the Closing
Date.
9.5 DELIVERY OF BUYER'S CLOSING DOCUMENTS. Buyer shall have executed and
delivered, or stand ready to execute and deliver, to Seller each of the
agreements, documents and instruments specified in Section 2.8 of this
Agreement.
9.6 PAYMENT OF PURCHASE PRICE. Buyer shall have delivered the Closing
Purchase Price to Seller on the Closing Date.
9.7 NO INCONSISTENT REQUIREMENTS. No legal action by any public authority
or other Person enjoining or prohibiting the transactions contemplated hereby
shall be in effect.
ARTICLE X.
CONFIDENTIALITY
10.1 OBLIGATIONS OF CONFIDENTIALITY. Each party hereto agrees that it shall
hold and keep confidential, and shall cause its Affiliates to hold and keep
confidential, all Confidential Information regarding the Business, the Purchased
Assets or this Agreement, and no party nor any of its Affiliates shall use any
of such Confidential Information for any purpose not expressly permitted by this
Agreement. Each party hereto acknowledges that the Confidential Information is
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valuable and proprietary, and that any disclosure of such information to any
officer, employee or agent of, or investor in or lender to, such party shall be
made only to the extent necessary in order for such party to carry out its
obligations under this Agreement and then only if such officer, employee or
agent shall be bound by an agreement to maintain such information in confidence.
10.2 DEFINITION OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" means any and all data and information of
a proprietary or confidential nature that is owned or controlled by any party
hereto, including, without limitation, information and data relating to
Intellectual Property; design, manufacturing and marketing information;
identities of suppliers, customers and contractors; product distribution and
sales information; pricing and compensation policies; operational methods;
strategic plans; internal financial information; research and development plans
and activities; and acquisition and expansion plans. "Confidential Information"
shall not include any information which (i) was known to any party prior to its
disclosure by the other party; (ii) was in the public domain prior to the
disclosure thereof by the relevant party hereto; (iii) comes into the public
domain through no fault of the party bound by this Section 10.2; (iv) is
disclosed by a third Person (which term shall not include attorneys, accountants
and other non-employee representatives of any party hereto who are subject to
the terms of this Section 10.2) having the legal right to make such disclosure;
or (v) is required to be disclosed by applicable Laws or rules of a stock
exchange or order of any court of competent jurisdiction.
ARTICLE XI.
INDEMNIFICATION AND INSURANCE
11.1 INDEMNIFICATION OF BUYER. Seller and Parent hereby jointly and
severally agree to indemnify, defend and hold Buyer, its stockholders,
directors, officers, employees, Affiliates, successors, assigns and agents
(collectively, the "BUYER INDEMNIFIED PARTIES") harmless from, against and in
respect of, any and all claims, losses, damages, liabilities, expenses or costs,
including reasonable attorneys' fees, costs and expenses of investigation,
penalties, interest and amounts paid in settlement (collectively, "LOSSES")
incurred or to be incurred by any of the Buyer Indemnified Parties, reduced by
the amount of any third party recovery or tax benefit actually received by any
of such Buyer Indemnified Parties (collectively, "BUYER INDEMNIFIED LOSSES") by
reason of, arising out of or related to:
(a) any breach or inaccuracy in any representation or warranty of
Seller or Parent contained in this Agreement, or in any exhibit, schedule or
Ancillary Agreement delivered pursuant hereto;
(b) any breach or nonfullfillment of any covenant, agreement or
undertaking of Seller or Parent contained in this Agreement, or in any exhibit,
schedule or Ancillary Agreement delivered pursuant hereto;
(c) all Liabilities of Seller other than the Assumed Liabilities,
whether direct or indirect, fixed or contingent, known or unknown; and
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(d) any claims or demands arising from or relating to the Purchased
Assets or the conduct of the Business prior to the Closing Date, except claims
or demands arising from or relating to Assumed Liabilities.
11.2 INDEMNIFICATION OF SELLER. Buyer hereby agrees to indemnify and hold
Seller and Parent and their respective stockholders, directors, officers,
employees, Affiliates, successors, assigns and agents (collectively, the "SELLER
INDEMNIFIED Parties") harmless from, against and in respect of, any and all
Losses incurred or to be incurred by any of the Seller Indemnified Parties,
reduced by the amount of any third party recovery or tax benefit actually
received by any of such Seller Indemnified Parties (collectively, "SELLER
INDEMNIFIED LOSSES") by reason of, arising out of or related to:
(a) any breach or inaccuracy in any representation or warranty of
Buyer contained in this Agreement, or in any exhibit, schedule or Ancillary
Agreement delivered pursuant hereto;
(b) any breach or nonfullfillment of any covenant, agreement or
undertaking of Buyer contained in this Agreement, or in any exhibit, schedule or
Ancillary Agreement delivered pursuant hereto;
(c) the Assumed Liabilities, from and after the Closing Date; and
(d) any claims or demands arising from or relating to the conduct of
the Business following the Closing Date, including claims or demands relating to
Employees hired by Buyer following the Closing, except for conduct undertaken in
reliance upon or as a direct result of a representation or warranty of Seller
herein.
11.3 INDEMNIFICATION PROCEDURES. Promptly after acquiring knowledge of any
claim or demand against which a party entitled to indemnification hereunder (the
"INDEMNIFIED PARTY") may seek indemnification against the other party (the
"INDEMNIFYING PARTY") pursuant to this Article XI, the Indemnified Party shall
give written notice thereof to the Indemnifying Party; PROVIDED, HOWEVER, that
failure to provide such notice will not relieve the Indemnifying Party of any
liability that it may have to the Indemnified Party under this Agreement unless
(i) the Indemnified Party fails to give written notice to the Indemnifying Party
within twenty (20) days of the date the Indemnified Party acquires knowledge of
such claim and (ii) the Indemnifying Party is prejudiced as a result of such
failure; and PROVIDED, FURTHER, that in such event, the Indemnifying Party shall
be relieved of liability only to the extent of such prejudice. To the extent
that the claim consists of a claim, suit or action by a third Person (an
"ACTION"), the Indemnifying Party shall be entitled to participate in the
defense of such Action and, to the extent that it so elects by written notice to
the Indemnified Party promptly after receiving the aforesaid notice from such
Indemnified Party, to assume control of such defense with counsel reasonably
satisfactory to such Indemnified Party; PROVIDED, HOWEVER, that (i) that
Indemnified Party shall at its own expense be entitled to participate in the
defense of such Action and to employ separate counsel and (ii) the Indemnifying
Party shall not consent to the entry of any judgment or enter into any
20
<PAGE>
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to each Indemnified Party of a release from all
liability in respect of such Action. After written notice by the Indemnifying
Party to the Indemnified Party of its election to assume control of the defense
of any such Action, the Indemnifying Party shall not be liable to such
Indemnified Party hereunder for any legal expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof.
11.4 COMPUTATION OF CLAIMS. All computations of claims and the amount of
indemnification to which any Indemnified Party is entitled under this Article XI
shall be made (a) giving effect to the tax consequences of any such claim and of
such indemnification payments provided for herein and (b) after deduction of all
proceeds of insurance (net of retroactive premiums and self-insurance retention)
recoverable by the Indemnified Party with respect to such claims.
11.5 EXCLUSIVE REMEDY . The parties agree that the provisions of this
Article XI set forth the exclusive remedy of the parties following the Closing
for any breach of or noncompliance with the provisions of this Agreement, any
Ancillary Agreement and any transactions contemplated hereby or thereby, except
for any Losses that occur as a result of fraudulent acts on the part of a party
hereto.
ARTICLE XII.
SURVIVAL OF CERTAIN PROVISIONS
The representations, warranties, covenants, agreements and indemnities
of the parties contained in this Agreement shall survive the consummation of the
transactions contemplated herein and shall continue in full force for the period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date (the "SURVIVAL PERIOD"); PROVIDED, HOWEVER, that (i) the provisions
of Section 3.4 (Title to Property - Owned), Section 3.7 (Taxes), Section 3.16
(Compliance with ERISA) and Section 3.17 (Environmental Matters) shall survive
until the date which is sixty (60) days after the expiration of the applicable
statute of limitations period (including any extensions thereof); and (ii) the
covenants and agreements of the parties contained herein shall survive
indefinitely. The Survival Period shall be extended automatically to include any
time period necessary to resolve a specific claim for indemnification which was
asserted in accordance with Article XI prior to the expiration of the relevant
Survival Period; and PROVIDED, FURTHER, that any such extension shall apply only
as to claims asserted but not resolved within the Survival Period.
ARTICLE XIII.
TERMINATION
13.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of Seller and Buyer;
21
<PAGE>
(b) by either Seller or Buyer if the transactions contemplated hereby
shall not have been consummated within ninety (90) days following the date of
this Agreement;
(c) by Seller if there shall have been any material breach of a
representation and warranty or material obligation of Buyer hereunder and, if
such breach is curable, such default shall have not been remedied within ten
(10) days after receipt by Buyer of notice in writing from Seller specifying
such breach and requesting that it be remedied; provided that such ten (10) day
period shall be extended for so long as Buyer shall be making all reasonable
attempts to cure such breach, unless the breach is not susceptible of a cure;
(d) by Buyer if there shall have been any material breach of a
representation and warranty or material obligation of Seller or Parent hereunder
and, if such breach is curable, such default shall not have been remedied within
ten (10) days after receipt by Seller of notice in writing from Buyer specifying
such breach and requesting that it be remedied; provided that such ten (10) day
period shall be extended for so long as Seller shall be making all reasonable
attempts to cure such breach, unless the breach is not susceptible of a cure; or
(e) by either Seller or Buyer if any governmental entity shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby and such order, decree, ruling or any other action shall
have become final and non-appealable.
13.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided above, this Agreement shall forthwith become of no further effect
and, except for termination resulting from a breach by a party of this
Agreement, there shall be no liability or obligation on the part of any party or
their respective Affiliates (except as set forth in Article X hereof which shall
survive the termination). Moreover, in the event of termination of this
Agreement pursuant to Section 13.1(c) or 13.1(d), nothing herein shall prejudice
the ability of the non-breaching party from seeking damages from any other party
for any breach of this Agreement, including, without limitation, attorneys' fees
and the right to pursue any remedy at law or in equity.
ARTICLE XIV.
MISCELLANEOUS
14.1 NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made hereunder shall be deemed to have been
duly given if the same shall be in writing and shall be delivered or sent by
overnight courier, prepaid first class, certified or registered air mail, return
receipt requested, or by facsimile transmission, to the intended recipient
thereof at its address or facsimile number set forth below:
22
<PAGE>
If to Seller: National Health Benefits & Casualty Corp.
15720 North Greenway-Hayden Loop
Suite 1
Scottsdale, AZ 85260
Attention: Stephen J. Carder
Facsimile No.: 480-451-9087
with a copy to: Bryan Cave LLP
Two North Central Avenue, Suite 2200
Phoenix, Arizona 85004-4406
Attention: Joseph P. Richardson, Esq.
Facsimile No.: 602-364-7070
and to: HealthStar Corp.
15270 North Greenway-Hayden Loop, Suite 1
Scottsdale, Arizona 85260
Attention: Steven A. Marcus
Facsimile No.: 480-451-9087
If to Buyer: Carlmont Capital Group, Inc.
2202 Otay Lakes Road, Suite 502
Chula Visa, California 91915
Attention: Blaine D. Pollock, President
Facsimile No.: 619-216-2743
Any such notice shall be effective upon receipt. Any party may change the
address to which notices to such party shall be delivered or mailed by giving
notice of such change to the other parties hereto in the manner provided herein.
14.2 BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of and be enforceable by the parties hereto
and their respective successors and permitted assigns. No party may assign any
of its rights or delegate any of its obligations hereunder without the prior
written consent of the other parties hereto.
14.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the
exhibits and schedules attached hereto, constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
discussions and agreements among the parties with respect to such subject
matter, including, without limitation, the Letter of Intent between Buyer and
Parent dated October 7, 1999. This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by or on behalf of all of
the parties hereto.
14.4 SEVERABILITY. If any provision of this Agreement shall be
determined to be illegal, invalid or unenforceable by a court of competent
jurisdiction, it is the intention of the parties that the remaining provisions
hereof shall remain in full force and effect. To the extent legally permissible,
23
<PAGE>
any illegal, invalid or unenforceable provision of this Agreement shall be
replaced by a valid provision which shall implement the commercial purpose of
the illegal, invalid or unenforceable provision.
14.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
14.6 HEADINGS; INTERPRETATION. The table of contents and article and
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of the Agreement.
Both parties have participated substantially in the negotiation and drafting of
this Agreement and each party hereby disclaims any defense or assertion in any
litigation or arbitration that any ambiguity herein should be construed against
the draftsman.
14.7 REMEDIES; NO WAIVER. The rights and remedies provided in this
Agreement and the Ancillary Agreements shall be cumulative and not exclusive of
any rights or remedies provided by Law. No failure or delay by any party in
exercising any right, power or privilege under this Agreement will operate as a
waiver of such right, power or privilege. A single or partial exercise of any
right, power or privilege will not preclude any other or further exercise of
such right, power or privilege or any other right, power or privilege. No waiver
shall constitute a waiver of or assent to any succeeding breach of or default
under the same or any other provision of this Agreement.
14.8 GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the Laws of the State of Arizona, without regard to
rules relating to conflicts of Law.
14.9 PAYMENT OF FEES AND EXPENSES. Except as may otherwise be provided in
this Agreement, each party hereto shall pay all fees and expenses of such
party's respective counsel, accountants and other experts and all other expenses
incurred by such party incident to the negotiation, preparation and execution of
this Agreement and the consummation of the transaction contemplated hereby,
including any finder's or brokerage fee.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
SELLER:
NATIONAL HEALTH BENEFITS & CASUALTY CORP.
By /s/ Stephen A. Carder
------------------------------------------
Name: Stephen A. Carder
Title: President
PARENT:
HEALTHSTAR CORP.
By /s/ Stephen A. Marcus
------------------------------------------
Name: Stephen A. Marcus
Title: Vice President & Chief Financial Officer
PURCHASER:
CARLMONT CAPITAL GROUP, INC.
By /s/ Blaine Pollock
------------------------------------------
Name: Blaine Pollock
Title: President
EXHIBIT 99.1
HEALTHSTAR CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statements of Operations set
forth herein present the results of operations of HealthStar Corp., assuming
that the sale of the assets of National Health Benefits & Casualty
Corp.("NHBC"), occurred on April 1, 1998, for the operating statements for the
year ended March 31, 1999 and the six months ended September 30, 1999. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet set forth herein
presents the financial position of the company assuming the sale occurred on
September 30, 1999. Adjustments necessary to reflect these assumptions and to
restate the historical consolidated balance sheet and results of operations are
presented in the Pro Forma Adjustments column, which are further described in
the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
The historical financial information for HealthStar Corp. is derived from
the consolidated financial statements of HealthStar Corp. as of and for the year
ended March 31, 1999, and the unaudited consolidated financial statements of
HealthStar Corp. as of and for the six months ended September 30, 1999.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
based on certain assumptions and adjustments described in the related Notes to
Unaudited Pro Forma Condensed Consolidated Financial Statements and should be
read in conjunction with the audited and unaudited historical financial
statements and notes thereto.
F-1
<PAGE>
HEALTHSTAR CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ASSETS ACTUAL ADJUSTMENTS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 115,007 $ 75,000 (1) $ 190,007
Trade accounts receivable, net 1,760,300 (251,970)(3) 1,508,330
Other current assets 460,994 (10,839)(3) 450,155
------------ ------------ ------------
Total current assets 2,336,301 (187,809) 2,148,492
Property and equipment, net 2,101,831 (38,585)(3) 2,063,246
Goodwill, net 7,932,635 -- 7,932,635
Other assets, at cost 180,405 (15,657)(3) 164,748
------------ ------------ ------------
Total assets $ 12,551,172 (242,051) $ 12,309,121
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 634,726 $ -- $ 634,726
Accrued expenses 716,854 387,782 (2) 1,104,636
Current portion of long-term debt 3,175,000 (1,350,000)(1) 1,825,000
------------ ------------ ------------
Total current liabilities 4,526,580 (962,218) 3,564,362
Shareholders' equity:
Common stock, $.001 par value, 15,000,000
shares authorized, 3,875,872 shares issued
and outstanding 3,876 -- 3,876
Additional paid-in capital 8,341,448 -- 8,341,448
Retained earnings (accumulated deficit) (320,732) 720,167 (2) 399,435
------------ ------------ ------------
Total shareholders' equity 8,024,592 720,167 8,744,759
------------ ------------ ------------
Total liabilities and shareholders' equity $ 12,551,172 $ (242,051) $ 12,309,121
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
F-2
<PAGE>
HEALTHSTAR CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Actual Adjustments Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Capitated fees $ 9,481,392 $ (152,372)(4) $ 9,329020
Repricing fees 6,893,519 (2,480,084)(4) 4,413,435
Other fees 540,381 (21,414)(4) 518,967
------------ ------------ ------------
16,915,292 (2,653,870) 14,261,422
------------ ------------ ------------
Operating expenses:
Cost of services 2,434,238 (804,593)(4) 1,629,645
Salaries and wages 8,202,561 (782,762)(4) 7,419,799
General and administrative 4,877,761 (346,936)(4) 4,530,825
Depreciation and amortization 1,214,204 (51,333)(4) 1,162,851
------------ ------------ ------------
16,728,764 (1,985,644) 14,743,120
------------ ------------ ------------
Income (loss) from operations 186,528 (668,226) (481,698)
Non-operating income (expense)
Interest expense (397,165) (228)(4) (397,393)
Loss on sale of investment (59,626) -- (4) (59,626)
------------ ------------ ------------
Income (loss) before income taxes (270,263) (668,454) (938,717)
Income tax expense (benefit) (94,593) (233,959) (328,552)
------------ ------------ ------------
Net earnings (loss) $ (175,670) $ (434,495) $ (610,165)
============ ============ ============
Earnings (loss) per share - basic and diluted $ (0.05) $ (0.19)
============ ============
Weighted average shares outstanding - basic
and diluted 3,216,676 3,216,676
============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
F-3
<PAGE>
HEALTHSTAR CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Actual Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Capitated fees $ 4,166,790 $ (12,849)(4) $ 4,153,941
Repricing fees 3,059,822 (1,292,604)(4) 1,767,218
Other fees 124,075 (963)(4) 123,112
----------- ----------- -----------
7,350,687 (1,306,416) 6,044,271
----------- ----------- -----------
Operating expenses:
Cost of services 996,636 (416,735)(4) 579,901
Salaries and wages 3,776,948 (293,074)(4) 3,483,874
General and administrative 2,021,552 (160,867)(4) 1,860,685
Depreciation and amortization 640,866 (34,284)(4) 606,582
----------- ----------- -----------
7,436,002 (904,960) 6,531,042
----------- ----------- -----------
Income (loss) from operations (85,315) (401,456) (486,771)
Non-operating income (expense)
Interest expense (141,290) (252)(4) (141,542)
Gain on disposition of assets 114,538 (114,538)(4) --
Other, net 54,948 -- 54,948
Asset impairment charge 500,000 -- 500,000
----------- ----------- -----------
Income (loss) before income taxes (557,119) (516,246) (1,073,365)
Income tax expense (benefit) (19,684) (180,686) (200,370)
----------- ----------- -----------
Net earnings (loss) $ (537,435) $ (335,560) $ (872,995)
=========== =========== ===========
Earnings (loss) per share - basic and diluted $ (0.05) $ (0.23)
=========== ===========
Weighted average shares outstanding - basic
and diluted 3,835,402 3,835,402
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
F-4
<PAGE>
HEALTHSTAR CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 1999, HealthStar Corp. (the "Company") sold all of the
assets of its wholly owned subsidiary National Health Benefits & Casualty Corp.
("NHBC") to Carlmont Capital Group, Inc., a privately held company based in
Chula Vista, California. This sale was made pursuant to the terms of an Asset
Purchase Agreement, dated December 28, 1999 by and among the Company, NHBC and
Carlmont Capital Group, Inc.
In this transaction, the Company sold all of the assets of NHBC and
received as consideration $1,500,000 in cash at closing and an earnout agreement
that may provide up to an additional $300,000 in cash, based on cash flows of
NHBC over the next 18 months. The Company used $1,350,000 of the cash proceeds
to pay down indebtedness owed to Harris Trust and Savings Bank, which has now
been reduced to $1,325,000. In connection with the pay down, Harris Bank agreed
to extend the maturity date of the Company's credit facility to February 29,
2000.
All pro forma adjustments have been prepared assuming that the sale
occurred on April 1, 1998 for the statements of operations and on September 30,
1999 for balance sheet purposes. Management has assigned no value to the
earn-out provision.
The unaudited pro forma condensed consolidated financial statements assume
the following:
Transaction Date April 1, 1998 September 30, 1999
----------- -----------
Cash sales price $ 1,500,000 $ 1,500,000
Earnout provision (no value assigned) -- --
----------- -----------
Total $ 1,500,000 $ 1,500,000
Transaction and related costs (75,000) (75,000)
Total assets of NHBC (367,381) (317,051)
----------- -----------
Gain on sale $ 1,057,619 $ 1,107,949
===========
Tax expense at 35% (387,782)
-----------
Net gain $ 720,167
===========
Tax rates have been applied at the Company's effective rate in the period
presented. The gain on sale has not been presented for operating statement
purposes because it is non-recurring.
F-5
<PAGE>
The pro forma adjustments affecting the balance sheet are:
(1) To record cash received from sale:
Cash received from sale of NHBC $ 1,500,000
Transaction and related costs (75,000)
Payment on Harris Bank Indebtedness (1,350,000)
-----------
$ 75,000
===========
(2) To record the gain on sale.
(3) To record the disposition of the assets of NHBC.
The pro forma adjustments affecting the statements of operations are:
(4) To record the effect of eliminating the results of NHBC
COMPARATIVE PER SHARE DATA
(Unaudited)
The following table reflects the historical net income (loss) per share
from the continuing operations after giving effect to the sale of NHBC. The
information presented in this table should be read in conjunction with the pro
forma financial data appearing elsewhere herein and the Company's consolidated
financial statements included in the Company's annual report on Form 10-KSB for
the year ended March 31, 1999.
Year Ended Six Months Ended
March 31, 1999 September 30, 1999
-------------- ------------------
Net (loss) per share $(0.05) $(0.05)
Pro Forma (loss) per share (0.19) (0.23)
Historical book value per share 0.02
Pro Forma book value per share 0.21
Book value per share is computed at September 30, 1999 by measuring
tangible book value (historical shareholders' equity of $8,024,592 less goodwill
of $7,932,635 divided by 3,875,872 shares outstanding; and pro forma
shareholders' equity of $8,744,759 less goodwill of $7,932,635 divided by
3,875,872 shares outstanding).
