<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 26, 1996
Gulf South Medical Supply, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-21512 06-1251310
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(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File number) Identification No.)
426 Christine Drive, Ridgeland, MS 39157
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 856-5900
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On December 26, 1996, Gulf South Medical Supply, Inc. (the "Company")
completed its acquisition of all of the outstanding capital stock and warrants
of Gateway Healthcare Corporation ("Gateway") from North American Fund II,
L.P., Allied Capital Corporation II, Allied Investment Corporation, Allied
Venture Partnership and Gary Nutter (collectively, the "Sellers") in exchange
for (i) promissory notes in the aggregate principal amount of $25,321,277.24
which were paid in full on January 2, 1997 and (ii) warrants (the "Warrants")
to purchase up to 450,000 shares (the "Warrant Shares") of the Company's common
stock. In addition, the Company (i) repaid outstanding indebtedness of Gateway
in the principal amount of $11,465,000, (ii) paid $1,955,994.58 in connection
with the cancellation of options to acquire 56,110 shares of common stock of
Gateway and (iii) assumed options to acquire 2,562 shares of common stock of
Gateway. The Company obtained the funds from its available cash. The terms of,
and the consideration paid in, this transaction were the result of arm's-length
negotiations between the representatives of the Sellers and the Company. This
transaction will be accounted for as a purchase.
Three executive officers of Gateway have entered into employment
agreements with the Company providing for annual salaries ranging from $80,000
to $150,000, severance periods of one year, non-competition periods of two
years after termination, a bonus plan based on individual performance and on
the financial performance of Gateway and the Company, and the possible future
grant of incentive stock options to purchase an aggregate of 75,000 shares of
the Company's common stock.
Prior to the Acquisition, Gateway was a national supplier of disposable
medical surgical supplies to the long-term care and alternative care market
place. Gateway will be operated as a wholly owned subsidiary of the Company.
The terms of the Acquisition are more fully described in the Stock
Purchase Agreement dated as of November 19, 1996 among the Company, Gateway and
the stockholders of Gateway listed on the signature pages thereto, and the
Amendment and Waiver Agreement dated as of December 26, 1996 among Gateway, the
stockholders of Gateway listed on the signature pages thereto and the Company,
which are filed as Exhibit 2.1 and Exhibit 2.2, respectively, to this report
and are incorporated herein by this reference.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
It is impracticable to provide the financial information required by
Item 7(a) of Form 8-K relating to the business acquired by the Company at the
time this report is filed. Such required financial information will be filed as
soon as practicable, but in any event not later than March 11, 1997.
(b) Pro Forma Financial Information.
It is impracticable to provide the pro forma financial information
required by Item 7(b) of Form 8-K relating to the business acquired by the
Company at the time this report is filed. Such required pro forma financial
information will be filed as soon as practicable, but in any event not later
than March 11, 1997.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
2.1(1) Stock Purchase Agreement dated as of November 19, 1996 among
Gulf South Medical Supply, Inc., Gateway Healthcare Corporation
("Gateway") and the stockholders of Gateway listed on the
signature pages thereto ("Gateway Stock Purchase Agreement").
2.2(1) Amendment and Waiver Agreement, dated as of December 26, 1996
among Gateway, the stockholders of Gateway listed on the
signature pages thereto and Gulf South Medical Supply, Inc., to
the Gateway Stock Purchase Agreement.
</TABLE>
(1) Confidential Treatment Requested. Redacted version filed
herewith.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto authorized.
GULF SOUTH MEDICAL SUPPLY, INC.
Date: January 9, 1996
By: /s/ THOMAS G. HIXON
--------------------------------
Thomas G. Hixon
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
Exhibit in Sequentially
No. Description Numbered Copy
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<S> <C> <C>
2.1(1) Stock Purchase Agreement dated as of November 19, 1996 among
Gulf South Medical Supply, Inc., Gateway Healthcare Corporation
("Gateway") and the stockholders of Gateway listed on the
signature pages thereto ("Gateway Stock Purchase Agreement").
2.2(1) Amendment and Waiver Agreement, dated as of December 26, 1996
among Gateway, the stockholders of Gateway listed on the
signature pages thereto and Gulf South Medical Supply, Inc., to
the Gateway Stock Purchase Agreement.
</TABLE>
(1) Confidential Treatment Requested. Redacted version filed herewith.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
GATEWAY HEALTHCARE CORPORATION,
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO,
AND
GULF SOUTH MEDICAL SUPPLY, INC.
DATED AS OF NOVEMBER 19, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . 4
2.01. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.03. ESCROW ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS . . . 2
3.01. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . 2
3.02. CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . 1
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS . . . . . . . . . . . . . . 1
3.04. NON-CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . . 1
3.05. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.06. SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.07. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 2
3.08. ABSENCE OF CERTAIN CHANGES . . . . . . . . . . . . . . . . . . . 3
3.09. PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 4
3.10. NO UNDISCLOSED MATERIAL LIABILITIES . . . . . . . . . . . . . . . 5
3.11. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.12. MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 5
3.13. INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . 6
3.14. COMPLIANCE WITH LAWS; NO DEFAULTS . . . . . . . . . . . . . . . . 6
3.15. FINDERS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.16. INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . 7
3.17. INVENTORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.18. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.19. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.20. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.21. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . . . 10
3.22. CUSTOMERS AND SUPPLIERS . . . . . . . . . . . . . . . . . . . . . 12
3.23. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . 12
3.24. INTERCOMPANY ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . 13
4.01. TITLE TO AND VALIDITY OF SECURITIES . . . . . . . . . . . . . . . 13
4.02. AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.03. INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 14
4.04. POWER TO ACT AS TRUSTEE OR EXECUTOR . . . . . . . . . . . . . . . 14
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . 15
5.01. ORGANIZATION AND EXISTENCE . . . . . . . . . . . . . . . . . . . 15
5.02. CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . 15
5.03. GOVERNMENTAL AUTHORIZATION . . . . . . . . . . . . . . . . . . . 15
5.04. NON-CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . . 15
5.05. VALIDITY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 15
5.06. RESERVATION OF WARRANT SHARES . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
5.07. FINDERS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.08. PURCHASE FOR INVESTMENT . . . . . . . . . . . . . . . . . . . . . 16
5.09. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10. SEC DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11. ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI - COVENANTS OF THE COMPANY AND SELLERS . . . . . . . . . . . . . . 17
6.01. CONDUCT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 17
6.02. ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . 18
6.03. NOTICES OF CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . 19
6.04. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.05. NO NEGOTIATIONS WITH THIRD PARTIES . . . . . . . . . . . . . . . 20
6.06. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.07. FACILITY CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . 20
6.08. BOARD APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.09. CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII - COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . 20
7.01. REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . 20
7.02. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.03. MANAGEMENT BONUSES . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII - COVENANTS OF ALL PARTIES . . . . . . . . . . . . . . . . . . . 22
8.01. BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.02. CERTAIN FILINGS . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.03. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX - EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 23
9.01. EMPLOYEE BENEFITS DEFINITIONS . . . . . . . . . . . . . . . . . . 23
9.02. ERISA REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . 23
9.03. NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . 25
ARTICLE X - CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 25
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY . . . . . . . . . . . 25
10.02. CONDITIONS TO OBLIGATION OF BUYER . . . . . . . . . . . . . . . . 25
10.03. CONDITIONS TO OBLIGATION OF SELLER . . . . . . . . . . . . . . . 27
ARTICLE XI - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 27
11.01. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.02. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.03. PROCEDURES; NO WAIVER . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XII - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.01. GROUNDS FOR TERMINATION . . . . . . . . . . . . . . . . . . . . . 30
12.02. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 31
13.01. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.02. AMENDMENTS; NO WAIVERS . . . . . . . . . . . . . . . . . . . . . 32
13.03. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C>
13.04. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 33
13.05. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . 33
13.06. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.07. COUNTERPARTS; EFFECTIVENESS . . . . . . . . . . . . . . . . . . . 33
13.08. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 33
13.09. CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SCHEDULES
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SCHEDULE 2.01 LIST OF STOCKHOLDERS
SCHEDULE 3.03 CONSENTS
SCHEDULE 3.04 NON-CONTRAVENTION
SCHEDULE 3.05 CAPITALIZATION
SCHEDULE 3.06 SUBSIDIARIES
SCHEDULE 3.07 FINANCIAL STATEMENTS
SCHEDULE 3.08 CERTAIN CHANGES
SCHEDULE 3.09 LIENS
SCHEDULE 3.10 UNDISCLOSED LIABILITIES
SCHEDULE 3.11 LITIGATION
SCHEDULE 3.12 MATERIAL CONTRACTS
SCHEDULE 3.14 COMPLIANCE WITH LAWS
SCHEDULE 3.16 INTELLECTUAL PROPERTY
SCHEDULE 3.19 TAXES
SCHEDULE 3.20 EMPLOYEES
SCHEDULE 3.21 ENVIRONMENTAL
SCHEDULE 3.22 CUSTOMERS AND SUPPLIERS
SCHEDULE 3.23 TRANSACTIONS WITH AFFILIATES
SCHEDULE 3.24 INTERCOMPANY ARRANGEMENTS
SCHEDULE 9.02 ERISA REPRESENTATIONS
SCHEDULE 10.02 REQUIRED CONSENTS
EXHIBITS
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EXHIBIT A FORM OF ESCROW AGREEMENT
EXHIBIT B FORM OF WARRANT
EXHIBIT C-1 FORM OF NOTE
EXHIBIT C-2 FORM OF PLEDGE AGREEMENT
EXHIBIT D FORM OF TERMINATION AGREEMENT
</TABLE>
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STOCK PURCHASE AGREEMENT
AGREEMENT dated as of November 19, 1996 among Gateway Healthcare
Corporation, a Virginia corporation (the "Company"); the stockholders of the
Company listed on the signature pages hereto (the "Sellers"); and Gulf South
Medical Supply, Inc., a Delaware corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, Buyer desires to purchase from Sellers all of the outstanding
shares of capital stock and stock warrants of the Company (the "Securities");
and
WHEREAS, each Seller desires to sell to Buyer all of the Securities
owned by such Seller;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"Allied" means Allied Investment Corporation, Allied Capital
Corporation II and Allied Venture Partnership, collectively.
"Balance Sheet" means the consolidated balance sheet of the
Company and its consolidated Subsidiaries as of August 31, 1996 referred to in
Section 3.07 and attached hereto as part of Schedule 3.07.
"Balance Sheet Date" means August 31, 1996.
"Bank" means Bank of America Illinois.
"Buyer Common Stock" means the common stock, $.01 par value, of
the Buyer.
"Buyer's Counsel" means the law firm of Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
"Buyer Securities" means the Warrants and Warrant Shares.
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"Closing Date" means the date of the Closing.
"Closing Debt" means the aggregate of the amounts paid by the
Company at Closing pursuant to Section 2.02(e).
"Common Stock" means the common stock, $.01 par value, of the
Company.
"Escrow Agent" means the escrow agent that is a signatory to the
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement among Sellers,
Buyer and the Escrow Agent in substantially the form set forth in Exhibit A.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements for
the applicable prior periods.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Intellectual Property Rights" means all (A) patents, patent
applications, patent disclosures and all related continuation, continuation-in-
part, divisional, reissue, re-examination, utility, model, certificate of
invention and design patents, patent applications, registrations and
applications for registration, (B) trademarks, service marks, trade dress,
logos, tradenames, service names and corporate names and registrations and
applications for registration thereof, (C) copyrights and registrations and
applications for registration thereof, (D) mask works and registrations and
applications for registration thereof, (E) computer software, data and
documentation, (F) trade secrets and confidential business information, whether
patentable or nonpatentable and whether or not reduced to practice, know-how,
manufacturing and product processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (G) other proprietary rights relating to any of
the foregoing (including without limitation associated goodwill and remedies
against infringements thereof and rights of protection of an interest therein
under the laws of all jurisdictions) and (H) copies and tangible embodiments
thereof.
"Knowledge of the Company" means the knowledge of any of Ed
Shulman, Larry Berenger or Tony Martini.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, restriction or encumbrance of any kind in
respect of such asset.
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<PAGE> 7
"Material Adverse Change" means a material adverse change in the
business, assets, condition (financial or otherwise) or results of operations
of the Company and the Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, assets, condition (financial or otherwise) or results or operations
of the Company and the Subsidiaries taken as a whole.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Optionholders" means the Persons listed as such on Schedule 2.01
to whom the Company has granted employee stock options under the Company's 1992
Stock Plan.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"SEC" means the United States Securities and Exchange Commission.
"Sellers' Counsel" means the law firm of McDermott, Will & Emery,
Chicago, Illinois, as counsel to the Company and the Sellers.
"Sellers' Representative" means North American Fund II.
"Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
Term Section
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<S> <C>
Audited Financial Statements 3.07
Benefit Arrangements 9.02
Buyer Option 7.05
Cash Purchase Price 2.01
Closing 2.02
Code 3.19
Company Option 7.05
Company Securities 3.05
CERCLA 3.21
Damages 11.02
Employee Plans 9.01
ERISA 9.01
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
ERISA Affiliate 9.01
Environmental Laws 3.21
Environmental Liabilities 3.21
Financial Statements 3.07
Hazardous Substance 3.21
Indemnified Party 11.03
Indemnifying Party 11.03
Interim Financial Statements 3.07
Losses 7.02
Multiemployer Plan 9.01
Option Shares 7.03
Permit 3.14
Purchase Price 2.01
Regulated Activity 3.21
Release 3.21
Securities Act 4.03
SEC Documents 5.08
Subsidiary Securities 3.06
Tax 3.19
Tax Authority 3.19
Tax Return 3.19
Warrants 2.01
Warrant Shares 2.01
</TABLE>
ARTICLE II
PURCHASE AND SALE
2.01. PURCHASE AND SALE. Upon the terms and subject to the conditions
of this Agreement, each Seller, severally and not jointly, shall sell to Buyer,
and Buyer shall purchase from such Seller, at the Closing, that number of
Securities as is set forth opposite such Seller's name on Schedule 2.01. The
aggregate purchase price (the "Purchase Price") is (i) the amount (such amount
being referred to as the "Cash Purchase Price") equal to (W) Thirty-Eight
Million Eight Hundred Thousand Dollars ($38,800,000) less (X) the amount of
Closing Debt, and less (Y) the value of employee stock options to purchase a
certain number of shares of Buyer Common Stock as determined in accordance with
Section 7.02, such value to be determined in accordance with Schedule 7.02, and
(ii) warrants to purchase an aggregate of 450,000 shares of Buyer Common Stock
at an exercise price of $25.90 per share (the "Warrant Shares") in
substantially the form set forth in Exhibit B (individually a "Warrant" and
collectively, the "Warrants"). The Purchase Price shall be paid as provided in
Sections 2.02 and 7.02.
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<PAGE> 9
2.02. CLOSING. The closing (the "Closing") of the purchase and sale of
the Securities hereunder shall take place at the offices of McDermott, Will &
Emery, Chicago, Illinois as soon as possible, but in no event earlier than
December 26, 1996 or later than 5 business days after the expiration or
termination of the applicable waiting period under the HSR Act, or at such
other time or place as Buyer and Sellers may agree. At the Closing,
(a) Subject to clause (g), Buyer shall have delivered the
amount equal to (X) the Cash Purchase Price less (Y) [CONFIDENTIAL TREATMENT
REQUESTED] by wire transfer to an account for the benefit of the Sellers, such
account to be designated by the Company by written notice to Buyer not later
than one business day prior to the Closing Date.
(b) Subject to clause (g), Buyer shall deliver to the Escrow
Agent [CONFIDENTIAL TREATMENT REQUESTED], by certified or official bank check
or by wire transfer, to be held by the Escrow Agent in accordance with the
Escrow Agreement.
(c) On the later of the Closing and January 2, 1997, Buyer
shall deliver to Sellers, in the names and denominations designated by North
American Fund II by written notice not later than one business day prior to the
Closing Date, Warrants to purchase the number of Warrant Shares, to be divided
among the Sellers as the Sellers agree.
(d) Buyer shall grant Buyer Options to the Optionholders in
accordance with Section 7.02.
(e) Buyer shall provide to the Company the amount of Closing
Debt and the Company shall pay in full:
(i) all principal, interest and other amounts
outstanding under the Company's Senior Secured Notes to Bank;
(ii) all principal, interest and other amounts
outstanding under the Company's subordinated debentures to
Allied; and
(iii) all principal, interest and other amounts
outstanding under the Company's debt obligations to North
American Fund II.
The foregoing payments shall be made in immediately available funds.
(f) Sellers shall deliver to Buyer certificates for the
Securities duly endorsed or accompanied by stock powers duly endorsed in blank,
with any required transfer stamps affixed thereto.
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 10
(g) Notwithstanding the foregoing, in the event the Closing
occurs prior to December 31, 1996, at the Closing, Buyer shall (i) have
delivered to Sellers in the denominations to be designated by North American
Fund II by written notice not later than one business day prior to the Closing
Date, in lieu of the aggregate amount referred to in clause (a) above, notes
payable for such aggregate amount in substantially the form attached hereto as
Exhibit C-1 and such notes shall be secured by a pledge of all of the
Securities owned by Sellers as evidenced by the pledge agreement in
substantially the form attached hereto as Exhibit C-2 and (ii) deliver to the
Escrow Agent, in lieu of the [CONFIDENTIAL TREATMENT REQUESTED] referred to in
clause (b) above, a secured note for [CONFIDENTIAL TREATMENT REQUESTED] payable
January 2, 1997 to be held by the Escrow Agent in accordance with the Escrow
Agreement.
(h) The parties shall execute and deliver any other
instruments, documents and certificates that are required to be delivered
pursuant to this Agreement or as may be reasonably requested by any party in
order to consummate the transactions contemplated by this Agreement.
2.03. ESCROW ACCOUNT. Sellers agree that, notwithstanding any
investigation of the business of the Company made by or on behalf of Buyer, at
the Closing [CONFIDENTIAL TREATMENT REQUESTED] of the cash portion of the
Purchase Price shall be delivered by Buyer to the Escrow Agent for deposit in
accordance with the terms of the Escrow Agreement, except as otherwise provided
in Section 2.02(g). All funds deposited with the Escrow Agent shall be applied
by the Escrow Agent in accordance with the terms of the Escrow Agreement to pay
to Buyer any amounts owing to Buyer under Section 11.02. Any amounts in excess
of [CONFIDENTIAL TREATMENT REQUESTED] remaining on deposit with the Escrow
Agent on June 30, 1997, and any amounts remaining on deposit with the Escrow
Agent on December 31, 1997, shall be paid by the Escrow Agent to Sellers'
Representative, except as otherwise provided in the Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SELLERS
The Company and each Seller hereby jointly and severally represent and
warrant to Buyer as of the date hereof and as of the Closing Date that:
3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers required to carry
on its business as now conducted.
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 11
The Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities make such qualification necessary,
except for those jurisdictions where failure to be so qualified would not or
would not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. The Company has heretofore delivered to Buyer true
and complete copies of the corporate charter and bylaws of the Company as
currently in effect.
3.02. CORPORATE AUTHORIZATION. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement constitutes a valid and binding agreement of the
Company.
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS. (a) The execution, delivery
and performance by the Company of this Agreement requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than compliance with any applicable requirements of the HSR
Act; and (b) no consent, approval, waiver or other action by any Person under
any material contract, agreement, indenture, lease, instrument or other
document to which the Company or any Subsidiary is a party or by which any of
them is bound is required or necessary for the execution, delivery and
performance of this Agreement by the Company or the consummation of the
transactions contemplated hereby, other than as set forth on Schedule 3.03.
3.04. NON-CONTRAVENTION. Except as set forth on Schedule 3.04, the
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and will not (i)
contravene or conflict with the corporate charter or bylaws of the Company;
(ii) assuming compliance with the HSR Act, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any
Subsidiary; (iii) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Subsidiary or to a loss of any benefit to which the Company or
any Subsidiary is entitled under any provision of any material agreement,
contract or other instrument binding upon the Company or any Subsidiary or any
material permit held by the Company or any Subsidiary; or (iv) assuming the
receipt of all required consents, result in the creation or imposition of any
Lien on any asset of the Company or any Subsidiary.
3.05. CAPITALIZATION. (A) All of the authorized and outstanding equity
interests in the Company are described on Schedule 3.05. All outstanding
shares of capital stock and stock warrants of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are
owned by Sellers as shown on Schedule 2.01. Except as set forth in Schedule
2.01, there are no outstanding (i) shares of capital stock, other securities or
phantom or other equity interests of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or other
securities of the Company or (iii) options or other rights to acquire from the
Company any capital stock, other securities or phantom or other equity
interests of the Company (the items in clauses (i), (ii) and (iii) being
referred to
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<PAGE> 12
collectively as the "Company Securities"). Except as described above or on
Schedule 3.05, there are no outstanding obligations of the Company, actual or
contingent, to issue or deliver or to repurchase, redeem or otherwise acquire
any Company Securities.
(b) Schedule 3.05 sets forth the name of each holder of
indebtedness for borrowed money of the Company and, as to the Closing Debt, as
of October 31, 1996, the principal amount outstanding under the indebtedness
and the amount of accrued interest owing under the indebtedness. Except as set
forth on Schedule 3.05, upon payment of the Closing Debt as set forth in
Section 2.02(f), the Company will have no indebtedness for borrowed money and
no continuing obligations of any type under any documents evidencing the
Company's indebtedness for borrowed money, except for obligations to the Bank
for non-cashed checks and related fees, if any, as set forth in the letter to
be delivered by the Bank pursuant to Section 10.02(g).
3.06. SUBSIDIARIES. (a) Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers required to carry on
its business as now conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities make such
qualification necessary, except for those jurisdictions where failure to be so
qualified would not or would not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect. All Subsidiaries and their
respective jurisdictions of incorporation are identified on Schedule 3.06.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary, is owned by the Company, directly or indirectly,
free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests), except as may be related to
Closing Debt held by the Bank. There are no outstanding (i) securities of the
Company or any Subsidiary convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary or (ii) options or other rights to acquire from the Company or any
Subsidiary any capital stock, voting securities or other ownership interests
in, or any securities convertible into or exchangeable for any capital stock,
voting securities or ownership interests in, any Subsidiary (the items in
clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
3.07. FINANCIAL STATEMENTS. The Company has previously furnished Buyer
with a true and complete copy of (i) the consolidated balance sheet of the
Company as of December 31, 1995 and the statements of operations, cash flows
and changes in stockholders' equity of the Company for the fiscal year then
ended, as audited by KPMG Peat Marwick LLP (the "Audited Financial
Statements"), and (ii) the unaudited consolidated balance sheet of the Company
as of the Balance Sheet Date and the statements of operations, cash flows and
changes in stockholders' equity of the Company for the interim period ended
August 31, 1996, (the "Interim Financial Statements," and together with the
Audited Financial Statements, the "Financial Statements"),
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<PAGE> 13
which are attached hereto as Schedule 3.07. Each of the balance sheets
included in the Financial Statements fairly presents in all material respects
the consolidated financial position of the Company as of its date, and the
other statements included in the Financial Statements fairly present in all
material respects the consolidated results of operations, cash flows and
stockholders' equity, as the case may be, of the Company for the periods
therein set forth, in each case in accordance with GAAP (including the amounts
of inventory and receivables thereon) except as otherwise stated therein, that
inventory is priced on a last cost basis, and as set forth on Schedule 3.07 and
with respect to the unaudited Interim Financial Statements, for the omission of
footnote disclosures.
3.08. ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
3.08, since the Balance Sheet Date, the Company and the Subsidiaries have
conducted their businesses in the ordinary course consistent with past
practices and there has not been:
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any Company Securities or any repurchase,
redemption or other acquisition by the Company or any Subsidiary of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the Company or any Subsidiary;
(c) any amendment of any outstanding security of the Company
or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or
any Subsidiary of any indebtedness for borrowed money;
(e) any creation or assumption by the Company or any
Subsidiary of any Lien on any asset;
(f) any making of any loan, advance or capital contributions
to or investments in any Person other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries made in the
ordinary course of business consistent with past practices;
(g) any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of the
Company or any Subsidiary;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any Subsidiary relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other right,
in either case, material to the Company and the Subsidiaries taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices and those contemplated by this Agreement;
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<PAGE> 14
(i) any change in any method of accounting or accounting
practice by the Company or any Subsidiary;
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary, (ii) entering
into of any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer or
employee of the Company or any Subsidiary, (iii) change in benefits payable
under existing severance or termination pay policies or employment agreements
or (iv) change in compensation, bonus or other benefits payable to directors,
officers or employees of the Company; or
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or representation
thereof to organize any employees of the Company or any Subsidiary, which
employees were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to any employees of the Company or any Subsidiary.
3.09. PROPERTY AND EQUIPMENT. (a) The Company and the Subsidiaries
have good and marketable title to, or in the case of leased property have valid
leasehold interests in, all property and assets (whether real or personal,
tangible or intangible) used in the Company's business, including those
reflected on the Balance Sheet or acquired after the Balance Sheet Date. None
of such properties or assets which is owned by the Company is subject to any
Liens, except:
(i) Liens for long-term debt which is disclosed on the Balance
Sheet;
(ii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established
on the Balance Sheet);
(iii) Liens which do not materially detract from the value of
such property or assets as now used, or materially interfere with any
present or intended use of such property or assets; or
(iv) Liens described on Schedule 3.09 and Liens related to Bank
debt.
(b) There are no developments affecting any of such properties
or assets pending or, to the knowledge of any Seller threatened, which are
reasonably expected to materially detract from the value of such property or
assets, materially interfere with any present or intended use of any such
property or assets or materially adversely affect the marketability of such
properties or assets.
(c) The equipment owned and utilized by the Company and the
Subsidiaries has no material defects, is in good operating condition and repair
(ordinary wear and tear excepted), is substantially adequate for the uses to
which it is being put and is generally adequate to conduct the business of the
Company and the Subsidiaries as currently conducted.
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<PAGE> 15
(d) The assets owned or leased by the Company, or which it
otherwise has the right to use, constitute all of the assets held for use or
used in connection with the business of the Company and the Subsidiaries and
are generally adequate to conduct such business as currently conducted.
3.10. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in
Schedule 3.10, there are no material liabilities of the Company or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than:
(i) liabilities disclosed or provided for in the Balance
Sheet;
(ii) liabilities incurred in the ordinary course of business
consistent with past practices since the Balance Sheet Date, which in
the aggregate are not material to the Company and the Subsidiaries taken
as a whole; and
(iii) liabilities incurred in the ordinary course of business
consistent with past practices on or prior to the Balance Sheet Date
which would not be required to be reflected on the Balance Sheet in
accordance with GAAP.
3.11. LITIGATION. Except as set forth on Schedule 3.11, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of any Seller threatened against or affecting, the Company or any Subsidiary or
any of their respective properties or the transactions contemplated hereby
before any court or arbitrator or any governmental body, agency, official or
authority.
3.12. MATERIAL CONTRACTS. (a) Except for agreements, contracts,
plans, leases, arrangements or commitments disclosed in Schedule 3.12, neither
the Company nor any Subsidiary is a party to or subject to:
(i) any lease providing for annual rentals of $25,000 or more;
(ii) any contract for the purchase of materials, supplies,
goods, services, equipment or other assets providing for payments by the
Company or any Subsidiary of $25,000 or more;
(iii) any sales, distribution or other similar agreement
providing for the sale by the Company or any Subsidiary of materials,
supplies, goods, services, equipment or other assets providing for
payments to the Company or any Subsidiary of $25,000 or more;
(iv) any partnership, joint venture or other similar contract
arrangement or agreement;
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<PAGE> 16
(v) any contract relating to indebtedness for borrowed money
or the deferred purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset);
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by the Company or any
Subsidiary;
(vii) any agency, dealer, sales representative or other similar
agreement;
(viii) any contract or other document that limits the freedom of
the Company or any Subsidiary to compete in any line of business or with
any Person or in any geographical area or which would so limit the
freedom of the Company or any Subsidiary after the Closing Date; or
(ix) any other contract or commitment not made in the ordinary
course of business that is material to the Company and the Subsidiaries
taken as a whole.
(b) Except as disclosed in Schedule 3.12, each agreement, contract,
plan, lease, arrangement and commitment disclosed in any schedule to this
Agreement or required to be disclosed pursuant to Section 3.12(a) is a valid
and binding agreement of the Company or a Subsidiary and is in full force and
effect, and neither the Company, any Subsidiary nor, to the knowledge of the
Company or any Seller, any other party thereto is in default in any material
respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.
3.13. INSURANCE COVERAGE. The Company has furnished to Buyer a list
of, and true and complete copies of, all insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company and the Subsidiaries. There is no claim
by the Company or any Subsidiary pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums which are due and payable under all
such policies and bonds have been paid and the Company and the Subsidiaries are
otherwise in full compliance with the material terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies
and bonds providing substantially similar insurance coverage) have been in
effect since November 19, 1993 and remain in full force and effect. No Seller
knows of any threatened termination of, or premium increase with respect to,
any of such policies or bonds.
3.14. COMPLIANCE WITH LAWS; NO DEFAULTS. (a) Neither the Company nor
any Subsidiary is in violation of, or, except as set forth in Schedule 3.14,
has since November 19, 1993 violated, any applicable provisions of any laws,
statutes, ordinances or regulations, except for violations that have not had
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
(b) Schedule 3.14 correctly describes each license and permit
(a "Permit") material to the business of the Company, together with the name of
the governmental agency or
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<PAGE> 17
entity issuing such license or permit. Such licenses and permits are valid and
in full force and effect and none of such licenses or permits will be
terminated or impaired or become terminable as a result of the transactions
contemplated hereby, except as such termination or impairment may relate solely
to Buyer.
(c) Neither the Company nor any Subsidiary is in default
under, and no condition exists that with notice or lapse of time or both would
constitute a default under, any judgment, order or injunction of any court,
arbitrator or governmental body, agency, official or authority which defaults
or potential defaults individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect.
3.15. FINDERS' FEES. Except for Smith Barney Inc., whose fees will be
paid by Sellers, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Sellers, the Company or any Subsidiary who might be entitled to any fee or
commission from Buyer, the Company or any of their respective Affiliates upon
consummation of the transactions contemplated by this Agreement.
3.16. INTELLECTUAL PROPERTY.
(a) The Company does not own or license any patents or patent
applications or trademarks, service marks, tradenames, service names,
copyrights or registrations or applications for registration thereof, except
for the tradename described in Schedule 3.16.
(b)(i) Neither the Company nor any Subsidiary during the three years
preceding the date of this Agreement has been sued or charged in writing with
or been a defendant in any claim, suit, action or proceeding relating to its
business that has not been finally terminated prior to the date hereof and that
involves a claim of infringement of any patents, trademarks, service marks or
copyrights, and (ii) neither the Company nor any Seller has any knowledge of
any other claim or infringement by the Company or any Subsidiary, or any
knowledge of any continuing infringement by any other Person of any
Intellectual Property Rights owned or licensed by the Company. No Intellectual
Property Right owned or licensed by the Company is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use thereof
by the Company or any Subsidiary or restricting the licensing thereof by the
Company or any Subsidiary to any Person. Neither the Company nor any
Subsidiary has entered into any agreement to indemnify any other Person against
any charge of infringement of any patent, trademark, service mark or copyright.
(c) To the knowledge of the Company and Sellers, no third party has
asserted any claim, or has any reasonable basis to assert any valid claim,
against the Company with respect to (i) the continued employment by, or
association with, the Company or any Subsidiary of any of the present officers,
employees of or consultants to the Company or any Subsidiary or (ii) the use by
the Company or any Subsidiary or any of such Persons in connection with their
activities for or on behalf of the Company or any Subsidiary of any information
which the Company or any of such Persons would be prohibited from using under
any prior agreements or arrangements or any laws applicable to unfair
competition, trade secrets or proprietary information.
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<PAGE> 18
3.17. INVENTORIES. The inventories set forth in the Balance Sheet were
properly stated therein at the lesser of cost or fair market value determined
in accordance with GAAP, except as set forth on Schedule 3.07. Since the
Balance Sheet Date, the inventories of the Company and the Subsidiaries have
been maintained in the ordinary course of business. All such inventory is
owned free and clear of all Liens except Liens related to the Bank debt. All
of the inventory recorded on the Balance Sheet consists of, and all inventory
on the Closing Date will be in quantities at least sufficient for the normal
operation of the business of the Company and the Subsidiaries in accordance
with past practices.
3.18. RECEIVABLES. All accounts, notes receivable and other
receivables (other than receivables collected since the Balance Sheet Date)
reflected on the Balance Sheet are, and all accounts, notes receivable and
other receivables of the Company and the Subsidiaries at the Closing Date will
be, valid and genuine. All accounts, notes receivable and other receivables of
the Company at the Balance Sheet Date have been included in the Balance Sheet
in accordance with GAAP, except as set forth on Schedule 3.07.
3.19. TAXES.
(a) "Code" means the Internal Revenue Code of 1986, as
amended.
"Tax" means any federal, state, local, foreign, net income,
alternative or add-on minimum tax, estimated, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, capital stock,
profits, lease, service, license, withholding, payroll, employment, social
security, worker's compensation, unemployment compensation, utility, severance,
production, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee, impost, levy, duty, charge or other like assessment or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed in connection therewith or with respect thereto.
"Tax Authority" means any governmental authority responsible for
the imposition of any Tax.
"Tax Return" means any return, declaration, report, statement,
claim for refund, or information statement, including any schedule or
attachment thereto, and including any amendment thereof, filed or maintained,
or required to be filed or maintained, in connection with the calculation,
determination, assessment or collection of any Tax.
(b) Each of the Company and its Subsidiaries has timely filed
all Tax Returns required to be filed and has timely paid all Taxes owed
(whether or not shown as due on such returns), including, without limitation,
all Taxes which the Company and each Subsidiary is obligated to withhold for
amounts owing to employees, creditors and third parties. All such Tax Returns
were complete and correct in all material respects, and such Tax Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities, status and other matters of the Company and each
Subsidiary and any other information required to be shown
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<PAGE> 19
thereon, except as set forth on Schedule 3.19. All Taxes with respect to which
each of the Company and its Subsidiaries has become obligated pursuant to
elections made by it in accordance with generally accepted practice have been
paid. No issues have been raised (and are currently pending) by any Tax
Authority in connection with any of such Tax Returns. None of the Company and
its Subsidiaries is currently the beneficiary of any extension of time within
which to file any Tax Return, and neither the Company nor any of its
Subsidiaries has waived any statute of limitation with respect to any Tax or
agreed to any extension of time with respect to a Tax assessment or deficiency.
None of the Tax Returns filed by the Company or any of its Subsidiaries
contains, or will contain, a disclosure statement under former Section 6661 or
Section 6662 of the Code or any similar provision of state, local, foreign or
other law. Any adjustment of Taxes made by the Internal Revenue Service in any
examination which is required to be reported to state, local, foreign or other
taxing authorities has been so reported, and any additional Taxes due with
respect thereto have been paid. No power of attorney has been granted by the
Company or any of its Subsidiaries, and is currently in force, with respect to
any matter relating to Taxes. All deficiencies asserted or assessments made as
a result of any examinations have been fully paid, or are fully reflected as a
liability in the financial statements of the Company and its Subsidiaries or
are being contested and an adequate reserve therefor has been established and
is fully reflected in such financial statements. All material elections with
respect to Taxes affecting the Company and each Subsidiary, as of the date
hereof, are set forth in the Tax Returns provided to Buyer. None of the
Company and its Subsidiaries is a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code), or any other payment which would be
nondeductible under Sections 162 or 404 of the Code. None of the Company and
its Subsidiaries has agreed to make any adjustment under Section 481(a) of the
Code (or any corresponding provision of state, local or foreign Tax law) by
reason of a change in accounting method or otherwise. All Taxes that have been
withheld (or any such Taxes that were required to be withheld) by or on behalf
of the Company and each Subsidiary from any amounts payable to any Person have
been timely remitted to the appropriate Tax Authority. None of the Company and
its Subsidiaries is, or has been, a U.S. real property holding company (as
defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. No claim has ever been made
by a Tax Authority in a jurisdiction where any of the Company and its
Subsidiaries does not file Tax Returns that it is or may be subject to Tax in
that jurisdiction. None of the Company and its Subsidiaries has participated
in an international boycott as defined in Section 999 of the Code. No portion
of the Purchase Price is subject to the Tax withholding provisions of Section
3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any other
provision of law. None of the Company and its Subsidiaries is a party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes. None of the Company
and its Subsidiaries has, or has had, a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States and such foreign country. None of the assets of the Company and
its Subsidiaries is property that is required to be treated as owned by another
Person pursuant to former Section 168(f)(8) of the Code. None of the assets of
the Company and its Subsidiaries directly or indirectly secures any debt the
interest on which is tax exempt under Section 103 of the Code. None of the
assets
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<PAGE> 20
of the Company and its Subsidiaries is "tax-exempt use property" as defined in
Section 168(h) of the Code. Notwithstanding any other provisions herein, no
representation is made with respect to the amount of or ability to use any net
operating loss carry forward.
(c) None of the Company and its Subsidiaries has ever filed a
consent pursuant to Section 341(f) of the Code (or any corresponding provision
of state, local or foreign law), relating to collapsible corporations, or
agreed to have Section 341(f)(2) of the Code (or any corresponding provision of
state, local or foreign law) apply to the disposition of any asset owned by it.
None of the Company and its Subsidiaries is a party to any Tax sharing or
similar agreement. Except as set forth in Schedule 3.19, none of the Company
and its Subsidiaries has ever been a member of a group filing a consolidated
federal income Tax Return except with the Company and its Subsidiaries, and
neither the Company nor any of its Subsidiaries has any liability for the Taxes
of any Person under Treasury Regulation Section 1.1502-6 (or any corresponding
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise, except for the Company and its Subsidiaries.
(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company or any of its
Subsidiaries. The amount of the Company's and each Subsidiary's liability for
unpaid Taxes for all periods ending on or before the date of this Agreement do
not, in the aggregate, exceed the current liability accruals for Taxes
(excluding reserves for deferred taxes) as of the date of this Agreement, and
the amount of the Company's and each Subsidiary's liability for unpaid Taxes
for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes). None of the Buyer, the Company and
its Subsidiaries will be subject to the provisions of Section 108 of the Code
in connection with the transactions set forth in this Agreement.
(e) Schedule 3.19 hereto contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax is properly payable by the
Company and each Subsidiary.
3.20. EMPLOYEES. Schedule 3.20 sets forth a true and complete list of
(a) the names, titles, annual salaries and other compensations of all employees
of the Company and the Subsidiaries whose annual base salary exceeds $25,000
and (b) the wage rates for non-salaried employees of the Company and the
Subsidiaries (by classification). None of such employees and no other employee
of the Company or a Subsidiary has indicated to the Company or any member of
the Board of Directors of the Company or any of Ed Shulman, Larry Berenger or
Tony Martini or any Seller that he or she intends to resign or retire as a
result of the transactions contemplated by this Agreement or otherwise.
3.21. ENVIRONMENTAL COMPLIANCE.
(a) ENVIRONMENTAL DEFINITIONS. The following terms, as used
herein, have the following meanings:
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"CERCLA" means the Comprehensive Environmental Responses,
Compensation and Liability Act of 1980, as amended.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws (including common or case law), regulations, ordinances,
rules, judgments, judicial decisions, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements, or
governmental restrictions, whether now or hereinafter in effect, relating to
human health, the environment or to emissions, discharges or releases of
pollutants, contaminants, or Hazardous Substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Environmental Liabilities" means all liabilities of the Company
and each Subsidiary whether vested or unvested, contingent or fixed, actual or
potential, known or unknown, which (i) arise under or relate to articles
covered by Environmental Laws or arise in connection with or relate to any
matter disclosed or required to be disclosed in Schedule 3.21 and (ii) arise
from or relate in any way to actions occurring or conditions existing before
the Closing Date.
"Hazardous Substance" means any toxic, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and
other hydrocarbons, regulated under Environmental Laws.
"Regulated Activity" means any use, treatment, storage,
recycling, transportations or disposal of any Hazardous Substance.
"Release" has the meaning specified in 42 U.S.C. Section 9601.
(b) Environmental Representations. Except as disclosed on
Schedule 3.21:
(i) To the knowledge of the Company and any Seller, the Company has
not received any notice, notification, demand, request for information,
citation, summons, order, complaint, assessment of, penalty or notice of
investigation or review by any governmental or other entity with respect to any
(A) alleged violation by the Company or any Subsidiary of any Environmental Law
or liability thereunder, (B) alleged failure by the Company to have any permit,
certificate, license, approval, registration or authorization required under
any Environmental Law, (c) Regulated Activity or (D) any Release of any
Hazardous Substance.
(ii) (A) The Company has not handled any Hazardous Substance, other
than as a generator, on any property now or previously owned or leased by it;
(B) to the knowledge of the Company or any Seller, no polychlorinated biphenyls
or urea formaldehyde is or has been present at any property now or previously
owned or leased by the Company; (C) to the knowledge of the Company or any
Seller, no asbestos is or has been present at any property now
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or previously owned or leased by the Company; (D) to the knowledge of the
Company or any Seller, there are not underground storage tanks for Hazardous
Substances, active or abandoned, at any property now or previously owned or
leased by the Company; and (E) to the knowledge of the Company or any Seller,
no Hazardous Substance has been Released at, or under any property now or
previously owned or leased by the Company.
(iii) To the knowledge of the Company or any Seller, the Company has
not transported or arranged for the transportation (directly or indirectly) of
any Hazardous Substance to any location which is listed or proposed for listing
on the National Priorities List under CERCLA, or on any similar state list or
which is the subject of Federal, state or local enforcement actions or other
investigations which may lead to claims against Buyer for clean-up costs,
remedial work, damages to natural resources or for personal injury claims,
including, but not limited to, claims under CERCLA.
(iv) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of the Company and no property now or
previously owned or to the knowledge of the Company or any Seller, leased by
the Company is listed or, to the knowledge of the Company or any Seller,
proposed for listing, on the National Priorities List promulgated pursuant to
CERCLA or on any similar state list of sites requiring investigation or clean-
up.
(v) The Company has not received written notice of any environmental
Liens on any of the Company's assets, and has not received written notice of
any governmental actions which have been taken or are in process that could
subject any of such assets to such Liens. To the knowledge of the Company or
any Seller, the Company would not be required to place any notice or
restriction relating to the presence of Hazardous Substances at any property
used in connection with the operation of its business in any deed to such
property.
(vi) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
the Company in relation to any property or facility now or previously owned or
leased by the Company which have not been delivered to Buyer prior to the date
hereof.
3.22. CUSTOMERS AND SUPPLIERS. Except as set forth on Schedule 3.22,
neither the Company nor any Subsidiary has received notice from, or otherwise
has knowledge that, any customer or group of customers which are under common
ownership or control and which accounted for five percent (5%) or more of the
aggregate products and services furnished by the Company and the Subsidiaries
during the past 18 months has stopped or intends to stop purchasing the
Company's or a Subsidiary's products or services, nor has the Company or a
Subsidiary lost any supplier, or group of suppliers, which accounted for five
percent (5%) or more of the aggregate supplies purchased by the Company during
the past 18 months.
3.23. TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule
3.23 there are no loans, leases, royalty agreements or other continuing
transactions between the Company and a Seller, any Affiliate of a Seller, or
any member of a Seller's family. Except as set forth on Schedule 3.23, to the
knowledge of the Company or any Seller, none of the officers or directors
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of the Company or any Seller (a) has any material direct or indirect interest
in any entity which does business with the Company; (b) has any direct or
indirect interest in any property, asset or right which is used by the Company
in the conduct of its business; or (c) has any contractual relationship with
the Company other than such relationships which occur from being an officer,
director or stockholder of the Company.
3.24. INTERCOMPANY ARRANGEMENTS. Neither the Company nor any
Subsidiary owns any note, bond, debenture or other indebtedness, and is not
otherwise a creditor, of any Seller or any of its Affiliates. Except as set
forth on Schedule 3.24, since the Balance Sheet Date, there has not been any
payment by the Company or any Subsidiary to any Seller or any of its
Affiliates, charge by any Seller or any of its Affiliates to the Company or any
Subsidiary or other transaction between the Company or any Subsidiary and a
Seller or any of its Affiliates.
ARTICLE IV
ADDITIONAL REPRESENTATIONS
AND WARRANTIES OF SELLERS
Each Seller, severally and not jointly, represents and warrants to, and
agrees with, Buyer as follows:
4.01. TITLE TO AND VALIDITY OF SECURITIES. Except as set forth in the
Escrow Agreement and this Agreement, such Seller now has, and on the Closing
Date will have, good and marketable title to and unrestricted power to vote and
sell the capital stock and to sell the stock warrants designated as owned by
such Seller opposite such Seller's name on Schedule 2.01, free and clear of any
Lien and, upon purchase and payment therefor and delivery to Buyer thereof in
accordance with the terms of this Agreement, Buyer will obtain good and
marketable title to such Securities free and clear of any Lien. All Securities
owned by such Seller have been duly authorized and validly issued and are fully
paid and non-assessable. All Securities to be sold by such Seller are
registered in the Company's stock records in the name of such Seller.
4.02. AUTHORITY. Such Seller has the legal power, right and authority
to enter into and perform this Agreement and the Escrow Agreement and to
perform each of its obligations hereunder and thereunder. The execution,
delivery and performance of this Agreement and the Escrow Agreement by such
Seller, (a) assuming compliance with the HSR Act, require no action by or in
respect of, or filing with, or consent of, any governmental body, agency or
official or any other Person and (b) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of any material
agreement, judgment, injunction, order, decree or any other instrument binding
upon such Seller. This Agreement has been duly executed and delivered by such
Seller and constitutes a valid and binding obligation of such Seller,
enforceable in accordance with its terms. The Escrow Agreement, when executed
and delivered by such Seller, will constitute a valid and binding obligation of
such Seller, as the case may be, enforceable in accordance with its terms.
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4.03. INVESTMENT REPRESENTATIONS.
(a) Such Seller has sufficient knowledge and experience in
investing in companies similar to Buyer so as to be able to evaluate the risks
and merits of its investment in any of the Buyer Securities, and such Seller is
able financially to bear the risks thereof;
(b) Such Seller understands that (i) the Buyer Securities
issued to it or to be issued to it have not been registered under the
Securities Act of 1933 (the "Securities Act"), (ii) such Buyer Securities must
be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, and (iii) such
Buyer Securities will bear a legend to such effect;
(c) Such Seller is acquiring the Buyer Securities as principal
for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof in contravention of the Securities
Act or any other applicable securities legislation, nor with any present
intention of distributing or selling the same in contravention of the
Securities Act or any other applicable securities legislation;
(d) Except as contemplated herein, such Seller has no present
or contemplated agreement, undertaking, arrangement, obligation, indebtedness
or commitment providing for the disposition of the Buyer Securities;
(e) Such Seller has had an opportunity to discuss Buyer's
business, management and financial affairs with Buyer's management; and
(f) Such Seller has had an opportunity to consult with and
seek the advice of independent legal, tax and business advisors.
4.04. POWER TO ACT AS TRUSTEE OR EXECUTOR. If such Seller is serving
as trustee or executor with respect to its Securities, such Seller is duly
authorized and empowered by the instruments creating such trust or trusts or by
the will of which such Seller is acting as executor and under applicable law to
enter into this Agreement with respect to the Securities held by such Seller
and to consummate the transactions contemplated herein.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and Sellers that:
5.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
5.02. CORPORATE AUTHORIZATION. The execution, delivery and performance
by Buyer of this Agreement, the Escrow Agreement and the Warrants and the
consummation by Buyer of the transactions contemplated hereby and thereby,
including the grant of Buyer Options pursuant to Section 7.02, are within the
corporate powers of Buyer and have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement and upon execution, each
of the Escrow Agreement and the Warrants will constitute a valid and binding
agreement of Buyer.
5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement, the Escrow Agreement and the Warrants
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than (i) compliance with any applicable
requirements of the HSR Act, (ii) the filing and approval of an application for
the listing of the shares of Buyer Common Stock issued at Closing and the
Warrant Shares on the Nasdaq Stock Market, (iii) any filings required to be
made in connection with the registration for resale of the Warrant Shares and
(iv) a filing of Current Report on Form 8-K under the Securities and Exchange
Act of 1934.
5.04. NON-CONTRAVENTION. The execution, delivery and performance by
Buyer of this Agreement, the Escrow Agreement and the Warrants do not and will
not (i) contravene or conflict with the corporate charter or bylaws of Buyer,
(ii) assuming compliance with the matters referred to in Section 5.03,
contravene or conflict with any provision of any law, regulation, judgment,
injunction, order or decree binding upon Buyer, or (iii) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Buyer or to a loss of benefit to which Buyer is
entitled under any provision of any material agreement, contract or other
instrument binding upon Buyer or any permit held by Buyer.
5.05. VALIDITY OF SHARES. The authorized capital stock of Buyer shall
consist of (a) 30,000,000 shares of Common Stock, of which 16,264,923 shares
are issued and outstanding as of the close of business on November 11, 1996 and
(b) 1,000,000 shares of preferred stock of which no shares have been issued or
are outstanding on the date hereof. All outstanding shares of capital stock of
Buyer have been duly authorized and validly issued and are fully paid and
nonassessable. The shares of Buyer Common Stock to be issued at Closing are
duly authorized and, when issued to certain Sellers pursuant to this Agreement
against payment of the consideration therefor as provided in this Agreement,
will be validly issued, fully paid and nonassessable. The Warrant Shares and
Option Shares are duly authorized and, when issued in
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compliance with the provisions of this Agreement and the Warrants, will be
validly issued, fully paid and nonassessable.
5.06. RESERVATION OF WARRANT SHARES. Buyer has reserved, out of its
authorized but unissued shares of Common Stock, the full number of Warrant
Shares issuable upon the exercise of the Warrants and the Option Shares.
5.07. FINDERS' FEES. Except for Montgomery Securities, whose fees will
be paid by Buyer, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Buyer who might be entitled to any fee or commission from the Company, Sellers
or any Affiliate thereof upon consummation of the transactions contemplated by
this Agreement.
5.08. PURCHASE FOR INVESTMENT. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof.
5.09. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer before any court or arbitrator or any governmental body,
agency or official which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated hereby.
5.10. SEC DOCUMENTS. (a) Buyer has furnished, or made available to
Sellers' Counsel, copies of its annual report on Form 10-K for the fiscal year
ended December 31, 1995, its quarterly reports on Form 10-Q for the quarters
ended March 31, 1996, as amended, and June 30, 1996 and its proxy statement in
connection with its annual meeting of stockholders held on April 18 , 1996
(collectively, the "SEC Documents"). The SEC Documents constitute all the
documents that Buyer was required to file with the SEC since December 31, 1995.
Each of the SEC Documents has been duly filed, and when filed was in compliance
in all material respects with the requirements of the 1934 Act and the rules
and regulations of the 1934 Act and the rules and regulations of the SEC
thereunder applicable to such SEC Document. Each of the SEC Documents
(including any documents incorporated by reference in the SEC Documents), as of
its date, did not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(b) The financial statements of Buyer included in the SEC
Documents comply (and, in the case of the Form 10-Qs referred to in Section
5.10(a), to the knowledge of Buyer comply) in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles and present fairly the consolidated financial
position of Buyer as of the dates thereof, and the consolidated results of
operations, cash flows and stockholders' equity for the periods then ended.
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5.11. ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, there has not
been any material adverse change in the business, assets, condition (financial
or otherwise) or results of operations of the Buyer.
ARTICLE VI
COVENANTS OF THE COMPANY AND SELLERS
The Company and each Seller agree that:
6.01. CONDUCT OF THE COMPANY. Without the prior written consent of
Buyer, from the date hereof until the Closing Date, the Company shall and
Sellers shall cause the Company and the Subsidiaries to conduct their
businesses in the ordinary course consistent with past practices and to use
their reasonable efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, Sellers will not permit
the Company or any Subsidiary to:
(a) adopt any change in its corporate charter or bylaws;
(b) merge or consolidate with any other Person or acquire an
amount of assets of any other Person in excess of $25,000, except in
connection with the purchase of inventory in the ordinary course
consistent with past practices;
(c) sell, lease, license or otherwise dispose of any assets or
property except (i) pursuant to existing contracts or commitments and
(ii) in the ordinary course consistent with past practices;
(d) effect any direct or indirect redemption, purchase or
other acquisition of any Company Securities, or declare, set aside or
pay any dividend or make any other distribution of assets of any kind
whatsoever with respect to any Company Securities, except for the
cancellation of Company Options as contemplated by Section 7.02 and as
contemplated by Schedule 2.01;
(e) issue any securities (except for the issuance of shares of
Common Stock issuable pursuant to employee stock options or warrants
which are outstanding on the date hereof) and as contemplated by
Schedule 2.01;
(f) enter into any commitment or transaction not in the
ordinary course consistent with past practices, except for the
cancellation of Company Options and the termination for the Company's
1992 Stock Plan as contemplated by Section 7.02, as contemplated by
Section 7.03 and as contemplated by Schedule 2.01;
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(g) amend or modify, except in the ordinary course consistent
with past practices, any of the agreements listed in Schedule 3.12 or
any existing commitments, except for the cancellation of Company Options
and the termination for the Company's 1992 Stock Plan as contemplated by
Section 7.02 and as contemplated by Schedule 2.01 and except as
contemplated by Schedule 3.12(i);
(h) incur any indebtedness, except in connection with the
purchase of inventory in the ordinary course consistent with past
practices and except for indebtedness under the working capital line of
credit with the Bank to fund operations of the Company consistent with
past practices;
(i) grant any severance or termination pay to any officer,
director, or employee, except as contemplated by Section 7.03 or on
Schedule 3.08;
(j) adopt or amend any employee benefit or compensation plan,
other than as contemplated hereby, except for the cancellation of
Company Options and the termination for the Company's 1992 Stock Plan as
contemplated by Section 7.02 and by Schedule 2.01 and as contemplated
by Section 7.03;
(k) re-value any assets, except for year-end pick-up
adjustments to inventory and the creation of a contract rebate
receivable;
(l) pay or discharge any claim or liability in excess of
$25,000, except in the ordinary course consistent with past practice;
(m) make or change any election in respect of Taxes;
(n) make any payment on indebtedness, other than, to the
extent cash as set forth on the balance sheet is then available,
repayment of debt owed to the Bank provided that the principal amount to
the Bank at Closing will not be less than $7,323,000 and earned interest
payments on Closing Debt;
(o) enter into any transaction, directly or indirectly, with
any Seller or any of its Affiliates, other than the payment of earned
interest as set forth in clause (n) above; or
(p) agree or commit to do any of the foregoing.
The Company will not, and will not permit any Subsidiary to, (i) take or agree
or commit to take any action that would make any representation and warranty of
Sellers under this Agreement on the date of its execution and delivery
inaccurate in any respect at, or as of any time prior to, the Closing Date or
(ii) omit or agree or commit to omit to take any action necessary to prevent
any such representation or warranty from being inaccurate in any respect at any
such time.
6.02. ACCESS TO INFORMATION. From the date hereof until the Closing
Date, the Company (a) will give, and will cause each Subsidiary to give, Buyer,
its counsel, financial advisors,
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auditors and other authorized representatives reasonable access to the offices,
properties, books and records of the Company and the Subsidiaries, (b) will
furnish, and will cause each Subsidiary to furnish Buyer, its counsel,
financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company and
the Subsidiaries as such Persons may reasonably request and (c) will instruct
the employees, counsel and financial advisors of, the Company and the
Subsidiaries to cooperate reasonably with Buyer in its investigation of the
Company and the Subsidiaries.
6.03. NOTICES OF CERTAIN EVENTS. The Company and each Seller will
promptly notify Buyer of:
(i) any written notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any written notice from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against or affecting any Seller, the
Company or any Subsidiary.
6.04. CONFIDENTIALITY. Sellers and their respective Affiliates will
hold, and will use their best efforts to cause their respective officers,
directors, employees, partners, members, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning Buyer furnished to, Sellers
or their respective Affiliates in connection with the transactions contemplated
by this Agreement, and (after the Closing Date) all confidential documents and
information concerning the Company, except to the extent that such information
can be shown to have been (i) previously known on a nonconfidential basis by
Sellers, (ii) in the public domain through no fault of Sellers or (iii) later
lawfully acquired by Sellers from sources other than the Company or Buyer;
provided that Sellers may disclose such information to their respective
officers, directors, employees, partners, members, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such persons are informed by Sellers
of the confidential nature of such information and are directed by Sellers to
treat such information confidentially and may disclose such information in the
conduct of the Company's business. The obligation of Sellers and their
respective Affiliates to hold any such information in confidence shall be
satisfied if they exercise the same care with respect to such information as
they would take to preserve the confidentiality of their own similar
information. If this Agreement is terminated, Sellers and their respective
Affiliates will, and will use their best efforts to cause their respective
officers, directors, employees, partners, members, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Buyer, upon request,
all documents and other materials, and all copies thereof, obtained by Sellers
or their Affiliates or on their behalf from Buyer in connection with this
Agreement that are subject to such confidence.
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6.05. NO NEGOTIATIONS WITH THIRD PARTIES. From the date hereof until
the earlier of the Closing Date or the date on which this Agreement is
terminated, neither the Company nor any Seller, nor any of their respective
agents or representatives, shall, directly or indirectly, encourage, solicit or
engage in any discussions or negotiations with, or provide any information to,
or enter into any agreement with, any Person or group concerning the
acquisition or possible acquisition by such third party of all or any part of
the business of the Company, whether by purchase of assets, stock, merger or
otherwise, other than as contemplated or permitted by this Agreement. The
Company and each Seller agree promptly to notify Buyer of interest by any
Person with respect to any such possible acquisition.
6.06. TAXES. Sellers shall pay any sales, use, transfer and
documentary taxes and recording and filing fees applicable to the transactions
set forth in this Agreement.
6.07. FACILITY CLOSINGS. All expenses relating to the closings of
distribution facilities of the Company in Stockton, California, Dallas, Texas
and Orlando, Florida shall have been paid or accrued by the Company prior to
the Closing, including but not limited to, relocation and employment severance
costs and facility lease costs.
6.08. BOARD APPROVAL. Each Seller that has an Affiliate on the Board
of Directors of the Company shall cause such Affiliate not to withdraw, modify
or change his recommendation of the transactions contemplated by this
Agreement.
6.09. CONSENTS. The Company shall use its reasonable best efforts to
obtain the consent of the landlord to the transactions contemplated hereby with
respect to the lease for 585 Elm Street, Manchester, NH.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
7.01. REGISTRATION STATEMENT. The Buyer shall file a registration
statement with the United States Securities and Exchange Commission within 30
days after the Closing to effect the registration of the resale of the Warrant
Shares under the Securities Act; provided that any holder of Warrant Shares
shall not sell any Warrant Shares pursuant to such registration statement
unless and until it provides to Buyer such information as Buyer may reasonably
request for use in connection with the identification of such holder as a
selling stockholder in such registration statement, or any prospectus included
therein, and no such sale shall be made by such holder pursuant to such
registration statement unless and until such information is included by Buyer
in such registration statement or prospectus. Buyer shall in good faith use
its reasonable efforts and at its cost to cause such registration statement to
be declared effective as promptly as practicable thereafter, to amend such
registration statement to include additional or revised information with
respect to the selling stockholders and to include in such registration
statement the information
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provided by a holder as a selling stockholder and shall notify the holders of
the effectiveness thereof and agrees to use its reasonable efforts to maintain
the effectiveness of such registration statement until the earliest of (a) such
time as all of the Warrant Shares have been sold pursuant to the registration
statement, (b) the Warrants expire according to their terms and (c) the date
that Rule 144(k) under the Securities Act (or successor provision) is available
for the resale of the Warrant Shares, provided that expenses incurred by Buyer
with respect to any post-effective amendment to include additional or revised
information with respect to the selling stockholders shall be paid by such
selling stockholders. Buyer shall indemnify and hold harmless each holder of
Warrant Shares, the officers, directors and agents and employees of each of
them, each person who controls such holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the 1934 Act) and the officers, directors,
agents and employees of any such controlling person, from and against all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding)("Losses") incurred or suffered
and arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any such registration statement, or related
prospectus or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent the same are based upon information furnished
in writing to Buyer by or on behalf of such holder expressly for use therein;
provided, that Buyer shall not be liable to any holder of Warrant Shares to the
extent that any such Losses arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
preliminary prospectus if either (A)(i) such holder failed to send or deliver a
copy of the final prospectus with or prior to the delivery of written
confirmation of the sale by such holder of a Warrant Share to the person
asserting the claim from which such Losses arise and (ii) the prospectus would
have completely corrected such untrue statement or alleged untrue statement or
such omission or alleged omission; or (B)(i) such untrue statement or alleged
untrue statement, omission or alleged omission is completely corrected in an
amendment or supplement to the prospectus and (ii) having previously been
furnished by or on behalf of Buyer with copies of the prospectus as so amended
or supplemented, such holder thereafter fails to deliver such prospectus as so
amended or supplemented, prior to or concurrently with the sale of a Warrant
Share to the person asserting the claim from which such Losses arise. Promptly
after receipt by an indemnified party under this Section 7.01 of notice of any
claim or the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against Buyer under this Section 7.01
notify Buyer in writing of the claim or the commencement of that action. No
indemnification provided for in this Section 7.01 shall be available to any
party who shall fail to give the notice if the party to whom such notice was
not given was unaware of the action, suit or proceeding to which the notice
would have related and was prejudiced by the failure to give the notice, but
the omission so to notify such indemnifying party of any such notification
shall not relieve such indemnifying party from any liability which it may have
to the indemnified party otherwise than under this Section 7.01. If any such
claim or action shall be brought against an indemnified party, and it shall
notify Buyer thereof, Buyer may, or if the indemnified party requests shall,
participate therein and assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from Buyer to the
indemnified party of its election to assume the defense of such claim or
action, Buyer shall not be liable to the indemnified party under this Section
7.01 for any legal or other
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expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, if the defendants in any such action
include both an indemnified party and Buyer and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it and
for other indemnified parties that are different from or additional to those
available to Buyer, the indemnified party or parties under this Section 7.01
shall have the right to employ not more than one counsel to represent them and,
in that event, the reasonable fees and expenses of not more than one such
separate counsel shall be paid by Buyer. Buyer shall not be liable for any
settlement effected without its written consent of any claim or action.
7.02. STOCK OPTIONS. (a) On the Closing Date, the Optionholders and
the Company shall terminate each outstanding option to purchase shares of
Company Common Stock (each, a "Company Option") under the Company's 1992 Stock
Plan and Buyer will grant to the Optionholders under the Buyer's 1992 Stock
Plan options to purchase shares of Buyer Common Stock as set forth below. Each
Optionholder will be granted an option (the "Buyer Option"), with the same
vesting provisions as the Company Option held by such Optionholder as of the
Closing Date, to purchase that number of shares of Buyer Common Stock ("Option
Shares") at an exercise price as determined in accordance with Schedule 7.02.
(b) The Company shall deliver termination agreements, in
substantially the form attached hereto as Exhibit D, executed by each
Optionholder with respect to the Company Options held by such Optionholder on
or prior to the Closing Date.
7.03. MANAGEMENT BONUSES. As of the Closing, Buyer shall accrue all
non-accrued bonuses due to management employees of the Company for 1996 (on a
pro rata basis for the period from Closing prior to December 31, 1996, if any)
which amount shall not exceed $185,000. Within 75 days after December 31,
1996, Buyer shall pay all bonuses to management employees of the Company
accrued as of December 31, 1996 or the Closing, if sooner.
ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
8.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Sellers and Buyer each agree, and Sellers,
prior to the Closing, and Buyer, after the Closing, agree to cause the Company
to execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement. Notwithstanding the foregoing, Buyer shall not be required to
appeal in the courts any denial of regulatory approval or to agree to
conditions that may be burdensome on Buyer, as determined by Buyer in its sole
discretion.
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<PAGE> 33
8.02. CERTAIN FILINGS. The parties shall cooperate with each other (a)
in determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (b) in taking such actions or making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
8.03. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
ARTICLE IX
EMPLOYEE BENEFITS
9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Employee Plan" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company or any of its ERISA
Affiliates, as the case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
9.02. ERISA REPRESENTATIONS. The Company and each Seller, jointly and
severally, hereby represent and warrant to Buyer that:
(a) Schedule 9.02 lists each Employee Plan that covers any
employee of the Company, copies or descriptions of all of which have previously
been made available or furnished to Buyer. With respect to each Employee Plan,
the Company has provided Forms 5500 filed for the most recent three years and
an accurate summary description of such plan. The Company has provided Buyer
with complete age, salary, service and related data as of the most recent
practicable date for employees of the Company.
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<PAGE> 34
(b) Schedule 9.02 also includes a list of each employment,
severance or other similar contract, arrangement or policy (written or oral)
and each plan or arrangement (written or oral) providing for severance
benefits, insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation, profit-
sharing, bonuses, stock options, stock appreciation rights or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
which (i) is not an Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by Sellers or any of their Affiliates and
(iii) covers any employee or former employee (if obligations continue
thereunder) of the Company. Such contracts, plans and arrangements as are
described above, copies or descriptions of all of which have been made
available or furnished previously to Buyer, are hereinafter referred to
collectively as the "Benefit Arrangements."
(c) The Company has never contributed to or maintained an
Employee Plan which is a Multiemployer Plan or an Employee Plan that is subject
to Title IV of ERISA. The Company and its Affiliates have not incurred and do
not expect to incur any liability under Title IV of ERISA arising in connection
with the termination of any plan covered or previously covered by Title IV of
ERISA.
(d) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. The Company has
furnished to Buyer copies of the most recent Internal Revenue Service
determination letters with respect to each such plan, including a determination
letter covering changes required by the Tax Reform Act of 1986. Each Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including
but not limited to ERISA and the Code, which are applicable to such plan.
(e) Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to
such Benefit Arrangement.
(f) With respect to the employees and former employees of the
Company, there are no employee post-retirement medical or health plans in
effect, except as required by Section 4980B of the Code.
(g) There has been no amendment to, written interpretation of
or announcement (whether written or not written) by the Company relating to, or
change in employee participation or coverage under, any Employee Plan or
Benefit Arrangement.
(h) No employee of the Company will become entitled to any
bonus, retirement, severance or similar benefit or enhanced benefit solely as a
result of the transactions contemplated hereby, except as contemplated by
Section 7.03 or as reflected on Schedules 2.01 and 3.08.
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<PAGE> 35
9.03. NO THIRD PARTY BENEFICIARIES. No provision of this Article IX
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the Company
in respect of continued employment (or resumed employment) with the Company
and, no provision of this Article IX shall create any such rights in any such
Persons in respect of any benefits that may be provided, directly or
indirectly, under any Employee Plan or Benefit Arrangement or any plan or
arrangement that may be established by Buyer or any of its Affiliates. No
provision of this Agreement shall constitute a limitation on rights to amend,
modify or terminate after the Closing Date any Employee Plan or Benefit
Arrangement.
ARTICLE X
CONDITIONS TO CLOSING
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
Buyer, the Company and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been
terminated.
(b) No proceeding (other than a proceeding instituted by Buyer
or any Seller) challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially
delay the Closing shall have been instituted by any Person before any
court, arbitrator or governmental body, agency or official and be
pending.
(c) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Closing shall have been obtained.
10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) the Company and each Seller shall have performed all of
its obligations hereunder required to be performed on or prior to the
Closing Date, (ii) the representations and warranties of the Company and
each Seller contained in this Agreement at the time of its execution and
delivery and in any certificate or other writing delivered by the
Company or a Seller pursuant hereto, shall be true at and as of the
Closing Date, as if made at and as of such date, except where the
failure to be true would not, or would not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect on the
Company, provided that the representations set forth in Sections 3.23
and 3.24 shall not be subject to
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<PAGE> 36
the foregoing exception, and (iii) Buyer shall have received a
certificate signed by each Seller to the foregoing effect.
(b) No court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining the effective operation by
Buyer of the business of the Company and the Subsidiaries after the
Closing Date.
(c) Buyer shall have received an opinion of Sellers' Counsel,
dated the Closing Date, in form and substance reasonably satisfactory to
Buyer.
(d) The Company shall have received all consents,
authorizations or approvals set forth on Schedule 10.02 , in each case
in form and substance reasonably satisfactory to Buyer, and no such
consent, authorization or approval shall have been revoked.
(e) Sellers and the Company shall have executed and delivered
the Escrow Agreement.
(f) Buyer shall have received the resignations of all
directors of the Company and Subsidiaries from their positions as
directors.
(g) Buyer shall have received a letter from the Bank stating
that after receipt of the funds specified in Section 2.02(e), the Bank
will execute a release of any Liens related to the Bank indebtedness and
will deliver UCC termination statements to be held in escrow pending
receipt of such funds.
(h) Buyer shall have received a letter from each of Allied and
North American Fund II stating that after receipt of the funds specified
in Section 2.02(e), all debt owed to Allied and North American Fund II,
respectively, by the Company or any of its Subsidiaries will have been
fully paid and satisfied.
(i) Buyer shall have received the most recently available
consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the close of business on the last day of the month
preceding the Closing Date (which day shall be less than two months
prior to the Closing Date) which balance sheet shall (i) fairly present
the consolidated financial position of the Company and its Subsidiaries
as at the close of business on such date in accordance with GAAP except
as described on Schedule 3.07, (ii) include line items substantially
consistent with those in the Balance Sheet and (iii) be prepared in
accordance with accounting policies and practices consistent with those
used in the preparation of the Balance Sheet.
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<PAGE> 37
(j) Sellers may provide to Buyer updated existing disclosure
schedules, provided that such updated disclosure does not reflect or
could not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Change.
(k) Buyer shall have received evidence satisfactory to it that
the Company's 1992 Stock Plan has been properly terminated.
(l) Buyer shall have received all other closing documents
specified in Section 2.02 and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to
Buyer.
10.03. CONDITIONS TO OBLIGATION OF SELLERS . The obligation of Sellers
to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a)(i) Buyer shall have performed all of its obligations
hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained in this
Agreement at the time of its execution and delivery and in any
certificate or other writing delivered by Buyer pursuant hereto shall be
true in all material respects at and as of the Closing Date, as if made
at and as of such date, except to the extent that such representation
and warranty expressly speaks as of an earlier date, in which case such
representation and warranty is true as of such date and (iii) Sellers
shall have received a certificate signed by an officer of Buyer to the
foregoing effect.
(b) Sellers shall have received an opinion of Buyer's Counsel,
dated the Closing Date.
(c) Buyer shall have executed and delivered the Escrow
Agreement.
(d) Buyer shall have granted the Buyer Options.
(e) Sellers shall have received all items specified in Section
2.02 and all other closing documents that they may reasonably request,
all in form and substance reasonably satisfactory to them.
ARTICLE XI
INDEMNIFICATION
11.01. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection
herewith shall survive the Closing until December 31, 1997, except that the
representations and warranties set forth in Sections 3.07, 3.17 and 3.18 shall
survive until June 30, 1997. Notwithstanding the preceding sentence, any claim
for breach of
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<PAGE> 38
any covenant, agreement, representation or warranty in respect of which
indemnity may be sought under Section 11.02 shall survive the time at which it
would otherwise terminate pursuant to the preceding sentence, if notice of the
inaccuracy or breach thereof giving rise to such right to indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time.
11.02. INDEMNIFICATION. (a) Each Seller, jointly and severally, hereby
indemnifies Buyer and, effective at the Closing, without duplication, the
Company and the Subsidiaries against and agree to hold them harmless from any
and all damage, loss, liability and expense (including without limitation
reasonable expenses of investigation and reasonable attorneys' fees and
expenses in connection with any action, suit or proceeding) ("Damages")
incurred or suffered by Buyer, the Company or any of the Subsidiaries arising
out of (i) any misrepresentation or breach of warranty, covenant or agreement
made or to be performed by the Company or a Seller pursuant to this Agreement
or (ii) notwithstanding anything set forth on Schedule 3.05 under the caption
"Equity" or on Schedule 2.01 under the captions "Options" or "Purchase Price"
or on any other schedule that references such schedules, any claim by any
person that asserts or may assert an interest in or claim to the Company
Securities, the Purchase Price, the Company Options or the proceeds of any of
the foregoing provided that Buyer is in compliance with this Agreement and the
Buyer Options.
(b) Buyer hereby indemnifies each Seller against and agrees to hold
it harmless from any and all Damages incurred or suffered by such Seller
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Buyer pursuant to this Agreement.
(c) Buyer shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Company and its Subsidiaries for Tax periods
which begin before the Closing Date and either (a) end before the Closing Date
(if such Tax Returns are to be filed after the Closing Date), or (b) end after
the Closing Date. Any Tax Returns covering any period prior to the Closing
Date are subject to Sellers' reasonable approval. For purposes of this Section
and in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or relating to income or receipts, be deemed to be the amount
of such Tax for the entire Taxable period multiplied by a fraction, the
numerator of which is the number of days in the Taxable period ending on the
Closing Date, and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts, be deemed equal to the amount which would be payable if the
relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be
taken into account as if the relevant Taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Company and its
Subsidiaries. The Company, its Subsidiaries and each Seller shall cooperate
fully with the Buyer for purposes of making the above-referenced allocations.
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<PAGE> 39
(d) None of the Sellers shall have any right of indemnification,
contribution or subrogation against the Company with respect to any
indemnification by any Seller or Sellers under this Section 11.02 if the
transactions contemplated by this Agreement are consummated. Sellers shall
have a right of contribution against each other with respect to amounts
actually paid pursuant to this Section 11.02, but such right of contribution
shall in no way limit or affect Buyer's and the Company's rights contained in
this Article XI.
(e) Buyer's claims for indemnification pursuant to this Article XI
shall be satisfied solely from funds withheld or deposited and held in escrow
pursuant to Section 2.03.
(f) Notwithstanding anything to the contrary in this Section 11.02,
neither the Sellers, on the one hand, nor the Buyer, on the other hand, shall
be entitled to receive, or shall be obligated to pay, any amounts under this
Section 11.02 (i) unless and until the aggregate amount of all claims for
indemnification by such party exceeds $400,000 and then only for the amount of
such claims in excess of $400,000 and (ii) in excess of [CONFIDENTIAL TREATMENT
REQUESTED].
(g) Notwithstanding anything to the contrary in this Article XI, the
indemnification and limitations set forth in this Article XI shall apply only
with respect to post-Closing indemnification obligations and with respect
thereto shall be the sole remedy for any misrepresentation or breach of any
warranty, covenant or agreement in this Agreement or in connection with the
transactions contemplated hereby.
11.03. PROCEDURES; NO WAIVER. (a) The party seeking indemnification
under Section 11.02 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
in respect of which indemnity may be sought under such Section. No
indemnification provided for in Section 11.02 shall be available to any party
who shall fail to give the notice if the party to whom such notice was not
given was unaware of the action, suit or proceeding to which the notice would
have related and was prejudiced by the failure to give the notice, but the
omission so to notify such Indemnifying Party of any such notification shall
not relieve such Indemnifying Party from any liability which it may have to the
Indemnified Party otherwise than under this Article XI. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party may, or if the Indemnified
Party requests shall, participate therein and, assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from
the Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party under this Article XI for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof; provided, however, if the defendants in any such action include both
an Indemnified Party and the Indemnifying Party and the Indemnified Party shall
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 40
have reasonably concluded that there may be legal defenses available to it and
for other Indemnified Parties that are different from or additional to those
available to the Indemnifying Party, the Indemnified Party or Parties under
this Section 11.03 shall have the right to employ not more than one counsel to
represent them and, in that event, the reasonable fees and expenses of not more
than one such separate counsel shall be paid by the Indemnifying Party. The
Indemnifying Party shall not be liable for any settlement effected without its
consent of any claim, litigation or proceeding in respect of which indemnity
may be sought hereunder.
(b) Any amounts payable or paid to the Buyer or payable or
paid to the Sellers pursuant to Section 11.02, shall be reduced by any
insurance recoveries (net of any premium increases reasonably anticipated to be
paid over the following three years by the recipient of such insurance recovery
as a result of the incident giving rise to such recovery) of the Indemnified
Party with respect to the incident giving rise to such indemnification
obligations. The parties hereto agree that no Indemnified Party shall be
required to pursue or exhaust insurance recoveries prior to seeking and
recovering indemnification hereunder, but shall use reasonable efforts to
pursue such recoveries and that any such insurance recoveries received after
the related indemnification has been paid hereunder shall be paid over to the
Indemnifying Party (to the extent of such indemnification payments previously
made hereunder) in reimbursement of such portion of indemnification payments.
(c) No waiver of a closing condition by Buyer or Sellers
shall limit its rights under Section 11.02.
ARTICLE XII
TERMINATION
12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated at
any time prior to the Closing:
(i) by written agreement of Sellers and Buyer;
(ii) by Buyer or North American Fund II if the Closing shall
not have been consummated on or before February 28, 1997 for any reason; or
(iii) by Sellers or Buyer if there shall be any law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
If any party desires to terminate this Agreement pursuant to clause (ii)
or (iii) such party shall give notice of such termination to the other parties.
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<PAGE> 41
12.02. EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.01, such termination shall be without liability of any
party (or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement except that
if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of another party or
to perform a covenant of this Agreement or from a willful breach by any party
to this Agreement, such party shall be fully liable for any and all Damages
incurred or suffered by the other party or parties as a result of such failure
or breach. The provisions of Sections 6.05, 7.01 and 13.03 shall survive any
termination hereof pursuant to Section 12.01.
ARTICLE XIII
MISCELLANEOUS
13.01. NOTICES. All notices, requests and other communications to
either party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to Buyer, to:
Gulf South Medical Supply, Inc.
426 Christine Drive
Ridgeland, MS 39157
Telecopy: (601) 856-8695
Attention: Stanton Keith Pritchard, Esq.
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
Attention: William B. Asher, Jr., Esq.
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<PAGE> 42
if to Company, to:
c/o North American Fund II
111 E. Las Olas Blvd.
Fort Lauderdale, FL 33302
if to Sellers, to:
North American Fund II
c/o North American Company
111 E. Las Olas Blvd.
Fort Lauderdale, FL 33302
Allied
1666 K Street, N.W.
Suite 901
Washington, DC 20006
Mr. Gary Nutter
24 Eagle Drive
Bedford, NH 03110
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606-5096
Telecopy: (312) 984-3669
Attention: Helen Friedli, P.C.
13.02. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, and only if, such
amendment or waiver is in writing and signed by Buyer, the Company and Sellers.
(b) No failure or delay by either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
13.03. EXPENSES. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that if the Closing shall occur all such costs and expenses
incurred by the Company shall be paid or reimbursed by Sellers. For purposes of
this Section 13.03, the salaries of employees of the Company shall not be a
cost or expense incurred by the Company.
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<PAGE> 43
13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of his or its rights or obligations under this
Agreement without the consent of the other parties hereto, except that Buyer
may transfer or assign, in whole or from time to time in part, to one or more
of its Affiliates, the right to purchase all or a portion of the Shares, but no
such transfer or assignment will relieve Buyer of its obligations hereunder.
13.05. FURTHER ASSURANCES. From time to time after the Closing, at the
request of Buyer and without further consideration, Sellers will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby and to vest in Buyer good, valid and marketable title to
the Shares.
13.06. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, without regard to the
conflicts of law rules of such state.
13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other parties hereto.
13.08. ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement dated as of June 28, 1996 between Buyer and Smith Barney Inc.
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by
either party hereto. Neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
13.09. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
GULF SOUTH MEDICAL SUPPLY, INC.
By:
---------------------------------------
Title:
GATEWAY HEALTHCARE CORPORATION
By:
---------------------------------------
Title:
SELLERS:
NORTH AMERICAN FUND II
By:
---------------------------------------
Title:
ALLIED INVESTMENT CORPORATION
By:
---------------------------------------
Title:
ALLIED CAPITAL CORPORATION II
By:
---------------------------------------
Title:
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<PAGE> 45
ALLIED VENTURE PARTNERSHIP
By:
---------------------------------------
Title:
------------------------------------------
Gary Nutter
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<PAGE> 46
EXHIBIT A
FORM OF ESCROW AGREEMENT
AGREEMENT dated as of __________ __, 199_, among Gulf South Medical
Supply, Inc., a Delaware corporation ("Buyer") and North American Fund II,
Allied Investment Corporation, Allied Capital Corporation II, Allied Venture
Partnership and Gary Nutter (collectively, the "Sellers") and [name of Escrow
Agent] (the "Escrow Agent"). Buyer and Sellers are hereinafter sometimes
referred to as the "Parties."
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
November 19, 1996 (the "Purchase Agreement"), among Buyer, Sellers and Gateway
Healthcare Corporation, ("Gateway"), Buyer is concurrently herewith purchasing
from Sellers all of the outstanding capital stock and stock warrants of
Gateway, with any capitalized term used herein but not otherwise defined having
the meaning ascribed to such term in the Purchase Agreement.
WHEREAS, pursuant to Section 2.03 of the Purchase Agreement, the Parties
have agreed that on the date hereof, [CONFIDENTIAL TREATMENT REQUESTED] of the
cash portion of the Purchase Price shall be deposited into escrow upon the
terms stated herein; provided that if the date hereof is on or prior to
December 31, 1996, a secured note for [CONFIDENTIAL TREATMENT REQUESTED]
payable January 2, 1997 (the "Note") shall be deposited in lieu of the amount
of [CONFIDENTIAL TREATMENT REQUESTED].
WHEREAS, the Parties desire to establish with the Escrow Agent the
escrow contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Appointment. The Parties hereby appoint and designate [name of
Escrow Agent] as the Escrow Agent for the purposes herein set forth, and the
Escrow Agent hereby accepts such appointment, subject to and in accordance with
the provisions of this Escrow Agreement.
2. Deposit. Sellers hereby authorize Buyer to deliver to the Escrow
Agent on behalf of the Sellers, simultaneously with the execution and delivery
of this Agreement and as partial payment of the Purchase Price under the
Purchase Agreement, [CONFIDENTIAL TREATMENT REQUESTED] (such amount, or any
future balance thereof, being referred to herein as the "Escrow
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 47
Fund"), to be held in accordance with the terms of this Agreement in an
interest-bearing account (the "Escrow Account"); provided that if the date
hereof is on or prior to December 31, 1996, the Note shall be deposited in lieu
of the amount of [CONFIDENTIAL TREATMENT REQUESTED]. The Escrow Funds may be
invested in (i) United States Treasury bills, (ii) such other short-term
investment grade securities as may be designated by the Sellers and agreed to
in writing by the Buyer and (iii) one or more money market accounts established
by commercial banks. Earnings on, and income on the sale of the securities
constituting part of, the Escrow Funds shall be distributed on the Escrow
Termination Date. Upon the opening of the Escrow Account, the Escrow Agent
will advise the Parties of the account number thereof.
3. Claims Procedure.
3.1 Notice of Claims. At any time prior to the Escrow
Termination Date (as hereinafter defined), Buyer may give notice to the Escrow
Agent and Sellers that pursuant to the terms of the Purchase Agreement Buyer is
asserting a claim ("Claim") against the Sellers. Such notice shall constitute
the assertion of such Claim by Buyer against the Escrow Fund held in escrow
hereunder. Buyer shall be entitled to make or assert a Claim under the
Purchase Agreement that it is entitled to indemnification under the Purchase
Agreement. Upon the receipt of such notice of a Claim by the Escrow Agent in
accordance with Section 8 hereof, the Escrow Agent shall hold in escrow
hereunder such portion of the Escrow Fund as shall equal the amount of such
Claim and all other pending Claims hereunder. Notice of a Claim given to the
Escrow Agent and Sellers pursuant to this Section 3.1 shall briefly set forth
the basis of the Claim and, if then determinable by Buyer, a reasonable
estimate of the amount thereof, which estimate may include an estimate of
attorneys', accountants' and other fees to be incurred to resolve such Claim.
If the estimated amount of a Claim is not set forth in the notice of the Claim
given to the Escrow Agent and Sellers, Buyer will give a further notice to the
Escrow Agent and Sellers setting forth Buyer's estimate of the amount of such
Claim promptly after it is reasonably able to make such estimate.
3.2 Objection; Delivery. For a period of twenty (20) days after
the giving of any such notice of Claim to Sellers, the Escrow Agent shall make
no payment of any of the Escrow Funds in respect thereof unless the Escrow
Agent shall have received written authorization from North American Fund II to
make such payment with respect to such Claim. After the expiration of such
twenty-day period, the Escrow Agent shall, to the extent of the Escrow Fund,
make payment to Buyer of the amount stated in the notice of such Claim given by
Buyer pursuant to Section 3.1 hereof, unless prior to the expiration of such
twenty-day period the Escrow Agent and Buyer have received written notice from
North American Fund II that the Sellers dispute the Claim. In the event of a
payment to Buyer, the Claim shall be deemed to have resulted in a determination
in favor of Buyer, solely for purposes of delivery of the Escrow Fund to Buyer,
it being understood that the provisions of Article XI of the Purchase Agreement
shall govern with respect to the determination of claims for indemnification
under the Purchase Agreement. Any such written objection by North American
Fund II shall specify the amount stated in the notice of Claim, if any, Sellers
agree Buyer is entitled to in respect of any such Claim. In the event of such
specification by North American
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 48
Fund II, the Escrow Agent shall, to the extent of the Escrow Fund, make payment
to Buyer of the amount agreed to by Sellers in such notice. In the event it is
later determined that Buyer is entitled to receive an amount in respect of such
Claim in excess of the amount agreed to by Sellers in such notice, and Sellers
shall not have paid such additional amount to Buyer, the Escrow Agent shall, to
the extent of the Escrow Fund, make payment to Buyer of the amount of such
excess or additional sum.
3.3 Determination of Claims. In case Sellers shall, in the
manner provided in Section 3.2 hereof, object in respect of any Claim (or any
portion thereof) made by Buyer, then Sellers and Buyer shall, within the
fifteen (15) day period beginning on the date of the receipt by Buyer of such
written objection, attempt in good faith to agree upon the rights and
obligations of the respective parties with respect to such Claim and how such
Claim shall be paid. If Sellers and Buyer so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties. The Escrow Agent
shall be entitled to rely on any such memorandum and shall, to the extent of
the Escrow Fund and the direction in such memorandum, make payment to Buyer as
provided in such memorandum. If Sellers and Buyer fail to so agree, such
dispute shall be settled either by (a) mutual agreement of Buyer and Sellers,
evidenced by single written instructions to the Escrow Agent, (b) a binding and
final arbitration award, provided the parties have agreed to arbitration with
respect to the matters in dispute, or (c) a final judgment, order or decree of
a court of competent jurisdiction in the United States of America (the time for
appeal therefrom having expired and no appeal having been perfected), all costs
and expenses of which (including reasonable attorneys' fees) shall be borne as
provided in the Purchase Agreement or, failing any such agreement therein, by
the party against whom the dispute is settled as aforesaid. Buyer and Sellers
agree to proceed in good faith and use their best efforts to resolve any
disputes hereunder in a timely and commercially reasonable manner. The Escrow
Agent shall be under no duty to institute or defend any such proceedings, and
none of the costs and expenses of any such proceedings shall be borne by the
Escrow Agent
4. Term.
4.1 Term. The term of the escrow under this Agreement shall
continue until 5:00 p.m. on December 31, 1997 (the "Escrow Termination Date"),
except with respect to any then pending Claim and except that a certain portion
of the Escrow Funds may be released on June 30, 1997 (the "Early Release Date")
as set forth in Section 4.2.
4.2 No Claims. If at the Early Release Date there shall be no
Claims pending or awards or judgments outstanding, the Escrow Agent shall
deliver such portion of the Escrow Funds in excess of [CONFIDENTIAL TREATMENT
REQUESTED] then being held by it in escrow to North American Fund II. If at
the Escrow Termination Date there shall be no Claims pending or awards or
judgments outstanding, the Escrow Agent shall deliver the Escrow Funds then
being held by it in escrow to North American Fund II.
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 49
4.3 Claims. If at the Early Release Date or the Escrow
Termination Date there shall be any Claims pending or awards or judgments
outstanding, the Escrow Fund shall be reduced to and the Escrow Agent shall
retain, until the final disposition of such Claim, such amount of the Escrow
Fund as shall equal the amount of such Claim stated in the notice thereof, and
the Escrow Agent shall deliver to North American Fund II any portion of the
Escrow Fund in excess of the aggregate of the outstanding or pending Claims,
awards and judgments and in the case of the Early Release Date, only such
portion, if any, in excess of [CONFIDENTIAL TREATMENT REQUESTED]. If the
Escrow Fund is equal to or less than the aggregate of the outstanding Claims,
awards and judgments, the full amount of the Escrow Fund shall continue to be
held in escrow. Any amount not theretofore delivered to North American Fund II
shall be delivered to North American Fund II at such time or from time to time
when the Claim, award or judgment to which the retained Escrow Funds relate has
been fully rendered as herein provided and all amounts payable as a result
thereof have been paid to Buyer.
4.4 Delivery. Promptly after the determination of a Claim in
accordance with the provisions of Section 3.2 hereof and promptly after giving
receipt of notice of the determination of a Claim in accordance with the
provisions of Section 3.3 hereof (which notice shall be accompanied by a copy
of any agreement, certificate, final arbitration award, provided that the
parties hereto have agreed to arbitration with respect to such matter, or final
court order, judgment or decree evidencing such determination), the Escrow
Agent shall deliver to Buyer, free and clear of any interest of the Sellers
therein, from the Escrow Fund, an amount equal to the amount of such Claim
payable to Buyer pursuant to such determination. If the amount of the Escrow
Fund then held by the Escrow Agent is less than or equal to the amount of such
Claim so payable, the Escrow Agent shall deliver to Buyer all of the Escrow
Fund then held by it, free and clear of any interest of the Sellers therein.
4.5 Remedies Cumulative. The rights and remedies of Buyer under
this Agreement are subject to the Purchase Agreement.
5. The Escrow Agent.
5.1 Disputes. In the event the Escrow Agent shall believe there
shall be any disagreement among or between the Parties resulting in adverse
claims or demands being made in connection with the Escrow Fund, or in the
event that the Escrow Agent in good faith is in doubt as to what action it
should take hereunder, the Escrow Agent shall be entitled, at its option, (a)
to refuse to comply with any claims or demands on it as long as such
disagreement shall continue and, in so refusing, shall make no delivery or
other disposition of the Escrow Fund pursuant to the terms of this Agreement
and shall not be or become liable in any way or to any person for its failure
or refusal to comply with such conflicting or adverse claims or demands and
shall be entitled to continue so to refrain from acting and so to refuse to act
until the Escrow Agent shall have received (i) a final and non-appealable order
of a court of competent jurisdiction directing delivery of the Escrow Fund, or
(ii) a written agreement executed by Buyer and Sellers directing delivery of
the Escrow Fund, in which event the Escrow Agent shall disburse the Escrow Fund
in accordance with
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[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
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<PAGE> 50
such order or agreement, or (b) to place the Escrow Fund with a proper court in
the State of _____________ and to apply to any court of competent jurisdiction
in the State of ______________ (including the commencement of immediate action
or suit) to determine the rights of the parties. Any court order referred to
in (i) above shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to the Escrow Agent to the effect that said court
order is final and non-appealable. The Escrow Agent shall act on such court
order and legal opinion without further question.
5.2 Performance. To induce the Escrow Agent to act hereunder,
it is further agreed by the parties that:
(a) The duties and obligations of the Escrow Agent shall
be determined solely by the express provisions of this Agreement. No implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent shall not be under any duty to give the Escrow Fund
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any funds held hereunder except as
directed in this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the authenticity
or the correctness of any fact stated therein or the propriety or validity of
the service thereof. The Escrow Agent may act in reliance upon any instrument
or signature believed by it in good faith to be genuine and may assume, if in
good faith, that any person purporting to give notice or receipt or advice or
make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(c) The Escrow Agent shall not be bound or in any way
affected by any notice of any modification or cancellation of this Agreement or
the Purchase Agreement, or of any fact or circumstance affecting or alleged to
affect rights or liabilities hereunder other than as is herein set forth, or
affecting or alleged to affect the rights and liabilities of any other person,
unless notice of the same is delivered to the Escrow Agent in writing, signed
by the proper parties to the Escrow Agent's satisfaction and, in the case of
modification of the duties or responsibilities of the Escrow Agent, unless such
modification shall be satisfactory to the Escrow Agent and approved by the
Escrow Agent in writing.
(d) The Escrow Agent shall not be liable for any error of
judgment, or any action taken by it in good faith and believed by it to be
authorized or within the rights or powers conferred upon it by this Agreement,
except in the case of its gross negligence or bad faith, nor shall it be liable
for the default or misconduct of any employee, agent or attorney appointed by
it who shall have been selected with reasonable care.
(e) The Escrow Agent shall be entitled to consult with
counsel of its own choice and shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and
in accordance with the opinion of such counsel.
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<PAGE> 51
(f) The Parties hereto jointly and severally hold harmless
and indemnify the Escrow Agent, its directors, officers, employees and agents
from and against all obligations, liabilities, claims, suits, judgments,
losses, damages, costs or expenses of any kind or nature, including, without
limitation, reasonable attorneys' fees and expenses, which may be imposed on,
incurred by, or asserted against the Escrow Agent in connection with or in any
way arising out of this Agreement or the Escrow Agent's duties hereunder,
except as a result of its own gross negligence or bad faith. The foregoing
indemnities shall survive the resignation of the Escrow Agent or the
termination of this Agreement.
6. Fees. Buyer will pay all of the fees (as set forth on Annex A
attached hereto) and expenses of the Escrow Agent.
7. Resignation. The Escrow Agent (and any successor escrow agent) at
any time may be discharged from its duties and obligations hereunder by the
delivery to it of notice of termination signed by the Parties or at any time
may resign by giving written notice to such effect to the Parties. Upon any
such termination or resignation, the Escrow Agent shall deliver the Escrow Fund
to any successor escrow agent designated by the Parties in writing, or to any
court of competent jurisdiction in the State of _____________ if no such
successor escrow agent is agreed upon, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Agreement. The termination or resignation of the Escrow Agent shall
take effect on the earlier of (i) the appointment of a successor (including a
court of competent jurisdiction) or (ii) the day that is 30 days after the date
of delivery: (A) to the Escrow Agent of the Parties' notice of termination or
(B) to the Parties of the Escrow Agent's written notice of resignation. If at
that time the Escrow Agent has not received a designation of a successor escrow
agent, the Escrow Agent's sole responsibility after that time shall be to keep
the Escrow Fund safe until receipt of a designation of successor escrow agent
or a joint written disposition instruction by the Parties or an enforceable
order of a court of competent jurisdiction.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing, and shall be given by registered mail, postage
prepaid, personal delivery, telecopier (confirmed by mail as aforesaid) or
courier service such as Federal Express addressed as follows:
If to Buyer:
Gulf South Medical Supply, Inc.
426 Christine Drive
Ridgeland, MS 39157
Attn: Stanton Keith Pritchard, Esq.
Telecopier: (601) 853-4801
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: William B. Asher, Jr., Esq.
Telecopier: (617) 248-7100
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<PAGE> 52
If to Sellers:
c/o North American Fund II
c/o North American Company
111 E. Las Olas Blvd.
Fort Lauderdale, FL 33302
With a copy to:
McDermott, Will & Emery
227 West Monroe Avenue
Chicago, IL 60606
Attn: Helen Friedli, P.C.
Telecopier: (312) 984-3669
If to the Escrow Agent:
[_________________]
Each of the parties hereto shall be entitled to specify a different address by
giving notice as aforesaid. Such notices and communications shall be deemed
effective (i) two business days after being sent, if sent by registered mail
(postage prepaid), or (ii) on the date delivered, if delivered personally,
transmitted by telecopier or delivered by courier service such as Federal
Express.
9. Miscellaneous. This Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective successors and
assigns and shall not be enforceable by or inure to the benefit of any other
third party except as provided with respect to the termination of, or
resignation by, the Escrow Agent. No party may assign any of its rights or
obligations under this Agreement without the written consent of the other
Parties. No waiver hereunder shall be effective unless in a writing signed by
the party to be charged. This Agreement may be amended, modified, superseded,
or canceled, and any of the terms hereof may be waived, only by a written
instrument executed by the parties hereto. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without reference to conflicts of laws.
10. Taxes. It is understood and agreed that, for federal, state, local
and foreign income tax purposes: (i) neither the Escrow Account (under Section
468B of the Internal Revenue Code of 1986, as amended (the "Code") or
otherwise), nor Buyer, shall be taxable on earnings attributable to the amount
deposited in the Escrow Account under Section 2 hereof, (ii) the Sellers shall
be taxable for such purposes on such earnings, and will report on their
federal, state
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and other tax returns all items of income and gain attributable to the Escrow
Account and the Escrow Agent shall be entitled to withhold, as required by law,
on all earnings hereunder, (iii) each of the Sellers will deliver a valid
taxpayer identification number or a valid Internal Revenue Service Form W-8 to
the Escrow Agent upon execution of this Escrow Agreement, and shall comply with
all other federal, state, local and foreign information return and other
reporting requirements as may be required by the Escrow Agent, and (iv) in
accordance with Rev. Rul. 73-451, 1973-2 C.B. 158, Rev. Rul. 77-294, 1977-2
C.B. 173 (as amplified by Rev. Rul. 79-91, 1979-1 C.B. 179), and Private Letter
Ruling 8629038 (April 18, 1996), as supplemented by Private Letter Ruling
8640021 (July 1, 1986), the Sellers and Buyer recognize that the establishment
of the Escrow Account amounts to a substantial restriction on the Sellers'
rights to receive a portion of the purchase price under that certain Stock
Purchase Agreement dated as of November __, 1996, by and among the Buyer,
Gateway Healthcare, Inc. and the Sellers.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be duly executed on the date and year first above written.
BUYER:
GULF SOUTH MEDICAL SUPPLY, INC.
By:
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SELLERS:
NORTH AMERICAN FUND II
By:
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ALLIED INVESTMENT CORPORATION
By:
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ALLIED CAPITAL CORPORATION II
By:
---------------------------------------
ALLIED VENTURE PARTNERSHIP
By:
---------------------------------------
------------------------------------------
Gary Nutter
ESCROW AGENT:
[Escrow Agent]
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ANNEX A
Fees of Escrow Agent
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<PAGE> 56
Exhibit B
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
AND SUCH LAWS THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS
AVAILABLE.
W -- __________
----------------------------------------
GULF SOUTH MEDICAL SUPPLY, INC.
COMMON STOCK PURCHASE WARRANT
----------------------------------------
This certifies that, for good and valuable consideration, Gulf South
Medical Supply, Inc., a Delaware corporation (the "Company"), grants to
___________ (the "Warrantholder"), the right to subscribe for and purchase from
the Company ________________ (_____) validly issued, fully paid and
nonassessable shares (the "Warrant Shares") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), at the purchase price per share of
$25.90 (the "Exercise Price"), at any time prior to 5:00 p.m., New York City
time, on the Expiration Date, all subject to the terms, conditions and
adjustments herein set forth.
This Warrant was issued in connection with the Stock Purchase Agreement,
dated November 19, 1996 (the "Stock Purchase Agreement"), among the Company,
Gateway Healthcare Corporation, and North American Fund II, Allied Investment
Corporation, Allied Capital Corporation II, Allied Venture Partnership and Gary
Nutter (collectively, the "Sellers"), and is subject to the terms thereof. The
Warrantholder is entitled to the rights and subject to the obligations
contained in the Stock Purchase Agreement relating to this Warrant and the
Warrant Shares.
1. Duration and Exercise of Warrant.
1.1 Duration and Exercise of Warrant. Subject to the terms
and conditions set forth herein, this Warrant may be exercised, in whole or in
part, by the Warrantholder by:
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<PAGE> 57
(a) the surrender of this Warrant to the Company, with
a duly executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day prior to the
Expiration Date; and
(b) the delivery of payment to the Company, for the
account of the Company, by cash, wire transfer, certified or official bank
check or any other means approved by the Company, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Notwithstanding the
foregoing, no such surrender shall be effective to constitute the Person
entitled to receive such shares as the record holder thereof while the transfer
books of the Company for the Common Stock are closed for any purpose (but not
for any period in excess of five days); but any such surrender of this Warrant
for exercise during any period while such books are so closed shall become
effective for exercise immediately upon the reopening of such books, as if the
exercise had been made on the date this Warrant was surrendered and for the
number of shares of Common Stock and at the Exercise Price in effect at the
date of such surrender.
1.2 Warrant Shares Certificate. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder within three Business Days after receipt of the
Exercise Form by the Company and payment of the purchase price. No fractional
shares shall be issued upon the exercise of this Warrant, provided that the
Warrantholder shall receive, in lieu of any fractional shares, cash in an
amount equal to the product of the fraction multiplied by the Current Market
Price of a share of Common Stock. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant.
2. Restrictions on Transfer; Restrictive Legends.
2.1 This Warrant, including the registration rights pursuant
to Section 7 hereof, may be offered, sold, transferred, pledged or otherwise
disposed of, in whole or in part, to any person, subject to compliance with any
applicable securities laws.
2.2 Except as otherwise permitted by this Section 2, each
stock certificate for Warrant Shares issued upon the exercise of any Warrant
and each stock certificate issued upon the direct or indirect transfer of any
such Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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<PAGE> 58
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS THAT, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares, in each
case without a legend, if either (i) such Warrant or such Warrant Shares, as
the case may be, have been registered for resale under the Securities Act, (ii)
the Warrantholder has delivered to the Company an opinion of legal counsel
(from a firm reasonably satisfactory to the Company) which opinion shall be
addressed to the Company and be reasonably satisfactory in form and substance
to the Company's counsel, to the effect that such registration is not required
with respect to such Warrant or such Warrant Shares, as the case may be, or
(iii) such Warrant or Warrant Shares are sold in compliance with Rule 144 or
Rule 144(k) (or any successor provision then in effect) under the Securities
Act, the Company receives customary representations to such effect and the
Company receives an opinion of counsel to the Company in customary form that
such legend may be removed.
3. Reservation and Registration of Shares, Etc.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of
this Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of the issuance of the Warrant
Shares hereunder and any transfer occurring contemporaneously with such issue.
(b) During the period within which this Warrant may be
exercised, the Company shall at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Loss or Destruction of Warrant.
Subject to the terms and conditions hereof, upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
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5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends, Splits, Combinations. If at any
time after the date of the issuance of this Warrant the Company (i) declares a
dividend or other distribution payable in shares of Common Stock or securities
convertible into Common Stock or subdivides its outstanding shares of Common
stock into a larger number or (ii) combines its outstanding shares of Common
Stock into a smaller number, then (x) the number of Warrant Shares to be
delivered upon exercise of this Warrant will, upon the occurrence of an event
set forth in clause (i) above, be increased and, upon the occurrence of an
event set forth in clause (ii) above, be decreased so that such Warrantholder
will be entitled to receive the number of shares of Common Stock that such
Warrantholder would have owned immediately following such action had this
Warrant been exercised immediately prior thereto and (y) the Exercise Price in
effect immediately prior to such dividend, other distribution, subdivision or
combination, as the case may be, shall be adjusted proportionately by
multiplying such Exercise Price by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Warrant Shares purchasable immediately thereafter.
(b) Distributions of Stock, Other Securities, Evidence
of Indebtedness, Etc. In case the Company shall distribute to the holders of
Common Stock shares of its capital stock (other than Common Stock or shares
convertible into Common Stock for which adjustment is made under Section
6.1(a)), stock or other securities of the Company or any other Person,
evidences of indebtedness issued by the Company or any other Person, assets
(excluding cash dividends) or options, warrants or rights to subscribe for or
purchase the foregoing, then, and in each such case, immediately following the
record date fixed for the determination of the holders of Common Stock entitled
to receive such distribution, the Exercise Price then in effect shall be
adjusted by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction (i) the numerator of which shall be such Current
Market Price of the Common Stock less the then Fair Market Value (as determined
by the Board of Directors) of the portion of the stock, other securities,
evidences of indebtedness so distributed or of such options, warrants or rights
applicable to one share of Common Stock (but such numerator shall not be less
than one) and (ii) the denominator of which shall be the Current Market Price
of the Common Stock on such record date. Such adjustment shall become
effective at the opening of business on the Business Day following the record
date for the determination of stockholders entitled to such distribution.
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(c) Reorganization, Merger, Sale of Assets. In case of
any capital reorganization or reclassification or other change of outstanding
shares of Common Stock (other than a change in par value), any consolidation or
merger of the Company with or into another Person (other than a consolidation
or merger of the Company in which the Company is the resulting or surviving
Person and which does not result in any reclassification or change of
outstanding Common Stock) or the sale of all or substantially all of the assets
of the Company or another Person, upon exercise of this Warrant, the
Warrantholder shall have the right to receive the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such reorganization, reclassification, consolidation,
merger or sale had this Warrant been exercised immediately prior to such event;
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions of this
Section 6 with respect to the rights and interest thereafter of the
Warrantholder, to the end that the provisions set forth in this Section 6
(including provisions with respect to changes in and other adjustments of the
Exercise Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter deliverable
upon exercise of this Warrant.
(d) Carryover. Notwithstanding any other provision of
this Section 6.1, no adjustment shall be made to the number of shares of Common
Stock to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered, provided however, that, upon exercise of this
warrant pursuant to Section 1 hereof, any adjustment called for by Sections
6.2(a), (b) or (c) which has not been made as a result of this Section 6.1(d)
shall be made.
6.2 No Adjustment for Dividends. Except as provided in
Section 6.1, no adjustment in respect of any dividends shall be made during the
term of this Warrant or upon the exercise of this Warrant. Notwithstanding any
other provision hereof, no adjustments shall be made on Warrant Shares issuable
on the exercise of this Warrant for any cash dividends paid or payable to
holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
6.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares shall be adjusted, as
provided in Section 6.1, the Company shall forthwith file, at the principal
office of the Company (or at such other place as may be designated by the
Company), a statement, certified by the chief financial officer of the Company,
showing in detail the facts requiring such adjustment, the computation by which
such adjustment was made and the Exercise Price that shall be in effect after
such adjustment. The Company shall also cause a copy of such statement to be
sent by first class mail, postage prepaid, to the Warrantholder, at such
Warrantholder's address as shown in the records of the Company.
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7. Registration Statement. The Company shall file a registration
statement with the United States Securities and Exchange Commission within 30
days after the date hereof to effect the registration of the resale of the
Warrant Shares under the Securities Act; provided that the Warrantholder shall
not sell any Warrant Shares pursuant to such registration statement unless and
until it provides to the Company such information as the Company may reasonably
request for use in connection with the identification of the Warrantholder as a
selling stockholder in such registration statement, or any prospectus included
therein, and no such sale shall be made by the Warrantholder pursuant to such
registration statement unless and until such information is included by the
Company in such registration statement or prospectus. The Company shall in
good faith use its reasonable efforts and at its cost to cause such
registration statement to be declared effective as promptly as practicable
thereafter, to amend such registration statement to include additional or
revised information with respect to the selling stockholders and to include in
such registration statement the information provided by the Warrantholder as a
selling stockholder and shall notify the Warrantholder of the effectiveness
thereof and agrees to use its reasonable efforts to maintain the effectiveness
of such registration statement until the earliest of (a) such time as all of
the Warrant Shares have been sold pursuant to the registration statement, (b)
the Warrant expires according to its terms and (c) the date that Rule 144(k)
under the Securities Act (or successor provision) is available for the resale
of the Warrant Shares, provided that expenses incurred by the Company with
respect to any post-effective amendment to include additional or revised
information with respect to the selling stockholders shall be paid by such
selling stockholders. The Company shall indemnify and hold harmless the
Warrantholder, its officers, directors and agents and employees, each person
who controls the Warrantholder (within the meaning of Section 15 of the
Securities Act or Section 20 of the 1934 Act) and the officers, directors,
agents and employees of any such controlling person, from and against all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) ("Losses") incurred or suffered
and arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any such registration statement, or related
prospectus or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent the same are based upon information furnished
in writing to the Company by or on behalf of the Warrantholder expressly for
use therein; provided, that the Company shall not be liable to the
Warrantholder to the extent that any such Losses arise out of or are based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) the Warrantholder failed to
send or deliver a copy of the final prospectus with or prior to the delivery of
written confirmation of the sale by the Warrantholder of a Warrant Share to the
person asserting the claim from which such Losses arise and (ii) the prospectus
would have completely corrected such untrue statement or alleged untrue
statement or such omission or alleged omission; or (B)(i) such untrue statement
or alleged untrue statement, omission or alleged omission is completely
corrected in an amendment or supplement to the prospectus and (ii) having
previously been furnished by or on behalf of the Company with copies of the
prospectus as so amended or supplemented, the Warrantholder thereafter fails to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Warrant Share to the person asserting the claim from which
such Losses arise. Promptly after receipt by
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an indemnified party under Section 7.01 of the Stock Purchase Agreement of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the Company under
such Section 7.01 notify the Company in writing of the claim or the
commencement of that action. No indemnification provided for in such Section
7.01 shall be available to any party who shall fail to give the notice if the
party to whom such notice was not given was unaware of the action, suit or
proceeding to which the notice would have related and was prejudiced by the
failure to give the notice, but the omission so to notify such indemnifying
party of any such notification shall not relieve such indemnifying party from
any liability which it may have to the indemnified party otherwise than under
such Section 7.01. If any such claim or action shall be brought against an
indemnified party, and it shall notify the Company thereof, the Company may, or
if the indemnified party requests shall, participate therein and assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
After notice from the Company to the indemnified party of its election to
assume the defense of such claim or action, the Company shall not be liable to
the indemnified party under such Section 7.01 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, if the defendants in any such action include both
an indemnified party and the Company and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and for
other indemnified parties that are different from or additional to those
available to the Company, the indemnified party or parties under such Section
7.01 shall have the right to employ not more than one counsel to represent them
and, in that event, the reasonable fees and expenses of not more than one such
separate counsel shall be paid by the Company. The Company shall not be liable
for any settlement effected without its written consent of any claim or action.
8. Amendments.
Any provision of this Warrant may be amended and the observance thereof
waived only with the written consent of the Company and the Warrantholder.
9. Notices of Corporate Action.
So long as this Warrant has not been exercised in full, in the event of
(a) any taking by the Company of a record of all holders of
Common Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than cash dividends or distributions
paid from the retained earnings of the Company) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right;
(b) any capital reorganization of the Company, any
reclassification (other than a change in par value of the Common Stock) or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person; or
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(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right or (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property, if any, deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
10 days prior to the date therein specified (unless such date is beyond the
control of the Company, in which case, as soon as practicable thereafter, but
in no event more than 5 days thereafter), in the case of any date referred to
in the foregoing subdivisions (i) and (ii).
10. Definitions.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Affiliate" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law to close in the State of
Mississippi.
"Common Stock" has the meaning specified on the cover of this Warrant.
"Company" has the meaning specified on the cover of this Warrant.
"Current Market Price" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Common Stock is listed or admitted for
trading on a national securities exchange (including The Nasdaq Stock
Market, Inc.), then the Current Market Price shall be the average of the
last 30 "daily sales prices" of the Common Stock on the principal
national securities exchange on which the Common Stock is listed or
admitted for trading on the last 30 trading days prior to the
Determination Date, or if not listed or traded on any such exchange,
then the Current Market Price shall be the average of the last 30 "daily
sales prices" of the Common Stock on the over-the-counter market on the
last 30 trading days prior to the Determination Date. The "daily sales
price" shall be the closing price of the Common Stock at the end of each
day; or
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<PAGE> 64
(ii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or if no such sale is made on at least 25 of
such days, then the Current Market Price shall be as reasonably
determined in good faith by the Company's Board of Directors or a duly
appointed committee of the Board of Directors (which determination shall
be reasonably described in the written notice delivered to the
Warrantholder together with the Common Stock certificates).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"Exercise Form" means an Exercise Form in the form annexed hereto as
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this Warrant.
"Expiration Date" means _____ __, 2001.
"Fair Market Value" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Securities Act" has the meaning specified on the cover of this Warrant,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act, shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"Stock Purchase Agreement" has the meaning specified on the cover of
this Warrant.
"Warrantholder" has the meaning specified on the cover of this Warrant.
"Warrant Shares" has the meaning specified on the cover of this Warrant.
11. Miscellaneous.
11.1 Entire Agreement. This Warrant, together with the Stock
Purchase Agreement, constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant.
11.2 Binding Effect; Benefits. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and
their respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any
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<PAGE> 65
person other than the Company and the Warrantholder, or their respective
successors or assigns, any rights, remedies, obligations or liabilities under
or by reason of this Warrant.
11.3 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
11.4 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(a) if to Warrantholder:
with a copy to:
McDermott, Will & Emery
227 W. Monroe Ave.
Chicago, IL 60606
Telecopy: (312) 984-3669
Attention: Helen Friedli, Esq.
(b) if to the Company:
Gulf South Medical Supply, Inc.
426 Christine Drive
Ridgeland, MS 39157
Telecopy: (601) 853-4801
Attention: Stanton Keith Pritchard, Esq.
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Telecopy: (617) 248-7100
Attention: William B. Asher, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being
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deposited in the mail, postage prepaid, if mailed; and when receipt is
mechanically acknowledged, if telecopied. Any party may by notice given in
accordance with this Section 11.4 designate another address or Person for
receipt of notices hereunder.
11.5 Severability. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
11.7 No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
GULF SOUTH MEDICAL SUPPLY, INC.
By:
---------------------------------------
Name:
Title:
Dated: ______ __, 1997
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<PAGE> 68
Exhibit A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right
represented by this Warrant, to purchase _____ of the Warrant Shares and
herewith tenders payment for such Warrant Shares to the order of Gulf South
Medical Supply, Inc. in the amount of $_____ in accordance with the terms of
this Warrant. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of the undersigned and that such certificates
be delivered to the undersigned's address below.
The undersigned represents that it is acquiring such Warrant Shares for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof (subject, however, to any requirement of law that
the disposition thereof shall at all times be within its control).
Dated:
----------
Signature
---------------------------------
------------------------------------------
(Print Name)
------------------------------------------
(Street Address)
------------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant in ever particular way, without any alteration
whatsoever.
Any unexercised Warrants evidenced by the Warrant Certificate are to be
issued to:
Name: (please print)
------------------------------
Address:
---------------------------
Taxpayer Identification or Social Security Number:
---------------
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<PAGE> 69
Exhibit C-1
FORM OF
SECURED PROMISSORY NOTE
December __, 1996
$_____________
For value received, the undersigned, Gulf South Medical Supply, Inc., a
Delaware corporation having its principal place of business at 426 Christine
Drive, Ridgeland, MS 39157 ("Obligor"), hereby promises to pay to
_________________________ having its principal place of business at
___________________ ("Obligee"), the principal sum of ___________ Dollars and
______ Cents ($_________) on January 2, 1997 together with interest in arrears
from and including the date hereof on the unpaid principal balance hereunder,
computed daily, at the rate of 100 percent (100%) of the "Applicable Federal
Rate" for short-term obligations prescribed under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (or any successor provision with
similar applicability), as in effect from time to time, payable as set forth
below. Interest shall be calculated on the basis of actual number of days
elapsed over a year of 360 days. Notwithstanding any other provision of this
Promissory Note, Obligee does not intend to charge and Obligor shall not be
required to pay any interest in excess of the maximum permitted by applicable
law; any payments in excess of such maximum shall be refunded to Obligor or
credited to reduce principal hereunder. Principal and interest shall be
payable in lawful money of the United States of America.
Principal and interest hereunder shall be payable in a single payment on
demand.
This Promissory Note is secured by and entitled to the benefits of a
Pledge Agreement between Obligor and Obligee of even date herewith (the "Pledge
Agreement"). Upon the occurrence of any Event of Default, as defined in the
Pledge Agreement, Lender may declare any or all obligations or liabilities of
Obligor to Obligee (including the unpaid principal hereunder and any interest
due thereon), immediately due and payable without presentment, demand, protest
or notice.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Obligee. A waiver by Obligee
of any right or remedy under this Promissory Note on any occasion shall not be
a bar to exercise of the same right or remedy on any subsequent occasion or of
any other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the
fifth business day after mailing, if mailed to the party to whom notice is to
be given, by certified mail, return receipt requested, postage prepaid, and
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addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the State of Delaware, and shall be construed in
accordance therewith, and shall have the effect of a sealed instrument.
Obligor hereby expressly waives presentment, demand, and protest, notice
of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof or of the Pledge Agreement.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
GULF SOUTH MEDICAL SUPPLY, INC.
[Corporate Seal]
By:
---------------------------------------
Name:
Title:
Attested:
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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<PAGE> 71
Exhibit C-2
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of December __, 1996 made by and between Gulf
South Medical Supply, Inc., a Delaware corporation having its principal place
of business at 426 Christine Drive, Ridgeland, MS 39157 (the "Pledgor"), in
favor of North American Fund II having its place of business at 111 E. Las Olas
Blvd., Fort Lauderdale, FL 33302 ("NAF").
WHEREAS, Pledgor and NAF are parties to a Stock Purchase Agreement dated
November 19, 1996 among Pledgor, NAF, Gateway Healthcare Corporation
("Gateway") and the other signatories thereto (the "Purchase Agreement");
WHEREAS, pursuant to the Purchase Agreement, Pledgor has delivered a
promissory note of even date herewith to NAF (the "Note") in consideration of
the purchase by Pledgor of the shares of common stock of Gateway owned by NAF
on the date hereof (the "Pledged Stock");
WHEREAS, it is a condition to the Purchase Agreement that the Pledgor
execute and deliver this Pledge Agreement;
NOW, THEREFORE, in consideration of the covenants and conditions set
forth herein the Pledgor hereby agrees with NAF as follows:
SECTION 1. DEFINED TERMS. The following terms have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in effect in
the State of Delaware.
"Collateral" means the Pledged Stock and all Proceeds.
"Proceeds" means all "proceeds" as such term is defined in Section 9-
306(1) of the Uniform Commercial Code in effect in the State of Delaware on the
date hereof.
SECTION 2. PLEDGE; GRANT OF SECURITY INTEREST; ESCROW OF PLEDGED STOCK.
The Pledgor hereby grants to NAF a first security interest in the Collateral,
as collateral security for the prompt and complete payment of the Note in
accordance with its terms. The Pledgor shall deliver to NAF the stock
certificate or certificates representing the Pledged Stock to be held in escrow
by NAF until the Note is paid in full, together with an undated stock power or
powers covering such certificate or certificates, duly executed in blank.
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<PAGE> 72
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) this Pledge Agreement has been duly executed by the
Pledgor, and constitutes a legal, valid and binding obligation of the Pledgor
enforceable in accordance with its terms; and
(b) no consent or authorization of, filing with, or other act
by or with respect to, any arbitrator or governmental authority and no consent
of any other person (including, without limitation, any creditor of the
Pledgor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Pledge Agreement; and
(c) the Pledgor is the record owner of the Pledged Stock, and
the Pledged Stock is free of any and all liens, pledges, security interests,
encumbrances or options in favor of, or claims of, any other person, except the
lien created by this Pledge Agreement.
SECTION 4. COVENANTS. The Pledgor covenants and agrees with NAF that,
from and after the date of this Pledge Agreement until the Note is paid in full
at any time and from time to time, upon the written request of NAF, and at the
sole expense of the Pledgor, the Pledgor shall promptly and duly execute and
deliver such further instruments and documents and take such further actions as
NAF may reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral is or
becomes evidenced by any promissory note, other instrument or chattel paper,
such note, instrument or chattel paper shall be promptly delivered to NAF, duly
endorsed in a manner satisfactory to NAF, to be held as Collateral pursuant to
this Pledge Agreement.
SECTION 5. DIVIDENDS AND VOTING RIGHTS. The Pledgor shall be entitled
to receive all dividends, and to exercise all voting rights, with respect to
the Pledged Stock.
SECTION 6. DEFAULT. The failure by the Pledgor to pay any amount due
and payable under the Note within one (1) business day after such amount
becomes due and payable shall constitute a default hereunder (an "Event of
Default").
SECTION 7. RIGHTS OF NAF. If an Event of Default occurs and is
continuing (i) NAF shall have the right to receive any and all dividends paid
with respect to the Pledged Stock and make application thereof to the Note, and
(ii) all shares of the Pledged Stock shall be registered in the name of NAF or
its nominee, and NAF or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at
any meeting of shareholders of NAF or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to the option or any shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of Gateway, or upon the exercise by the Pledgor or NAF of any right,
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver
- 68 -
<PAGE> 73
any and all of the Pledged Stock with any committee, depository, transfer
agent, registrar or other designated agency upon such terms and conditions as
it may determine), all without liability except to account for property
actually received by it, but NAF shall have no duty to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
Upon the occurrence of an Event of Default, NAF shall have the
rights and remedies set forth in this Section 7 and in the Note, and all rights
and remedies of a secured party under the Code or other applicable law.
(b) NAF shall not be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or any other person
or to take any other action whatsoever with regard to the Collateral or any
part thereof.
(c) When the Note has been paid in full, the pledge of the
Collateral shall cease, and the Collateral shall revert to the Pledgor free and
clear of all liens securing any obligation or liability of the Pledgor to NAF,
and NAF's rights, title, and interest therein shall cease and become void.
SECTION 8. SEVERABILITY. Any provision of this Pledge Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 9. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise, nor
any delay in exercising, on the part of NAF, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
SECTION 10. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING
LAW. None of the terms or provisions of this Pledge Agreement, may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and NAF, provided, that any provision of this Pledge
Agreement may be waived by NAF in a letter or agreement executed by NAF. This
Pledge Agreement shall be binding upon the successors and assigns of the
Pledgor and shall insure to the benefit of NAF and its successors and assigns.
This Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware.
SECTION 11. NOTICES. Any notice required or permitted under this Pledge
Agreement shall be in writing and shall be deemed to have been given on the
date of delivery, if personally delivered to the party to whom notice is to be
given, or on the fifth business day after mailing, if mailed to the party to
whom notice is to be given, by certified mail, return receipt requested,
- 69 -
<PAGE> 74
postage prepaid, and addressed to the addressee at the address of the addressee
set forth herein, or to the most recent address, specified by written notice,
given to the sender pursuant to this paragraph.
SECTION 12. COUNTERPARTS. This Pledge Agreement may be executed in
several counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one agreement.
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered as of the date first above.
PLEDGOR:
GULF SOUTH MEDICAL SUPPLY, INC.
By:
---------------------------------------
Title
NORTH AMERICAN FUND II
By:
---------------------------------------
Title
- 70 -
<PAGE> 75
EXHIBIT D
Option Termination Agreement
AGREEMENT, made this ___ day of _______________, 1996, by and between
Gateway Healthcare Corporation, an _______ corporation (the "Company") and
_____________________ (the "Participant").
WHEREAS, pursuant to the Gateway Holding, Inc. 1992 Stock Plan (the
"Plan"), the Company granted to the Participant an option to purchase ________
shares, $___ par value, of the Common Stock of the Company at an exercise price
of $10.00 per share, as evidenced by a certain Non-Qualified Stock Option dated
the ____ day of ___________, 19__, a copy of which is attached hereto as
Exhibit A;
WHEREAS, the Company has entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated November 19, 1996 with Gulf South Medical
Supply, Inc. ("GSMS") and the stockholders of the Company with respect to the
sale of all of the outstanding capital stock of the Company to GSMS (the
"Sale");
WHEREAS, pursuant to the terms and conditions of the Stock Purchase
Agreement, GSMS will grant to the Participant an option to purchase a certain
number of shares of the Common Stock, $.01 par value per share, of GSMS on the
terms set forth in Section 7.02 of the Stock Purchase Agreement, a copy of
which is attached hereto as Exhibit B (the "GS Option"); and
WHEREAS, pursuant to the Stock Purchase Agreement, the Company will
terminate the Plan.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and in the Stock Purchase Agreement and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company and
the Participant hereby agree as follows:
1. Termination of Option. Effective upon the closing of the Sale
and delivery of the GS Option to the Participant, the Non-Qualified Stock
Option (the "Option") granted to the Participant by the Company shall terminate
and shall be null and void. The Participant shall have no further rights with
respect to the vested and unvested shares underlying the Option.
2. Release. Effective as of the date hereof, the Participant does
for [him/her]self, and [his/her] spouse, and their respective affiliates,
partners, heirs, successors and assigns, if any, release and absolutely forever
discharge the Company and GSMS, and each of their officers, directors,
shareholders, affiliates, employees and agents from and against all claims,
demands, damages, debts, liabilities, obligations, costs, expenses, actions and
causes of action of any nature whatsoever, that the Participant now has, or at
any time previously had, or shall or may have in the future, arising pursuant
to the Option or the Plan.
3. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
GATEWAY HEALTHCARE CORPORATION
By:
---------------------------------------
Name:
Title:
------------------------------------------
[PARTICIPANT]
- 71 -
<PAGE> 1
EXHIBIT 2.2
AMENDMENT AND WAIVER AGREEMENT
AMENDMENT AND WAIVER AGREEMENT dated as of December 26, 1996 (the
"Amendment Agreement") among Gateway Healthcare Corporation, a Virginia
corporation (the "Company"); the stockholders of the Company listed on the
signature pages hereto (the "Sellers"); and Gulf South Medical Supply, Inc., a
Delaware corporation ("Buyer"), to the Stock Purchase Agreement dated as of
November 19, 1996 among the Company, the Sellers and Buyer (the "Stock Purchase
Agreement").
W I T N E S S E T H:
WHEREAS, as a condition to Buyer's obligation to consummate the Closing
(as defined in the Stock Purchase Agreement), pursuant to Section 10.02(j) of
the Stock Purchase Agreement, Sellers have provided updated disclosure
schedules to Buyer;
WHEREAS, Buyer asserts such updated disclosure reflects or could
reasonably be expected to result in a Material Adverse Change (as defined in
the Stock Purchase Agreement) and as a result, Buyer is not obligated to
consummate the Closing;
WHEREAS, Buyer is willing to waive such conditions to Closing provided
that certain provisions of the Stock Purchase Agreement are amended as
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings assigned to them in the Stock Purchase
Agreement.
2. Amendments to the Stock Purchase Agreement.
2.1. References to [CONFIDENTIAL TREATMENT REQUESTED]. Each reference to
the figure "[CONFIDENTIAL TREATMENT REQUESTED]" in Sections 2.02 and 2.03 of
the Stock Purchase Agreement shall be deleted and replaced with the figure
"[CONFIDENTIAL TREATMENT REQUESTED]."
2.2. Amendment to Section 2.03. Section 2.03 of the Stock Purchase
Agreement is hereby amended and restated in its entirety to read as follows:
"2.03 Escrow Account. Sellers agree that, notwithstanding any
investigation of the business of the Company made by or on behalf of Buyer, at
the Closing [CONFIDENTIAL TREATMENT REQUESTED] of the cash portion of the
Purchase Price shall be delivered by
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 2
Buyer to the Escrow Agent for deposit in accordance with the terms of the
Escrow Agreement, except as otherwise provided in Section 2.02(g). Of such
[CONFIDENTIAL TREATMENT REQUESTED], [CONFIDENTIAL TREATMENT REQUESTED] shall be
designated as the "General Escrow Fund" and [CONFIDENTIAL TREATMENT REQUESTED]
shall be designated as the "11.02(h) Escrow Fund." All funds deposited with
the Escrow Agent shall be applied by the Escrow Agent in accordance with the
terms of the Escrow Agreement to pay to Buyer any amounts owing to Buyer in
accordance with Section 11.02. Any amounts in excess of [CONFIDENTIAL
TREATMENT REQUESTED] remaining on deposit in the General Escrow Fund with the
Escrow Agent on June 30, 1997 and any amounts remaining on deposit in the
General Escrow Fund with the Escrow Agent on December 31, 1997, shall be paid
by the Escrow Agent to Sellers' Representative, except as otherwise provided in
the Escrow Agreement. Any amounts remaining on deposit in the 11.02(h) Escrow
Fund on the earlier of December 31, 1997 and the date of execution of a
[CONFIDENTIAL TREATMENT REQUESTED], shall be paid by the Escrow Agent to
Sellers' Representative, except as otherwise provided in the Escrow Agreement."
2.3 Amendment to Section 11.02(a). Section 11.02(a) is hereby amended to
add language at the end of clause (i) thereof by inserting the following
language between "Agreement" and "or" therein:
", provided, however, that any matter described in Section 11.02(h) hereof
shall be governed exclusively by Sections 11.02(d) and (h) and the other
subsections of Section 11.02 which expressly reference Section 11.02(h),"
2.4. Amendment to Section 11.02(e). Section 11.02(e) is hereby amended
and restated in its entirety to read as follows:
"Except as set forth in the next sentence, Buyer's claims for
indemnification pursuant to this Article XI shall be satisfied solely from the
General Escrow Fund withheld or deposited and held in escrow pursuant to
Section 2.03. Buyer's claims for indemnification pursuant to Section 11.02(h)
shall be satisfied first from the 11.02(h) Escrow Fund withheld or deposited
and held in escrow pursuant to Section 2.03 and to the extent the 11.02(h)
Escrow Fund held in escrow is not sufficient to cover a claim for
indemnification pursuant to Section 11.02(h), Buyer's claims for
indemnification pursuant to Section 11.02(h) shall be satisfied next from the
General Escrow Fund and to the extent the General Escrow Fund is not sufficient
to cover such claims, Buyer shall have the right to proceed against one or more
of the Sellers; provided, however, that Sellers shall not be obligated to pay
any amounts pursuant to Section 11.02(h) in excess of an aggregate of
[CONFIDENTIAL TREATMENT REQUESTED]."
2.5. Amendment to Section 11.02(f). Section 11.02(f) is hereby amended
and restated in its entirety to read as follows:
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 3
"Notwithstanding anything to the contrary in this Section 11.02 other than
Section 11.02(h), neither the Sellers, on the one hand, nor the Buyer, on the
other hand, shall be entitled to receive, or shall be obligated to pay, (i) any
amounts under this Section 11.02 unless and until the aggregate amount of all
claims for indemnification by such party exceeds (x) $400,000 less (y) the
aggregate amount of reimbursements made to Sellers relating to the
[CONFIDENTIAL TREATMENT REQUESTED] pursuant to Section 11.02(h) in excess of
[CONFIDENTIAL TREATMENT REQUESTED] and then only for the amount of such claims
in excess of (x) $400,000 less (y) the aggregate amount of reimbursements made
to Sellers relating to the [CONFIDENTIAL TREATMENT REQUESTED] pursuant to
Section 11.02(h) in excess of [CONFIDENTIAL TREATMENT REQUESTED], and (ii) and
any amounts under this Section 11.02 in excess of [CONFIDENTIAL TREATMENT
REQUESTED]."
2.6 Amendment to Section 11.02(g). Section 11.02(g) is hereby amended
and restated in its entirety to read as follows:
"The indemnification and limitations set forth in this Article XI shall
apply only with respect to post-Closing indemnification obligations and with
respect thereto shall be the sole remedy for any misrepresentation or breach of
any warranty, covenant or agreement in this Agreement or in connection with the
transactions contemplated hereby. The Sellers agree that any claim under
Section 11.02(h) can be made under the General Escrow Fund in accordance with
the other provisions of this Section 11.02."
2.7. Amendment to Section 11.02. Section 11.02 is hereby amended by
adding to the end thereof after clause (g) the following new clause:
"(h) Each Seller severally in proportion to the percentage of the Cash
Purchase Price received by such Seller as set forth on Attachment A to this
Amendment (such percentage being referred to herein as such Seller's
"Proportionate Share"), hereby indemnifies Buyer and the Company and the
Subsidiaries, without duplication, against and agrees to hold them harmless
from any and all Damages incurred or suffered as a result of a claim asserted
or demand made against Buyer, the Company or any of the Subsidiaries arising
out of the [CONFIDENTIAL TREATMENT REQUESTED]. In no event shall any Seller be
obligated to pay any amounts under this Section 11.02(h) consistent with
Section 11.02(e) in excess of (i) [CONFIDENTIAL TREATMENT REQUESTED] multiplied
by (ii) such Seller's "Proportionate Share" as set forth on Attachment A
hereto.
Sellers hereby assume the defense of the [CONFIDENTIAL TREATMENT
REQUESTED] and shall not be liable to Buyer, the Company or any Subsidiary (the
"Indemnified Party") under this Article XI for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof. Buyer and the Company shall provide all information and cooperation
and assistance reasonably requested by Sellers in connection with settling
and/or defending the [CONFIDENTIAL TREATMENT REQUESTED].
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 4
In consideration of the indemnification obligations, the Company hereby assigns
and transfers to Sellers all claims, counterclaims, defenses and rights against
[CONFIDENTIAL TREATMENT REQUESTED] relating to any transactions, agreements, or
relationships prior to the date hereof, provided that with respect to such
claims, counterclaims, defenses and rights assigned by the Company to Sellers,
Sellers agree that with respect to any disputes arising between the Company and
[CONFIDENTIAL TREATMENT REQUESTED] which [CONFIDENTIAL TREATMENT REQUESTED],
Sellers will assign and transfer such claims, counterclaims, defenses and
rights to the Company which Sellers do not reasonably believe will be of value
to Sellers in resolving the [CONFIDENTIAL TREATMENT REQUESTED]. Buyer and/or
the Company shall pay or reimburse Sellers for all defense costs, expenses
(including reasonable attorney fees), settlement costs and other Damages
incurred by Sellers relating to the defense or settlement of any [CONFIDENTIAL
TREATMENT REQUESTED] up to the amount of [CONFIDENTIAL TREATMENT REQUESTED].
Sellers shall not agree to any settlement of the [CONFIDENTIAL TREATMENT
REQUESTED] in an aggregate amount in excess of [CONFIDENTIAL TREATMENT
REQUESTED] without the consent of Buyer, which consent will not be unreasonably
withheld. Notwithstanding Sections 11.01 and 11.02(g) and subject to the
provisions of this Section 11.02(h), Buyer may make a claim for indemnification
under this Section 11.02(h) at any time until December 31, 1999, provided that
such claim shall survive such survival termination date if notice of such a
claim shall have been given to Sellers on or prior to such date. Sellers shall
use their best efforts to obtain a [CONFIDENTIAL TREATMENT REQUESTED]."
2.8 Amendment to Section 11.03. Section 11.03(c) is hereby amended by
adding to the end thereof the following language:
", except that any matter described in Section 11.02(h) shall be
governed exclusively by Sections 11.02(d) and (h) and the other
subsections of this Article XI which expressly reference Section
11.02(h)."
2.9. Amendment to Exhibit A. Exhibit A to the Stock Purchase Agreement
is hereby amended and restated in its entirety and is attached hereto as
Exhibit 1.
3. Waiver to Stock Purchase Agreement. Buyer hereby waives the
conditions to consummation of the Closing set forth in Section 10.02(j),
provided that such waiver shall in no way limit Buyer's rights under Section
11.02.
4. Agreement as to Closing Date. The parties hereto hereby agree that
the Closing Date shall be December 26, 1996.
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 5
5. Amendment to Section 2.01. The second sentence of Section 2.01 of the
Agreement shall be amended to read in its entirety as follows:
"The aggregate purchase price (the "Purchase Price') is (i) the
amount (such amount being referred to as the "Cash Purchase Price") equal
to (w) Thirty-Eight Million Eight Hundred Thousand Dollars ($38,800,000)
less (x) the amount of Closing Debt, and less (y) the value of employee
stock options to purchase a certain number of shares of Buyer Common
Stock issued in accordance with Section 7.02, such value to be determined
in accordance with Schedule 7.02, and less (z) the aggregate amount of
cash paid by the Company in payment for the cancellation of the employee
stock options, where cancellation and cash payment is elected by the
optionholder (the "Cash Out Election"), such payment for any option to be
in an amount equal to $34.86 multiplied by the number of shares of
Company Stock which may be purchased pursuant to such option, and (ii)
warrants to purchase an aggregate of 450,000 shares of Buyer Common Stock
at an exercise price of $25.90 per share (the "Warrant Shares") in
substantially the form set forth in Exhibit B (individually a "Warrant"
and collectively, the "Warrants")."
6. Amendment of Section 7.02. The second sentence of Section 7.02(a) of
the Purchase Agreement shall be amended to read in its entirety as follows:
"Each Optionholder that has not made a Cash Out Election will be granted
an option (the "Buyer Option"), with the same vesting provisions as the Company
Option held by such Optionholder as of the Closing Date, to purchase that
number of shares of Buyer Common Stock ("Option Shares") and at an exercise
price as determined in accordance with Schedule 7.02."
7. Miscellaneous.
7.1. Successors and Assigns. The provisions of this Amendment Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of his or its rights or obligations under this
Amendment Agreement without the consent of the other parties hereto.
7.2. Governing Law. This Amendment Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without
regard to the conflicts of law rules of such state.
7.3. Counterparts; Effectiveness. This Amendment Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other parties
hereto.
7.4. Effect of Amendment and Waiver. Except as expressly provided
herein, no other terms and provisions of the Stock Purchase Agreement shall be
amended or waived by this
<PAGE> 6
Amendment Agreement and the terms and provisions of the Stock Purchase
Agreement shall continue in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
[AMENDMENT AND WAIVER AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
Agreement as of the day and year first above written.
GULF SOUTH MEDICAL SUPPLY, INC.
By:
-----------------------------------
Title:
GATEWAY HEALTHCARE CORPORATION
By:
-----------------------------------
Title:
SELLERS:
NORTH AMERICAN FUND II
By:
-----------------------------------
Title:
ALLIED INVESTMENT CORPORATION
By:
-----------------------------------
Title:
ALLIED CAPITAL CORPORATION II
By:
-----------------------------------
Title:
<PAGE> 8
ALLIED VENTURE PARTNERSHIP
By:
-----------------------------------
Title:
--------------------------------------
Gary Nutter
<PAGE> 9
Attachment A
<TABLE>
<S> <C>
North American Fund II, L.P. 91.457%
Gary Nutter 3.484%
Allied Investment Corporation 1.644%
Allied Capital Corporation II 1.771%
Allied Venture Partnership 1.644%
</TABLE>
<PAGE> 10
FORM OF ESCROW AGREEMENT
AGREEMENT dated as of December 26, 1996, among Gulf South Medical Supply,
Inc., a Delaware corporation ("Buyer") and North American Fund II, Allied
Investment Corporation, Allied Capital Corporation II, Allied Venture
Partnership and Gary Nutter (collectively, the "Sellers") and LaSalle National
Trust, N.A. (the "Escrow Agent"). Buyer and Sellers are hereinafter sometimes
referred to as the "Parties."
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
November 19, 1996 (as amended, the "Purchase Agreement"), among Buyer, Sellers
and Gateway Healthcare Corporation, ("Gateway"), Buyer is concurrently herewith
purchasing from Sellers all of the outstanding capital stock and stock warrants
of Gateway, with any capitalized term used herein but not otherwise defined
having the meaning ascribed to such term in the Purchase Agreement.
WHEREAS, pursuant to Section 2.03 of the Purchase Agreement, the Parties
have agreed that on the date hereof, [CONFIDENTIAL TREATMENT REQUESTED] of the
cash portion of the Purchase Price shall be deposited into escrow upon the
terms stated herein; provided that if the date hereof is on or prior to
December 31, 1996, a secured note for [CONFIDENTIAL TREATMENT REQUESTED]
payable January 2, 1997 (the "Note") shall be deposited in lieu of the amount
of [CONFIDENTIAL TREATMENT REQUESTED].
WHEREAS, the Parties desire to establish with the Escrow Agent the escrow
contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment. The Parties hereby appoint and designate LaSalle
National Trust, N.A. as the Escrow Agent for the purposes herein set forth, and
the Escrow Agent hereby accepts such appointment, subject to and in accordance
with the provisions of this Escrow Agreement.
2. Deposit. Sellers hereby authorize Buyer to deliver to the Escrow
Agent on behalf of the Sellers, simultaneously with the execution and delivery
of this Agreement and as partial payment of the Purchase Price under the
Purchase Agreement, the amount of [CONFIDENTIAL TREATMENT REQUESTED] (such
amount, or any future balance thereof, being referred to herein as the "General
Escrow Fund") and the amount of [CONFIDENTIAL TREATMENT
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 11
REQUESTED] (such amount, or any future balance thereof, being referred to
herein as the "11.02(h) Escrow Fund", and together with the General Escrow
Fund, the "Escrow Fund"), to be held in accordance with the terms of this
Agreement in an interest-bearing account (the "Escrow Account"); provided that
if the date hereof is on or prior to December 31, 1996, the Note shall be
deposited in lieu of the amount of [CONFIDENTIAL TREATMENT REQUESTED]. The
Escrow Funds may be invested in (i) United States Treasury bills, (ii) such
other short-term investment grade securities as may be designated by the
Sellers and agreed to in writing by the Buyer and (iii) one or more money
market accounts established by commercial banks, such investments collectively
referred to herein as "Permitted Investments". Permitted Investments shall
include (a) mutual funds investing in securities or obligations that are
themselves Permitted Investments, including any such mutual fund from which the
Escrow Agent or any of its affiliates may receive compensation, and (b)
investments in securities which have been or may in the future be underwritten,
privately placed or in which a market has been or may in the future be made by
the Escrow Agent or any affiliate; provided, however, that prior to the Escrow
Agent investing in either (a) or (b), the Escrow Agent shall obtain a written
consent to such investment executed by both the Sellers and the Buyer.
Earnings on, and income on the sale of the securities constituting part of, the
Escrow Funds shall be distributed on the applicable Escrow Termination Date.
Upon the opening of the Escrow Account, the Escrow Agent will advise the
Parties of the account number thereof.
3. Claims Procedure.
3.1 Notice of Claims. (a) At any time prior to the General Escrow
Termination Date (as hereinafter defined), Buyer may give written notice to the
Escrow Agent and Sellers that pursuant to the terms of the Purchase Agreement
Buyer is asserting a claim against the Sellers pursuant to Section 11.02(a) of
the Purchase Agreement (a "General Claim"). Such notice shall constitute the
assertion of such General Claim by Buyer against the General Escrow Fund held
in escrow hereunder. Buyer shall be entitled to make or assert a General Claim
under the Purchase Agreement that it is entitled to indemnification under the
Purchase Agreement. Upon the receipt of such notice of a General Claim by the
Escrow Agent in accordance with Section 8 hereof, the Escrow Agent shall hold
in escrow hereunder such portion of the General Escrow Fund as shall equal the
amount of such General Claim and all other pending General Claims hereunder.
Notice of a General Claim given to the Escrow Agent and Sellers pursuant to
this Section 3.1(a) shall briefly set forth the basis of the General Claim and,
if then determinable by Buyer, a reasonable estimate of the amount thereof,
which estimate may include an estimate of attorneys', accountants' and other
fees to be incurred to resolve such General Claim. If the estimated amount of a
General Claim is not set forth in the notice of the General Claim given to the
Escrow Agent and Sellers, Buyer will give a further notice to the Escrow Agent
and Sellers setting forth Buyer's estimate of the amount of such General Claim
promptly after it is reasonably able to make such estimate.
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 12
(b) At any time prior to the 11.02(h) Escrow Termination Date (as
hereinafter defined), Buyer may give written notice to the Escrow Agent and
Sellers that pursuant to the terms of the Purchase Agreement Buyer is asserting
a claim against the Sellers pursuant to Section 11.02(h) of the Purchase
Agreement (a "11.02(h) Claim"). Such notice shall constitute the assertion of
such 11.02(h) Claim by Buyer against the 11.02(h) Escrow Fund and, to the
extent the amount of such claim exceeds the amount of the 11.02 (h) Escrow
Fund, against the General Escrow Fund held in escrow hereunder. Buyer shall be
entitled to make or assert a 11.02(h) Claim under the Purchase Agreement that
it is entitled to indemnification under the Purchase Agreement. Upon the
receipt of such notice of a 11.02(h) Claim by the Escrow Agent in accordance
with Section 8 hereof, the Escrow Agent shall hold in escrow hereunder such
portion of the 11.02(h) Escrow Fund and General Escrow Fund as shall equal the
amount of such 11.02(h) Claim. Notice of a 11.02(h) Claim given to the Escrow
Agent and Sellers pursuant to this Section 3.1(b) shall briefly set forth the
basis of the 11.02(h) Claim and, if then determinable by Buyer, a reasonable
estimate of the amount thereof. If the estimated amount of a 11.02(h) Claim is
not set forth in the notice of the 11.02(h) Claim given to the Escrow Agent and
Sellers, Buyer will give a further notice to the Escrow Agent and Sellers
setting forth Buyer's estimate of the amount of such 11.02(h) Claim promptly
after it is reasonably able to make such estimate.
3.2 Objection; Delivery. (a) For a period of twenty (20) days after
the giving of any such notice of General Claim to the Escrow Agent and Sellers,
the Escrow Agent shall make no payment of any of the General Escrow Funds in
respect thereof unless the Escrow Agent shall have received written
authorization from North American Fund II to make such payment with respect to
such General Claim. After the expiration of such twenty-day period, the Escrow
Agent shall, to the extent of the General Escrow Fund, make payment to Buyer of
the amount stated in the notice of such General Claim given by Buyer pursuant
to Section 3.1(a) hereof, unless prior to the expiration of such twenty-day
period the Escrow Agent and Buyer have received written notice from North
American Fund II that the Sellers dispute the General Claim. In the event of a
payment to Buyer, the General Claim shall be deemed to have resulted in a
determination in favor of Buyer, solely for purposes of delivery of the General
Escrow Fund to Buyer, it being understood that the provisions of Article XI of
the Purchase Agreement shall govern with respect to the determination of claims
for indemnification under the Purchase Agreement. Any such written objection by
North American Fund II shall specify the amount stated in the notice of General
Claim, if any, Sellers agree Buyer is entitled to in respect of any such
General Claim. In the event of such specification by North American Fund II,
the Escrow Agent shall, to the extent of the General Escrow Fund, make payment
to Buyer of the amount agreed to by Sellers in such notice. In the event it is
later determined that Buyer is entitled to receive an amount in respect of such
General Claim in excess of the amount agreed to by Sellers in such notice, and
Sellers shall not have paid such additional amount to Buyer, the Escrow Agent
shall, to the extent of the General Escrow Fund, make payment to Buyer of the
amount of such excess or additional sum.
(b) For a period of twenty (20) days after the giving of any such notice
of a 11.02(h) Claim to the Escrow Agent and Sellers, the Escrow Agent shall
make no payment of any of the 11.02(h) Escrow Funds or General Escrow Funds in
respect thereof unless the Escrow Agent shall have received written
authorization from North American Fund II to make such payment with respect to
such 11.02(h) Claim. After the expiration of such twenty-day period, the
Escrow Agent shall, to
<PAGE> 13
the extent of the 11.02(h) Escrow Fund and General Escrow Funds, make payment
to Buyer of the amount stated in the notice of such 11.02(h) Claim given by
Buyer pursuant to Section 3.1(b) hereof, unless prior to the expiration of such
twenty-day period the Escrow Agent and Buyer have received written notice from
North American Fund II that the Sellers dispute the 11.02(h) Claim. In the
event of a payment to Buyer, the 11.02(h) Claim shall be deemed to have
resulted in a determination in favor of Buyer, solely for purposes of delivery
of the 11.02(h) Escrow Fund and General Escrow Fund to Buyer, it being
understood that the provisions of Article XI of the Purchase Agreement shall
govern with respect to the determination of claims for indemnification under
the Purchase Agreement. Any such written objection by North American Fund II
shall specify the amount stated in the notice of 11.02(h) Claim, if any,
Sellers agree Buyer is entitled to in respect of any such 11.02(h) Claim. In
the event of such specification by North American Fund II, the Escrow Agent
shall, to the extent of the 11.02(h) Escrow Fund and General Escrow Fund, make
payment to Buyer of the amount agreed to by Sellers in such notice. In the
event it is later determined that Buyer is entitled to receive an amount in
respect of such 11.02(h) Claim in excess of the amount agreed to by Sellers in
such notice, and Sellers shall not have paid such additional amount to Buyer,
the Escrow Agent shall, to the extent of the 11.02(h) Escrow Fund and General
Escrow Funds, make payment to Buyer of the amount of such excess or additional
sum.
3.3 Determination of Claims. In case Sellers shall, in the manner
provided in Section 3.2 hereof, object in respect of any Claim (or any portion
thereof) made by Buyer, then Sellers and Buyer shall, within the fifteen (15)
day period beginning on the date of the receipt by Buyer of such written
objection, attempt in good faith to agree upon the rights and obligations of
the respective parties with respect to such Claim and how such Claim shall be
paid. If Sellers and Buyer so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties. The Escrow Agent shall be
entitled to rely on any such memorandum and shall, to the extent of the General
Escrow Fund and/or 11.02(h) Escrow Fund, as the case may be, and the direction
in such memorandum, make payment to Buyer as provided in such memorandum. If
Sellers and Buyer fail to so agree, such dispute shall be settled either by (a)
mutual agreement of Buyer and Sellers, evidenced by single written instructions
to the Escrow Agent, (b) a binding and final arbitration award, provided the
parties have agreed to arbitration with respect to the matters in dispute, or
(c) a final judgment, order or decree of a court of competent jurisdiction in
the United States of America (the time for appeal therefrom having expired and
no appeal having been perfected), all costs and expenses of which (including
reasonable attorneys' fees) shall be borne as provided in the Purchase
Agreement or, failing any such agreement therein, by the party against whom the
dispute is settled as aforesaid. Buyer and Sellers agree to proceed in good
faith and use their best efforts to resolve any disputes hereunder in a timely
and commercially reasonable manner. The Escrow Agent shall be under no duty to
institute or defend any such proceedings, and none of the costs and expenses of
any such proceedings shall be borne by the Escrow Agent
4. Term.
4.1 Term. (a) The term of the escrow under this Agreement as it
relates to the General Escrow Fund shall continue until 5:00 p.m. on December
31, 1997 (the "General Escrow
<PAGE> 14
Termination Date"), except with respect to any then pending General Claim or
11.02(h) Claim in an amount in excess of the 11.02(h) Escrow Fund and except
that a certain portion of the General Escrow Funds may be released on June 30,
1997 (the "Early Release Date") as set forth in Section 4.2.
(b) The term of the escrow under this Agreement as it relates to the
11.02(h) Escrow Fund shall continue until 5:00 p.m. on the earlier of December
31, 1997 and the execution of a [CONFIDENTIAL TREATMENT REQUESTED] (as defined
in the Purchase Agreement) (the "11.02(h) Escrow Termination Date"), except
with respect to any then pending 11.02(h) Claim.
4.2 No Claims. (a) If at the Early Release Date there shall be no
General Claims or 11.02(h) Claims in an amount in excess of the 11.02(h) Escrow
Fund pending or awards or judgments outstanding, the Escrow Agent shall deliver
such portion of the General Escrow Funds in excess of [CONFIDENTIAL TREATMENT
REQUESTED] then being held by it in escrow to North American Fund II. If at the
General Escrow Termination Date there shall be no General Claims or 11.02(h)
Claims in an amount in excess of the 11.02(h) Escrow Fund pending or awards or
judgments outstanding, the Escrow Agent shall deliver the General Escrow Funds
then being held by it in escrow to North American Fund II.
(b) If at the 11.02(h) Escrow Termination Date there shall be no
11.02(h) Claims pending or awards or judgments outstanding, the Escrow Agent
shall deliver the 11.02(h) Escrow Funds then being held by it in escrow to
North American Fund II.
4.3 Claims. (a) If at the Early Release Date or the General Escrow
Termination Date there shall be any General Claims or 11.02(h) Claims in an
amount in excess of the 11.02(h) Escrow Fund pending or awards or judgments
outstanding, the General Escrow Fund shall be reduced to and the Escrow Agent
shall retain, until the final disposition of such General Claim or 11.02(h)
Claim, such amount of the General Escrow Fund as shall equal the amount of such
General Claim and 11.02(h) Claim in an amount in excess of the 11.02(h) Escrow
Fund stated in the notice thereof, and the Escrow Agent shall deliver to North
American Fund II any portion of the General Escrow Fund in excess of the
aggregate of the outstanding or pending General Claims and 11.02(h) Claims in
an amount in excess of the 11.02(h) Escrow Fund, awards and judgments and in
the case of the Early Release Date, only such portion, if any, in excess of
[CONFIDENTIAL TREATMENT REQUESTED]. If the General Escrow Fund is equal to or
less than the aggregate of the outstanding General Claims and 11.02(h) Claims
in an amount in excess of the 11.02(h) Escrow Fund, awards and judgments, the
full amount of the General Escrow Fund shall continue to be held in escrow. Any
amount not theretofore delivered to North American Fund II shall be delivered
to North American Fund II at such time or from time to time when the General
Claim and 11.02(h) Claim, award or judgment to which the retained General
Escrow Funds relate has been fully rendered as herein provided and all amounts
payable as a result thereof have been paid to Buyer.
- ---------------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.
<PAGE> 15
(b) If at the 11.02(h) Escrow Termination Date there shall be any
11.02(h) Claims pending or awards or judgments outstanding, the 11.02(h) Escrow
Fund shall be reduced to and the Escrow Agent shall retain, until the final
disposition of such 11.02(h) Claim, such amount of the 11.02(h) Escrow Fund as
shall equal the amount of such 11.02(h) Claim stated in the notice thereof, and
the Escrow Agent shall deliver to North American Fund II any portion of the
11.02(h) Escrow Fund in excess of the aggregate of the outstanding or pending
11.02(h) Claims, awards and judgments. If the 11.02(h) Escrow Fund is equal to
or less than the aggregate of the outstanding 11.02(h) Claims, awards and
judgments, the full amount of the 11.02(h) Escrow Fund shall continue to be
held in escrow. Any amount not theretofore delivered to North American Fund II
shall be delivered to North American Fund II at such time or from time to time
when the 11.02(h) Claim, award or judgment to which the retained 11.02(h)
Escrow Funds relate has been fully rendered as herein provided and all amounts
payable as a result thereof have been paid to Buyer.
4.4 Delivery. Promptly after the determination of a Claim in
accordance with the provisions of Section 3.2 hereof and promptly after giving
receipt of a memorandum of agreement or a notice of the determination of a
Claim in accordance with the provisions of Section 3.3 hereof (which notice
shall be accompanied by written instructions or a copy of any agreement,
certificate or final arbitration award, provided that the parties hereto have
agreed to arbitration with respect to such matter, or final court order,
judgment or decree evidencing such determination, as applicable), the Escrow
Agent shall deliver to Buyer, free and clear of any interest of the Sellers
therein, from the General Escrow Fund and/or 11.02(h) Escrow Fund, as the case
may be, an amount equal to the amount of such General Claim or 11.02(h) Claim
payable to Buyer pursuant to such determination. If the amount of the General
Escrow Fund and/or 11.02 Escrow Fund, as the case may be, then held by the
Escrow Agent is less than or equal to the amount of such General Claim or
11.02(h) Claim so payable, the Escrow Agent shall deliver to Buyer all of the
General Escrow Fund and/or 11.02(h) Escrow Fund, as the case may be, then held
by it, free and clear of any interest of the Sellers therein.
4.5 Remedies Cumulative. The rights and remedies of Buyer under this
Agreement are subject to the Purchase Agreement.
5. The Escrow Agent.
5.1 Disputes. (a) In the event the Escrow Agent shall believe there
shall be any disagreement among or between the Parties resulting in adverse
claims or demands being made in connection with the General Escrow Fund, or in
the event that the Escrow Agent in good faith is in doubt as to what action it
should take hereunder, the Escrow Agent shall be entitled, at its option, (a)
to refuse to comply with any claims or demands on it as long as such
disagreement shall continue and, in so refusing, shall make no delivery or
other disposition of the General Escrow Fund pursuant to the terms of this
Agreement and shall not be or become liable in any way or to any person for its
failure or refusal to comply with such conflicting or adverse claims or demands
and shall be entitled to continue so to refrain from acting and so to refuse to
act until the Escrow Agent shall have received (i) a final and non-appealable
order of a court of competent jurisdiction directing delivery of the General
Escrow Fund, or (ii) a written agreement executed by Buyer and Sellers
directing delivery of the General Escrow Fund, in which event the Escrow Agent
shall
<PAGE> 16
disburse the General Escrow Fund in accordance with such order or agreement, or
(b) to place the General Escrow Fund with a proper court in the State of
Illinois and to apply to any court of competent jurisdiction in the State of
Illinois (including the commencement of immediate action or suit) to determine
the rights of the parties. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and
non-appealable. The Escrow Agent shall act on such court order and legal
opinion without further question.
(b) In the event the Escrow Agent shall believe there shall be any
disagreement among or between the Parties resulting in adverse claims or
demands being made in connection with the 11.02(h) Escrow Fund, or in the event
that the Escrow Agent in good faith is in doubt as to what action it should
take hereunder, the Escrow Agent shall be entitled, at its option, (a) to
refuse to comply with any claims or demands on it as long as such disagreement
shall continue and, in so refusing, shall make no delivery or other disposition
of the 11.02(h) Escrow Fund pursuant to the terms of this Agreement and shall
not be or become liable in any way or to any person for its failure or refusal
to comply with such conflicting or adverse claims or demands and shall be
entitled to continue so to refrain from acting and so to refuse to act until
the Escrow Agent shall have received (i) a final and non-appealable order of a
court of competent jurisdiction directing delivery of the 11.02(h) Escrow Fund,
or (ii) a written agreement executed by Buyer and Sellers directing delivery of
the 11.02(h) Escrow Fund, in which event the Escrow Agent shall disburse the
11.02(h) Escrow Fund in accordance with such order or agreement, or (b) to
place the 11.02(h) Escrow Fund with a proper court in the State of Illinois and
to apply to any court of competent jurisdiction in the State of Illinois
(including the commencement of immediate action or suit) to determine the
rights of the parties. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and
non-appealable. The Escrow Agent shall act on such court order and legal
opinion without further question.
5.2 Performance. To induce the Escrow Agent to act hereunder, it is
further agreed by the parties that:
(a) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement. No implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent shall not be under any duty to give the Escrow Funds
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any funds held hereunder except as
directed in this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
<PAGE> 17
(c) The Escrow Agent shall not be bound or in any way affected by
any notice of any modification or cancellation of this Agreement or the
Purchase Agreement, or of any fact or circumstance affecting or alleged to
affect rights or liabilities hereunder other than as is herein set forth, or
affecting or alleged to affect the rights and liabilities of any other person,
unless notice of the same is delivered to the Escrow Agent in writing, signed
by the proper parties to the Escrow Agent's satisfaction and, in the case of
modification of the duties or responsibilities of the Escrow Agent, unless such
modification shall be satisfactory to the Escrow Agent and approved by the
Escrow Agent in writing.
(d) The Escrow Agent shall not be liable for any error of
judgment, or any action taken by it in good faith and believed by it to be
authorized or within the rights or powers conferred upon it by this Agreement,
except in the case of its gross negligence or bad faith, nor shall it be liable
for the default or misconduct of any employee, agent or attorney appointed by
it who shall have been selected with reasonable care.
(e) The Escrow Agent shall be entitled to consult with counsel of
its own choice and shall have full and complete authorization and protection
for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel.
(f) The Parties hereto jointly and severally hold harmless and
indemnify the Escrow Agent, its directors, officers, employees and agents from
and against all obligations, liabilities, claims, suits, judgments, losses,
damages, costs or expenses of any kind or nature, including, without
limitation, reasonable attorneys' fees and expenses, which may be imposed on,
incurred by, or asserted against the Escrow Agent in connection with or in any
way arising out of this Agreement or the Escrow Agent's duties hereunder,
except as a result of its own gross negligence or bad faith. The foregoing
indemnities shall survive the resignation of the Escrow Agent or the
termination of this Agreement.
6. Fees. Buyer will pay all of the fees (as set forth on Annex A
attached hereto) and expenses of the Escrow Agent.
7. Resignation. The Escrow Agent (and any successor escrow agent) at any
time may be discharged from its duties and obligations hereunder by the
delivery to it of notice of termination signed by the Parties or at any time
may resign by giving written notice to such effect to the Parties. Upon any
such termination or resignation, the Escrow Agent shall deliver the Escrow
Funds to any successor escrow agent designated by the Parties in writing, or to
any court of competent jurisdiction in the State of Illinois if no such
successor escrow agent is agreed upon, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Agreement. The termination or resignation of the Escrow Agent shall
take effect on the earlier of (i) the appointment of a successor (including a
court of competent jurisdiction) or (ii) the day that is 30 days after the date
of delivery: (A) to the Escrow Agent of the Parties' notice of termination or
(B) to the Parties of the Escrow Agent's written notice of resignation. If at
that time the Escrow Agent has not received a designation of a successor escrow
agent, the Escrow Agent's sole responsibility after that time shall be to keep
the Escrow Funds safe until receipt of a
<PAGE> 18
designation of successor escrow agent or a joint written disposition
instruction by the Parties or an enforceable order of a court of competent
jurisdiction.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing, and shall be given by registered mail, postage
prepaid, personal delivery, telecopier (confirmed by mail as aforesaid) or
courier service such as Federal Express addressed as follows:
If to Buyer:
Gulf South Medical Supply, Inc.
426 Christine Drive
Ridgeland, MS 39157
Attn: Stanton Keith Pritchard, Esq.
Telecopier: (601) 853-4801
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: William B. Asher, Jr., Esq.
Telecopier: (617) 248-7100
If to Sellers:
c/o North American Fund II
c/o North American Company
111 E. Las Olas Blvd.
Fort Lauderdale, FL 33302
With a copy to:
McDermott, Will & Emery
227 West Monroe Avenue
Chicago, IL 60606
Attn: Helen Friedli, P.C.
Telecopier: (312) 984-3669
If to the Escrow Agent:
LaSalle National Trust, N.A.
135 South LaSalle Street, Suite 1825
Chicago, IL 60603
Attn: Estelita E. Tucker
Telecopier: (312) 904-2236
<PAGE> 19
Each of the parties hereto shall be entitled to specify a different
address by giving notice as aforesaid. Such notices and communications shall
be deemed effective (i) two business days after being sent, if sent by
registered mail (postage prepaid), (ii) on the date delivered, if delivered
personally or transmitted by telecopier with receipt electronically confirmed,
or (iii) one day after delivery by courier service such as Federal Express.
9. Miscellaneous. This Agreement shall be binding upon and inure solely
to the benefit of the parties hereto and their respective successors and
assigns and shall not be enforceable by or inure to the benefit of any other
third party except as provided with respect to the termination of, or
resignation by, the Escrow Agent. No party may assign any of its rights or
obligations under this Agreement without the written consent of the other
Parties. No waiver hereunder shall be effective unless in a writing signed by
the party to be charged. This Agreement may be amended, modified, superseded,
or canceled, and any of the terms hereof may be waived, only by a written
instrument executed by the parties hereto. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without reference to conflicts of laws.
10. Taxes. It is understood and agreed that, for federal, state, local
and foreign income tax purposes: (i) neither the Escrow Account (under Section
468B of the Internal Revenue Code of 1986, as amended (the "Code") or
otherwise), nor Buyer, shall be taxable on earnings attributable to the amount
deposited in the Escrow Account under Section 2 hereof, (ii) the Sellers shall
be taxable for such purposes on such earnings, and will report on their
federal, state and other tax returns all items of income and gain attributable
to the Escrow Account and the Escrow Agent shall be entitled to withhold, as
required by law, on all earnings hereunder, (iii) each of the Sellers will
deliver a valid taxpayer identification number or a valid Internal Revenue
Service Form W-8 to the Escrow Agent upon execution of this Escrow Agreement,
and shall comply with all other federal, state, local and foreign information
return and other reporting requirements as may be required by the Escrow Agent,
and (iv) in accordance with Rev. Rul. 73-451, 1973-2 C.B. 158, Rev. Rul.
77-294, 1977-2 C.B. 173 (as amplified by Rev. Rul. 79-91, 1979-1 C.B. 179), and
Private Letter Ruling 8629038 (April 18, 1996), as supplemented by Private
Letter Ruling 8640021 (July 1, 1986), the Sellers and Buyer recognize that the
establishment of the Escrow Account amounts to a substantial restriction on the
Sellers' rights to receive a portion of the purchase price under the Purchase
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be duly executed on the date and year first above written.
BUYER:
GULF SOUTH MEDICAL SUPPLY, INC.
By:
-----------------------------------
SELLERS:
NORTH AMERICAN FUND II
By:
-----------------------------------
ALLIED INVESTMENT CORPORATION
By:
-----------------------------------
ALLIED CAPITAL CORPORATION II
By:
-----------------------------------
ALLIED VENTURE PARTNERSHIP
By:
-----------------------------------
--------------------------------------
Gary Nutter
<PAGE> 21
ESCROW AGENT:
LASALLE NATIONAL TRUST N.A.
By:
-----------------------------------
<PAGE> 22
ANNEX A
Fees of Escrow Agent
<TABLE>
<S> <C>
Acceptance Fee: $500.00
Annual Administration Fee: $2,000.00
</TABLE>
Plus any out-of pocket costs advanced, and legal fees, if necessary. We do not
anticipate assessing these fees at this time.
Our fee proposal is based on the information received to date. Fees will be
adjusted accordingly if our duties change substantially.
