<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December, 1998
COVENTRY INDUSTRIES CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 0-22653 65-0353816
--------------- ----------- -------------------
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
7777 Glades Road, Boca Raton, Florida 33434
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 448-4802
N/A
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Items 1 and 2. Changes in Control of Registrant and Acquisition or Disposition
---------------------------------------------------------------
of Assets.
---------
On September 29, 1998 Coventry Industries, Corp. (the "Company")
entered into an Exchange Agreement (the Exchange Agreement") dated as of
September 29, 1998 with, BSD Healthcare Industries, Inc. ("BSD"), Stephen
Rosedale and Ronald Wilheim certain shareholders of BSD (the "BSD
Shareholders"), People First Staffing, LLC ("PF") and Stephen Rosedale and
Ronald Wilheim as the members of PF (the "Members").
The Exchange Agreement provides that the Company will acquire 80.1% of
BSD's outstanding capital stock from the BSD Shareholders in exchange for 19.95%
of the Company's outstanding Common Stock and that the Company will acquire all
of the membership interests of PF from the Members in exchange for Common Stock
of the Company that when aggregated with the shares issued to the BSD
Shareholders, will equal 80.1% of the Company's outstanding shares on the
closing date. Messrs. Rosedale and Wilheim continue to beneficially own
approximately 10% of the outstanding BSD capital stock and are the sole members
of PF.
The Exchange Agreement provides that the parties had a 60-day period
ending on November 30, 1998 to conduct due diligence and terminate the agreement
without any liability. On November 30, 1998, the BSD Shareholders informed the
Company that they had completed their due diligence and intended to close the
transaction upon satisfaction of the closing conditions set forth in the
Exchange Agreement. The closing occurred on December 7, 1998. At the BSD
closing, Mr. Rosedale was issued 756,800 shares of the Company's Common Stock
and Ronald Wilheim was issued 189,200 shares of the Company's Common Stock.
The Exchange Agreement provides that effective on the BSD closing, the
Company's board of directors will consist of eight directors and the BSD
shareholders will have the right to elect four directors. At the BSD closing,
Messrs. Rosedale, Wilheim requested that the Company defer their election to the
Board to some future date. The other two nominees have not been designated. Mr.
Rosedale will be elected Chairman of the Board and Robert Hausman will continue
to serve as the Company's President and Chief Executive Officer. Effective on
the PF closing, the BSD shareholders and PF members will have the right to elect
an additional director.
The closing of the PF acquisition is subject to the following
conditions: (i) the conversion of all of the Company's 5% Preferred into Common
Stock, (ii) approval of the Company's stockholders, (iii) the Company's Common
Stock will continue to be listed on the Nasdaq SmallCap Market, (iv) that PF has
acquired a sufficient number of operating contracts, (v) that the transaction be
a tax-free exchange for the members and (vi) customary closing conditions.
BSD provides respiratory care services and supplies to more than 200
long term care facilities, hospitals and home care companies primarily in the
midwestern and southern United States through its subsidiaries RCS Subacute,
Inc. and Respiratory Care Services, Inc. (collectively "RCS"). Respiratory care
is the diagnostic evaluation, treatment, management, control and care of
individuals with deficiencies and abnormalities associated with the
cardiopulmonary system. Many patients are now treated in a skilled nursing
facility instead of the hospital due to the current reimbursement system.
<PAGE>
The services are provided by RCS's pool of over 3,000 respiratory
therapists. RCS provides a comprehensive program that includes (i) skilled
medical respiratory care programs, (ii) ventilator and complex medical programs,
(iii) distribution and inventory management of disposable pulmonary medical
products and (iv) medical gases. These respiratory therapists perform a wide
variety of procedures, including oxygen therapy, bronchial hygiene, nebulizer
and aerosol treatments, tracheostomy care, ventilator management, patient
respiratory education and transportation of mechanically ventilated patients.
The Company also provides respiratory equipment and supplies to its clients.
PF was recently formed to develop an employee leasing business. At the
time of the acquisition of PF by the Company, PF is expected to have over 6,300
employees that will be leased to health care customers in over 24 states. The
completion of the PF acquisition will require approval by the Company's
shareholders. As of December 15, 1998, PF does not have any assets or
operations.
Upon the closing of the PF transaction, Stephen Rosedale and Ronald
Wilheim, the BSD Shareholders and Members, will together beneficially own 80.1%
of the outstanding common stock of the Company. Mr. Rosedale is Mr. Wilheim's
stepfather. Messrs. Rosedale and Wilheim will be deemed to control the Company.
At the BSD closing, Robert Hausman, Lester Gann, Ronald Wilheim,
Stephen Rosedale, Yucatan Holdings, Connie Steinmetz, Strategic Capital
Holdings, Inc. and Arizona Development Corporation (collectively, the
"Shareholders") entered into a Voting Agreement (the "Voting Agreement")
pursuant to which they agreed to vote the 3,777,961 shares of Coventry's common
stock beneficially owned by them for approval and adoption of the Exchange
Agreement (as amended from time to time), the PF transaction, the other
transactions contemplated by the Exchange Agreement and any other transactions
or items recommended by Coventry's Board of Directors, with such agreement to
vote to apply also to any adjournment of the Shareholder Meeting. Such shares
represent approximately 50.1% of the outstanding shares of the Company.
Mr. Hausman is the Company's President and Chief Executive Officer, Mr.
Gann is a director of the Company and president of the Company's Industrial
Fabrication and Repair subsidiary ("IFR"), Messrs. Rosedale and Wilheim were BSD
shareholders and are members of PF.
Item 5. Other Events
------------
Nasdaq Listing. On November 19, 1998, the Company received a letter
from the Nasdaq SmallCap Market stating that the Company's stock price has
failed to maintain a closing bid price of at least $1.00 for 30 days. The letter
stated that the Company had until February 19, 1999 to regain compliance with
this requirement or that the Common Stock would be subject to delisting. The
Company is considering various alternatives to bring it into compliance with the
Nasdaq maintenance standards prior to February 19, 1999 and expects to comply
prior to that date.
Gann Agreement. Effective November 9, 1998, the Company, IFR and Lester
Gann entered into an amendment to Mr. Gann's employment agreement pursuant to
which he serves as president of IFR. The Agreement was amended to provide that
the term would extend to November 9, 2001 as compared to May 1, 2001, that the
70,000 shares of the original signing bonus would be paid as of the PF closing,
and that Mr. Gann would be issued 665,000 shares of Common Stock in exchange for
waiving the "change of control" provisions of his agreement in connection with
the transactions described above and for modifying his ability to reacquire IFR
from the Company in certain cases.
2
<PAGE>
Hausman Agreement. Effective December 1, 1998, the Company and Robert
Hausman, the Company's President and Chief Executive Officer, entered into an
amendment to his Management Agreement pursuant to which his management fee was
raised to $131,000; provided that payments are being deferred until such time as
the Company raises at least $500,000 of new financing, and at such time the
Company shall pay Mr. Hausman the full amount of the deferral.
The Company also agreed to adjust the exercise price of Mr. Hausman's
options to purchase 200,000 shares of common stock of the Company at an exercise
prices of $5.00 and $4.00 per share to options to purchase 50,000 shares each
with exercise prices of $1.75, $2.00, $2.25 and $2.50 per share.
As of December 1, 1998, Mr. Hausman was owed approximately $282,000
consisting of accrued salary, accrued dividends on the Series E Preferred Stock
and loans to the Company. In order to repay such amount as promptly as
practicable, the Company agreed to issue a note (the "Note") to Mr. Hausman. The
Note will have the following terms: (i) bear interest at 8% per annum, (ii)
provide for 24 equal monthly installments of principal and interest that are
payable in either cash or the Company's Common Stock at the Company's option,
and (iii) provide for acceleration upon the termination of the Management
Agreement without cause.
Mr. Hausman and his wife own 115,000 shares of the Company's Series E
Preferred Stock (the "Preferred Stock"). Mr. Hausman and the Company have agreed
that the Preferred Stock will be exchanged for 1,150,000 shares of Common Stock,
of which 600,000 shares were exchanged simultaneously with the closing of the
BSD closing and the remaining 550,000 shares will be exchanged prior to the
closing of the PF closing. Effective on such exchange, Mr. Hausman's management
fee will be increased by $77,000, which amount is equal to the dividends on the
Preferred Stock. The Company agreed to use the net cash proceeds from the sale
of certain assets first to redeem any outstanding Preferred Stock and then to
repurchase Common Stock from Mr. Hausman at a price of $1.00 per share. The
Company and Mr. Hausman will agree to facilitate the sale of these shares of
Common Stock and Mr. Hausman will use these management fee proceeds, proceeds of
such sales and from asset sales to repay principal and interest on the Mr.
Hausman's loan from Chase Manhattan Bank in the approximate principal amount of
$1,115,000 (the "Loan"). The management fee will be reduced pro rata as Mr.
Hausman receives funds from the Company with respect to the sale of assets or
from the sale of Common Stock and the interest payments decrease.
Mr. Hausman and the Company also agreed not to invoke the "change in
control" provisions of Section 4 as a result of the transactions set forth in
the Exchange Agreement.
Other. In October 1998, the Company also issued 100,667 shares for
payment of legal fees to the Company's former law firm.
In addition, in November 1998, the Company issued an aggregate of
883,333 shares to 11 persons for consulting services, as compensation and as
settlement of certain obligations. Some of these shares were issued pursuant to
consulting agreements that are filed hereto as exhibits.
In December 1998, the Company entered into an agreement with Barron
Chase Securities to terminate the Investment Banking Agreement between the
Company and Barron Chase. As consideration for this release, the Company agreed
to reduce the exercise price of the 300,000 warrants to $.75 per warrant. Barron
Chase may have been entitled to receive a fee in connection with the
transactions described above.
3
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
See the Index to Historical and Pro Forma Financial Statements on
Pages F-1 and F-2
(c) Exhibits.
2.8 Exchange Agreement dated as of September 29, 1998 by and among
Coventry Industries, Inc. ("Coventry"), BSD Healthcare Industries,
Inc. ("BSD"), certain shareholders of BSD, People First LLC ("PF")
and the members of PF (the Exchange Agreement")
4.2 Termination and Amendment Agreement dated December 9, 1998 between
the Company and Barron Chase Securities, Inc.
4
<PAGE>
10.13 Amendment dated November 9, 1998 to Employment Agreement Dated May
1, 1998 Between Industrial Fabrication and Repair, Coventry
Industries Corp, and Lester Gann
10.14 Amendment dated as of December 1, 1998 to Management Agreement
dated July 1, 1997 and amended November 1, 1997 between the Company
and Robert Hausman.
10.15 Voting Agreement dated December 3, 1998 among Robert Hausman,
Lester Gann, Ronald Wilheim, Stephen Rosedale, Yucatan Holdings,
Connie Steinmetz, Strategic Capital Holdings, Inc. and Arizona
Development Corporation.
10.16 Consulting Agreement between the Company and Connie Steinmetz dated
as of November 2, 1998.
10.17 Consulting Agreement between the Company and Strategic Development
dated as of November 9, 1998.
5
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVENTRY INDUSTRIES CORP.
By:/s/ Robert Hausman
-------------------------------------
Robert Hausman,
President and Chief Executive Officer
Dated: December 18, 1998
6
<PAGE>
INDEX TO HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS
(Item 7)
PAGE
----
BSD HEALTHCARE INDUSTRIES, INC.:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-3
CONSOLIDATED:
BALANCE SHEETS
SEPTEMBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997 F-4
STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) F-5
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) F-6
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) F-7
NOTES TO FINANCIAL STATEMENTS F-8/14
RESPIRATORY CARE SERVICES, INC. AND RCS SUBACUTE, INC.:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-15
COMBINED:
BALANCE SHEETS
JANUARY 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997 F-16
STATEMENTS OF INCOME
MONTH ENDED JANUARY 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-17
STATEMENTS OF STOCKHOLDERS' EQUITY
MONTH ENDED JANUARY 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-18
STATEMENTS OF CASH FLOWS
MONTH ENDED JANUARY 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-19
NOTES TO FINANCIAL STATEMENTS F-20/25
F-1
<PAGE>
INDEX TO HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS (Concluded)
(Item 7)
PAGE
----
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS:
INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS F-26
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998 (Unaudited) F-27
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998 (Unaudited) F-28
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited) F-29
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (Unaudited) F-30/31
* * *
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders
BSD Healthcare Industries, Inc.
We have audited the accompanying combined balance sheet of BSD HEALTHCARE
INDUSTRIES, INC. as of December 31, 1997. This combined financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined balance sheet referred to above presents fairly, in
all material respects, the financial position of BSD Healthcare Industries, Inc.
as of December 31, 1997, in conformity with generally accepted accounting
principles.
J.H. COHN LLP
Roseland, New Jersey
July 17, 1998, except for Note 8 as of
which the date is December 7, 1998
F-3
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
September December
ASSETS 30, 1998 31, 1997
------- ----------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 96,976
Accounts receivable, net of allowance for doubtful accounts
of $203,765 1,419,552
Other current assets 157,443
-----------
Total current assets 1,673,971
Equipment, net of accumulated depreciation of $12,546 89,229
Goodwill, net of accumulated amortization of $237,314 1,542,544
-----------
Totals $3,305,744 $ --
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to bank under revolving credit facility $ 282,079
Accounts payable 254,032
Accrued expenses and other liabilities 211,609
-----------
Total current liabilities 747,720
Notes payable to bank under term loan 1,500,000
-----------
Total liabilities 2,247,720
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding
Common stock, $.001 par value; 50,000,000 shares
authorized; 1,751,005 and 1,000,000 shares issued
and outstanding 1,751 $ 1,000
Additional paid-in capital 867,884 9,000
Retained earnings (accumulated deficit) 188,389 (10,000)
----------- ------------
Total stockholders' equity 1,058,024 --
----------- ------------
Totals $3,305,744 $ --
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
Revenue $2,993,952
Costs of revenue 1,419,267
----------
Gross profit 1,574,685
----------
Operating expenses:
Selling 108,508
General and administrative 742,984
----------
Total 851,492
----------
Operating income 723,193
----------
Other expenses:
Amortization of goodwill 237,314
Interest 110,169
Other 45,021
----------
Total 392,504
----------
Income before provision for income taxes 330,689
Provision for income taxes 132,300
----------
Net income $ 198,389
==========
Basic earnings per share $.13
====
Basic weighted average common shares outstanding 1,564,112
==========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Addi-
------------ tional
Number Paid-in Retained
of Shares Amount Capital Earnings Total
--------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 1,000,000 $1,000 $ 9,000 $(10,000) $ -
Effect of 1 for 14.5 reverse stock
split (931,034) (931) 931
Proceeds from issuance of
common stock 1,682,039 1,682 857,953 859,635
Net income 198,389 198,389
--------- ------ -------- -------- ----------
Balance, September 30, 1998 1,751,005 $1,751 $867,884 $188,389 $1,058,024
========= ====== ======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
Operating activities:
Net income $ 198,389
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 12,546
Amortization of goodwill 237,314
Changes in operating assets and liabilities:
Accounts receivable (385,958)
Other current assets (132,670)
Accounts payable 63,858
Accrued expenses and other liabilities 148,254
----------
Net cash provided by operating activities 141,733
----------
Investing activities:
Purchase of businesses, net of cash acquired of $35,821 (2,361,416)
Purchases of equipment (14,055)
----------
Net cash used in investing activities (2,375,471)
----------
Financing activities:
Net repayments of short-term borrowings (28,921)
Proceeds from borrowings under term loan 1,500,000
Proceeds from issuance of common stock 859,635
----------
Net cash provided by financing activities 2,330,714
----------
Net increase in cash and cash equivalents 96,976
Cash and cash equivalents, beginning of period --
----------
Cash and cash equivalents, end of period $ 96,976
==========
Supplemental disclosure of cash flow data:
Interest paid $ 110,169
==========
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 1 - History and organization of the Company:
BSD Healthcare Industries, Inc. ("BSD") was incorporated in
Florida as Park Avenue Marketing, Inc. on February 7, 1989 to
serve as a "blind pool" or "blank check" company for the purpose
of either merging with or acquiring an operating company. BSD was
initially capitalized by its founders who purchased 68,966 shares
of common stock for $10,000 (share and per share amounts have
been retroactively restated, where appropriate, to reflect a 200
for 1 stock split effected by the Company on June 24, 1997 and a
1 for 14.5 reverse stock split effected by the Company on
February 2, 1998).
BSD did not conduct any operations of a commercial nature or have
any significant activities until February 1, 1998 when it
acquired 100% of the common stock of two commonly-controlled
companies, Respiratory Care Services, Inc. ("RCSI") and RCS
Subacute, Inc. ("Subacute"). RCSI and Subacute are referred to
collectively herein as "RCS," and BSD, RCS and Subacute are
referred to collectively herein as the "Company." As further
explained in Note 3, BSD has accounted for the acquisition of its
100% interest in RCS pursuant to the purchase method of
accounting in its historical consolidated financial statements
effective from February 1, 1998. Accordingly, the Company has not
included any statements of operations, changes in stockholders'
equity and statements of cash flows for the years ended December
31, 1997 and 1996 in the accompanying consolidated financial
statements.
BSD is a holding company. RCSI, which was incorporated on July 1,
1988, provides quality respiratory therapy staff in a variety of
health care settings. Subacute, which was incorporated on October
19, 1995, provides credentialed, licensed therapists experienced
in all phases of skilled and subacute respiratory care. These
services are provided primarily to Medicare patients.
Note 2 - Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of BSD and RCS and Subacute, its wholly-owned
subsidiaries, from February 1, 1998, the date they were
acquired. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Unaudited financial statements:
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of the Company as of September
30, 1998 and its results of operations, changes in
stockholders' equity and cash flows for the nine months then
ended. The results of the Company's operations for the nine
months ended September 30, 1998 are not necessarily indicative
of the results of operations for the full year ending December
31, 1998.
F-8
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 2 - Summary of significant accounting policies (concluded):
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Revenue recognition:
The Company recognizes revenue at the time staffing services
are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with a
maturity of three months or less when acquired.
Equipment:
Equipment is carried at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging
from five to 14 years.
Goodwill:
Goodwill, which is comprised of costs in excess of net assets
of acquired businesses, is being amortized on a straight-line
basis over an estimated useful life of five years. The Company
periodically evaluates the recoverability of its intangible
assets and measures the amount of impairment, if any, by
assessing, among other things, the market and economic
conditions related to, and the current and estimated future
levels of income and cash flows to be generated by, the
acquired businesses.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were not
material during the nine months ended September 30, 1998.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will results in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The income tax provision
or credit is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets
and liabilities.
F-9
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 2 - Summary of significant accounting policies (concluded):
Earnings per share:
The Company has presented "basic" earnings per share in the
accompanying consolidated statement of income for the nine
months ended September 30, 1998 in accordance with the
provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS 128"). SFAS 128 also requires
the presentation of "diluted" earnings per share if the amount
differs from basic earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted
average number of common shares outstanding during each
period. The calculation of diluted earnings per share is
similar to that of basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable
upon the exercise of stock options and warrants, were issued
during the period. The Company did not have any potentially
dilutive common shares outstanding during the nine months
ended September 30, 1998
Other recent accounting pronouncements:
The Financial Accounting Standards Board (the "FASB") has
issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"), which could require the Company to
make additional disclosures in its financial statements no
later than for the year ending December 31, 1999. SFAS 131
requires disclosures for each segment of a business and the
determination of segments based on its internal management
structure. Management is in the process of evaluating whether
SFAS 131 will require the Company to make any additional
disclosures.
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") has issued
Statement of Position No. 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use ("SOP
98-1"), which could require the Company to revise certain
accounting measurements and make additional disclosures in its
financial statements no later than for the year ending
December 31, 1999. SOP 98-1 defines internal use software and
modifies previous standards related to the capitalization,
amortization and write-off of costs related to the development
of such software. Management believes that the Company's
measurements and disclosures already substantially comply with
those required by SOP 98-1.
The FASB and ACSEC had issued certain other pronouncements as
of September 30, 1998 that will become effective in subsequent
periods; however, management does not believe that any of
those pronouncements will effect any financial accounting
measurements or disclosures the Company will be required to
make.
F-10
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 3 - Acquisition of RCS:
The Company acquired its 100% interest in RCS on February 1, 1998
in exchange for total consideration of $2,397,237 which was paid
in cash. The acquisition has been accounted for pursuant to the
purchase method and, accordingly, the results of operations of
RCS have only been included in the accompanying consolidated
statement of income from February 1, 1998.
The cost of acquiring RCS, which exceeded the fair value of the
net assets acquired by $1,779,858, was allocated as follows:
Cash and cash equivalents $ 35,821
Accounts receivable 1,033,594
Goodwill 1,779,858
Other current and noncurrent assets 112,493
Short-term notes payable (311,000)
Other current liabilities (253,529)
----------
Total cost of acquisition $2,397,237
==========
The following unaudited pro forma information (in thousands of
dollars, except for share and per share amounts) shows the
results of operations for the nine months ended September 30,
1998 and the year ended December 31, 1997 as though the
acquisition of RCS had been consummated on January 1, 1997:
1998 1997
------ ------
Revenue $3,345 $4,488
Costs of revenue 1,600 2,394
------ ------
Gross profit 1,745 2,094
Other expenses, net 1,287 1,863
------ ------
Income before income taxes 458 231
Provision for income taxes 183 94
------ ------
Net income $ 275 $ 137
====== ======
Basic earnings per share $ .16 $ .08
===== ======
Weighted average shares outstanding 1,751,005 1,751,005
========= =========
F-11
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 3 - Acquisition of RCS (concluded):
In addition to combining the historical results of operations of
BSD (which, as explained in Note 1, were not significant) and RCS
for each period, the unaudited pro forma results of operations
include adjustments to reflect for the entire period (i) the
amortization of the goodwill recorded in connection with the
acquisition of RCS based on an estimated useful life of five
years, (ii) interest expense on the term loan obtained by the
Company to finance the acquisition (see Note 4), and (iii)
provisions for income taxes at a 40% effective rate based on the
applicable statutory state and Federal income tax rates (no
provision had been made in the historical statements of
operations of RCS because RCSI and Subacute had elected to be
treated as "S" corporations).
The unaudited pro forma results of operations set forth above do
not purport to represent what the combined results of operations
actually would have been if the acquisition of RCS had been
consummated on January 1, 1997 instead of February 1, 1998 or
what the results of operations would be for any future periods.
Note 4 - Notes payable to bank:
During the nine months ended September 30, 1998, the Company
obtained a $2,000,000 revolving credit facility and a $1,500,000
term loan from a bank pursuant to which interest is payable
monthly at 2.5% above the prime rate (an effective rate of 10.75%
at September 30, 1998).
Borrowings under the revolving credit facility, which expires in
February 2000, are limited to 80% of the outstanding balance of
the Company's eligible accounts receivable and are secured by all
of its accounts receivable. Borrowings under the revolving credit
facility totaled $282,079 at September 30, 1998. Since such
borrowings are limited based on accounts receivable balances,
they are classified as a current liability in the accompanying
consolidated balance sheet.
The entire $1,500,000 balance of the term loan is payable in
February 2000 and, accordingly, is classified as a noncurrent
liability in the accompanying consolidated balance sheet.
Borrowings under the term loan are cross-collateralized by the
accounts receivable securing the revolving credit facility and
secured by all of the other available assets of the Company. They
are also collateralized by a pledge by an affiliated company to
contribute $500,000 to the Company's capital under certain
conditions.
F-12
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 5 - Income taxes:
The provision for income taxes for the nine months ended
September 30, 1998 was comprised as follows:
Federal - current $112,400
State - current 19,900
--------
Total $132,300
========
A reconciliation of the Federal statutory income tax rate of 34%
to the effective rate for the provision for income taxes for the
nine months ended September 30, 1998 follows:
Provision at Federal statutory rate 34%
State income taxes, net of Federal income tax effect 6
--
Effective rate 40%
==
Note 6 - Commitments and contingencies:
Leases:
The Company has been utilizing its office space under
month-to-month and other short-term leases while it negotiates
a new lease with its landlord for additional space. Rent
expense charged to operations approximated $45,000 for the
nine months ended September 30, 1998.
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, the resolution of these proceedings
will not have a material adverse effect on the consolidated
financial position or results of operations of the Company in
subsequent years.
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high quality financial
institutions. At times, balances exceed Federally insured
limits. The Company generally extends credit to its customers,
substantially all of whom are located in the midsection of the
United States. Management of the Company closely monitors the
extension of credit to customers while maintaining allowances
for potential credit losses. During the nine months ended
September 30, 1998, no customer accounted for more than 10% of
the Company's revenue. Generally, the Company does not have a
significant receivable from any single customer and,
accordingly, management does not believe that the Company was
exposed to any significant credit risk at September 30, 1998.
F-13
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months then Ended is Unaudited)
Note 7 - Fair value of financial instruments:
The Company's material financial instruments at September 30,
1998 for which disclosure of estimate fair value is required by
certain accounting standards consisted of cash and cash
equivalents, accounts receivable, accounts payable and notes
payable. In the opinion of management, (i) cash and cash
equivalents, accounts receivable and accounts payable were
carried at values that approximated their fair values because of
their liquidity and/or their short-term maturities and (ii) notes
payable were carried at values that approximated their fair
values because they had interest rates equivalent to those
currently prevailing for financial instruments with similar
characteristics.
Note 8 - Subsequent event:
On December 7, 1998, Coventry Industries Corp., a publicly-traded
company, purchased 80.1% of the common stock of BSD.
* * *
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Directors and Stockholders
Respiratory Care Services, Inc. and
RCS Subacute, Inc.
We have audited the accompanying combined balance sheets of RESPIRATORY CARE
SERVICES, INC. and RCS SUBACUTE, INC. as of December 31, 1997 and 1996, and the
related combined statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Respiratory Care
Services, Inc. and RCS Subacute, Inc. as of December 31, 1997 and 1996, and
their results of operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
J.H. COHN LLP
Roseland, New Jersey
July 17, 1998
F-15
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED BALANCE SHEETS
JANUARY 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
January December
ASSETS 31, 1998 31, 1997
------ -------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,821 $ 17,048
Accounts receivable, net of allowance for doubtful accounts
of $203,765 1,033,594 1,070,402
Other current assets 24,773 15,058
----------- ----------
Total current assets 1,094,188 1,102,508
Equipment, net of accumulated depreciation of $21,065 and
$19,640 87,720 88,123
----------- ----------
Totals $1,181,908 $1,190,631
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to bank $ 311,000 $ 295,000
Accounts payable 190,174 281,755
Accrued expenses and other liabilities 63,355 57,026
----------- ----------
Total liabilities 564,529 633,781
----------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock:
Respiratory Care Services, Inc., no par value; 1,000 shares
authorized, issued and outstanding 2,205 2,205
RCS Subacute, Inc., no par value; 1,000 shares authorized,
issued and outstanding 1,000 1,000
Retained earnings 789,174 728,645
Treasury stock of RCS Subacute, Inc. - 200 shares, at cost (175,000) (175,000)
----------- ----------
Total stockholders' equity 617,379 556,850
----------- ----------
Totals $1,181,908 $1,190,631
========== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-16
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF INCOME
MONTH ENDED JANUARY 31, 1998 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Month Years Ended
Ended December 31,
January ----------------------------
31, 1998 1997 1996
--------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Revenue $351,052 $4,488,152 $2,534,465
Costs of revenue 180,856 2,394,491 1,484,290
-------- ---------- ----------
Gross profit 170,196 2,093,661 1,050,175
-------- ---------- ----------
Operating expenses:
Selling 10,693 153,434 72,365
General and administrative 96,991 1,193,650 643,034
-------- ---------- ----------
Totals 107,684 1,347,084 715,399
-------- ---------- ----------
Operating income 62,512 746,577 334,776
-------- ---------- ----------
Other income (expense):
Interest expense (1,983) (6,665) (1,381)
Other 1,360 39,312
-------- ---------- ----------
Totals (1,983) (5,305) 37,931
-------- ---------- ----------
Income before provision (credit) for income taxes 60,529 741,272 372,707
Provision (credit) for income taxes (112,811) 149,171
-------- ---------- ----------
Net income $ 60,529 $ 854,083 $ 223,536
======== ========== ==========
Historical income before income taxes $ 60,529 $ 741,272
Unaudited pro forma adjusted to eliminate effects
of "S" corporation election:
Provision for income taxes 24,212 296,064
-------- ----------
Net income $ 36,317 $ 445,208
======== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-17
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
MONTH ENDED JANUARY 31, 1998 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Respiratory Care Treasury
Services, Inc. RCS Subacute, Inc. Stock of
----------------------- ------------------------ RCS Total
Number of Number of Retained Subacute, Stockholders'
Shares Amount Shares Amount Earnings Inc. Equity
------------- --------- ----------- ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,000 $2,205 1,000 $1,000 $ 95,701 $ 98,906
Dividends (100,960) (100,960)
Repurchase of 100 shares of
common stock $ (55,000) (55,000)
Net income 223,536 223,536
----- ------ ----- ------ -------- --------- ---------
Balance, December 31, 1996 1,000 2,205 1,000 1,000 218,277 (55,000) 166,482
Dividends (343,715) (343,715)
Repurchase of 100 shares of
common stock (120,000) (120,000)
Net income 854,083 854,083
----- ------ ----- ------ -------- --------- ---------
Balance, December 31, 1997 1,000 2,205 1,000 1,000 728,645 (175,000) 556,850
Net income 60,529 60,529
----- ------ ----- ------ -------- --------- ---------
Balance, January 31, 1998 1,000 $2,205 1,000 $1,000 $789,174 $(175,000) $ 617,379
===== ====== ===== ====== ======== ========= =========
</TABLE>
See Notes to Combined Financial Statements.
F-18
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF CASH FLOWS
MONTH ENDED JANUARY 31, 1998 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Month Years Ended
Ended December 31,
January -------------------------
31, 1998 1997 1996
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Operating activities:
Net income $60,529 $854,083 $223,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,425 14,593 4,532
Provision for bad debts 190,765 13,000
Deferred income taxes (120,000) 120,000
Changes in operating assets and liabilities:
Accounts receivable 36,808 (778,383) (326,759)
Other current assets (9,715) (6,189) (8,869)
Accounts payable (91,581) 82,576 129,412
Accrued expenses and other liabilities 6,329 (81,112) 64,222
------- -------- --------
Net cash provided by operating activities 3,795 156,333 219,074
------- -------- --------
Investing activities - purchases of equipment (1,022) (21,054) (67,964)
------- -------- --------
Financing activities:
Net proceeds from line of credit borrowings 16,000 295,000
Purchases of treasury stock (120,000)
Dividends (343,715) (100,960)
------- -------- --------
Net cash provided by (used in) financing
activities 16,000 (168,715) (100,960)
------- -------- --------
Net increase (decrease) in cash and cash equivalents 18,773 (33,436) 50,150
Cash and cash equivalents, beginning of year 17,048 50,484 334
------- -------- --------
Cash and cash equivalents, end of year $35,821 $ 17,048 $ 50,484
======= ======== ========
Supplemental disclosure of cash flow data:
Interest paid $ 1,983 $ 6,665 $ 1,381
======= ======== ========
Income taxes paid $ 28,018 $ 1,301
======== ========
</TABLE>
See Notes to Combined Financial Statements.
F-19
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 1 - Description of business and summary of accounting policies:
Business:
Respiratory Care Services, Inc. ("RCS"), which was
incorporated on July 1, 1988, provides quality respiratory
therapy staff in a variety of health care settings. RCS
Subacute, Inc. ("Subacute"), which was incorporated on
October 19, 1995, provides credentialed, licensed therapists
experienced in all phases of skilled and subacute
respiratory care. These services are provided primarily to
Medicare patients.
Principles of combination:
The accompanying combined financial statements include the
accounts of RCS and Subacute which are affiliated by common
ownership. All significant intercompany accounts and
transactions have been eliminated in combination. RCS and
Subacute are referred to together herein as the "Company."
Unaudited financial statements:
In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to
present fairly the financial position of the Company as of
January 31, 1998 and its results of operations, changes in
stockholders' equity and cash flows for the month then
ended. The results of the Company's operations for the month
ended January 31, 1998 are not necessarily indicative of the
results of operations for the full year ending December 31,
1998.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Revenue recognition:
The Company recognizes revenue at the time staffing services
are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with
a maturity of three months or less when acquired.
Equipment:
Equipment is carried at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging
from five to 14 years.
F-20
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 1 - Description of business and summary of accounting policies (continued):
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
not material during the month ended January 31, 1998 and the
years ended December 31, 1997 and 1996.
Income taxes:
Effective January 1, 1997, RCS and Subacute, with the
consent of their stockholders, elected to be treated as "S"
corporations under the applicable sections of the Internal
Revenue Code whereby the income or loss of RCS and Subacute
is allocated to their stockholders for inclusion in their
personal Federal income tax returns. As a result, there are
no provisions for Federal income taxes in the accompanying
historical combined financial statements.
RCS and Subacute have also elected to be treated as "S"
corporations for state income tax purposes. However, certain
states impose a tax on "S" corporation income at a reduced
rate and, accordingly, there are provisions for state income
taxes in certain of the accompanying historical combined
financial statements.
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets
to the amount expected to be realized. The income tax
provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in
deferred tax assets and liabilities.
Other recent accounting pronouncements:
The Financial Accounting Standards Board (the "FASB") has
issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"), which could require the Company to
make additional disclosures in its financial statements no
later than for the year ending December 31, 1999. SFAS 131
requires disclosures for each segment of a business and the
determination of segments based on its internal management
structure. Management is in the process of evaluating
whether SFAS 131 will require the Company to make any
additional disclosures.
F-21
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 1 - Description of business and summary of accounting policies (concluded):
Other recent accounting pronouncements (concluded):
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") has
issued Statement of Position No. 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal
Use ("SOP 98-1"), which could require the Company to revise
certain accounting measurements and make additional
disclosures in its financial statements no later than for
the year ending December 31, 1999. SOP 98-1 defines internal
use software and modifies previous standards related to the
capitalization, amortization and write-off of costs related
to the development of such software. Management believes
that the Company's measurements and disclosures already
substantially comply with those required by SOP 98-1.
The FASB and ACSEC had issued certain other pronouncements
as of January 31, 1998 that will become effective in
subsequent periods; however, management does not believe
that any of those pronouncements will effect any financial
accounting measurements or disclosures the Company will be
required to make.
Note 2 - Notes payable to bank:
On September 5, 1997, RCS and Subacute entered into revolving
credit agreements whereby they may borrow up to $100,000 and
$350,000, respectively, against their eligible accounts
receivable through September 1, 1998. Borrowings bear interest,
which is payable monthly, at 2% above a specified prime rate (an
effective rate of 10.5% as of January 31, 1998 and December 31,
1997). Borrowings are cross-guaranteed by RCS and Subacute and
guaranteed by their principal stockholder. The revolving credit
agreements contain certain restrictive covenants which, among
other things, effectively limit the Company's ability to incur
additional bank debt and sell or dispose of certain assets.
As of January 31, 1998 and December 31, 1997, outstanding
borrowings, which arose from loans made to Subacute, totaled
$311,000 and $295,000, respectively, and were secured by
substantially all of the Company's assets.
F-22
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 3 - Income taxes:
The historical provision (credit) for income taxes was comprised
as follows:
Month Years Ended
Ended December 31,
January ----------------------------
31, 1998 1997 1996
-------- -------- --------
Federal:
Current $ 18,763
Deferred $ (97,000) 97,000
---------- ----------
Totals (97,000) 115,763
----------- ---------
State:
Current 7,189 10,408
Deferred (23,000) 23,000
----------- ----------
Totals (15,811) 33,408
----------- -----------
Totals $ - $(112,811) $149,171
======== ========= ========
As explained in Note 1, RCS and Subacute elected to be taxed as
"S" corporations for Federal and state income purposes effective
January 1, 1997. Accordingly, the Company was not required to
provide for Federal income taxes, and was required to provide
for state income taxes at reduced rates, during the year ended
December 31, 1997. Prior to making the "S" corporation
elections, the Company accrued deferred tax liabilities as a
result of elections that had been made to utilize a modified
accrual basis of accounting for income tax purposes. As a result
of the "S" corporation elections, the deferred tax liabilities
were reversed and reflected as credits to income taxes in 1997.
The Company's unaudited pro forma provision for income taxes for
the month ended January 31, 1998 and year ended December 31,
1997, assuming RCS and Subacute had not elected to be taxed as
"S" corporations, would have been comprised as follows:
Month
Ended Year Ended
January December
31, 1988 31, 1997
-------- --------
Current:
Federal $20,580 $229,350
State 3,632 66,714
------- --------
Totals $24,212 $296,064
======= ========
F-23
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 3 - Income taxes (concluded):
A reconciliation of the Federal statutory rate of 34% to the
effective rate for the unaudited pro forma provision for income
taxes for the month ended January 31, 1998 and the year ended
December 31, 1997 and the historical provision for income taxes
for the year ended December 31, 1996 follows:
Month Years Ended
Ended December 31,
January --------------
31, 1998 1997 1996
-------- ---- ----
Provision at Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of Federal
income tax effect 6.0 5.9 5.9
Other .1
---- ---- ----
Effective rates 40.0% 39.9% 40.0%
==== ==== ====
Note 4 - Commitments and contingencies:
Leases:
The Company has been utilizing its office space under
month-to-month and other short-term leases while it
negotiates a new lease with its landlord for additional
space. Rent expense charged to operations approximated
$1,800, $22,100 and $18,600 for the month ended January 31,
1998 and the years ended December 31, 1997 and 1996,
respectively.
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, the resolution of these proceedings
will not have a material adverse effect on the combined
financial position or results of operations of the Company
in subsequent years.
F-24
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of January 31, 1998 and for the
Month then Ended is Unaudited)
Note 4 - Commitments and contingencies (concluded):
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with high quality
financial institutions. At times, balances exceed Federally
insured limits. The Company generally extends credit to its
customers, substantially all of whom are located in the
midsection of the United States. Management of the Company
closely monitors the extension of credit to customers while
maintaining allowances for potential credit losses. During
the month ended January 31, 1998 and the year ended December
31, 1997, no customer accounted for more than 10% of the
Company's revenue. During the year ended December 31, 1996,
one customer accounted for approximately 12% and another
customer accounted for approximately 11% of the Company's
revenue. Generally, however, the Company does not have a
significant receivable from any single customer and,
accordingly, management does not believe that the Company
was exposed to any significant credit risk at January 31,
1998 and December 31, 1997.
Note 5 - Repurchase of common stock:
Subacute repurchased 100 shares of its outstanding common stock
in the year ended December 31, 1997 for $120,000 which was paid
in cash. It also repurchased 100 shares in the year ended
December 31, 1996 for $55,000 by issuing a noninterest bearing
note payable (this was a noncash transaction and, accordingly,
it was not was not included in the 1996 combined statement of
cash flows).
Note 6 - Fair value of financial instruments:
The Company's material financial instruments at January 31, 1998
and December 31, 1997 for which disclosure of estimated fair
value is required by certain accounting standards consisted of
cash and cash equivalents, accounts receivable, accounts payable
and notes payable. In the opinion of management, (i) cash and
cash equivalents, accounts receivable and accounts payable were
carried at values that approximated their fair values because of
their liquidity and/or their short-term maturities and (ii)
notes payable were carried at values that approximated their
fair values because they had interest rates equivalent to those
currently prevailing for financial instruments with similar
characteristics.
Note 7 - Subsequent event:
On February 1, 1998, BSD Healthcare Industries, Inc., a
newly-formed holding company, purchased 100% of the common stock
of both RCS and Subacute from their respective stockholders.
F-25
<PAGE>
COVENTRY INDUSTRIES CORP.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
On December 7, 1998, Coventry Industries Corp. ("Coventry" or the "Company")
consummated an agreement whereby it acquired 80.1% of the issued and outstanding
shares of common stock of BSD Healthcare Industries, Inc. ("BSD") in exchange
for 946,000 shares of common stock (or approximately 19.95% of Coventry's
outstanding common shares). BSD was incorporated in 1989 as a "blind pool" or
"blank check" company for the purpose of either merging with or acquiring an
operating company. BSD did not conduct any operations of a commercial nature or
have any significant activities until February 1, 1998 when it acquired 100% of
the common stock of two commonly-controlled companies, Respiratory Care
Services, Inc. and RCS Subacute, Inc., which are referred to collectively herein
as "RCS." Conventry will account for the acquisition of its 80.1% interest in
BSD pursuant to the purchase method of accounting in its historical financial
statements effective from December 7, 1998. BSD has accounted for the
acquisition of its 100% interest in RCS pursuant to the purchase method of
accounting in its historical financial statements effective from February 1,
1998.
Conventry uses June 30th for its fiscal year end. BSD and RCS used December 31st
for their fiscal year end. The accompanying unaudited pro forma condensed
balance sheet combines the historical unaudited consolidated balance sheet of
Coventry and its subsidiaries as of September 30, 1998 and the historical
unaudited consolidated balance sheet of BSD and its subsidiaries as of September
30, 1998 as if the acquisition of the 80.1% interest in BSD had been consummated
on that date. The accompanying unaudited pro forma condensed statement of
operations for the year ended June 30, 1998 combines (i) the historical audited
consolidated statement of operations of Coventry and its subsidiaries for the
year ended June 30, 1998 (excluding the results of operations that were
discontinued by Coventry during 1998) and (ii) the historical unaudited
consolidated statement of operations of BSD for the year ended June 30, 1998,
which includes the results of operations of RCS for the period from February 1,
1998 (the date of its acquisition) to June 30, 1998, and the historical
unaudited combined statement of operations of RCS for the period from July 1,
1997 to January 31, 1998 as if the acquisitions of BSD and RCS had been
consummated as of July 1, 1997. The accompanying unaudited pro forma condensed
statement of operations for the three months ended September 30, 1998 combines
the historical unaudited consolidated statement of operations of Coventry and
its subsidiaries and BSD for the three months ended September 30, 1998
(including RCS for the entire period) as if the acquisition of BSD had been
consummated as of July 1, 1998.
The accompanying unaudited pro forma condensed combined financial statements are
based on the assumptions and adjustments described in the accompanying notes
which management believes are reasonable. The unaudited pro forma condensed
combined financial statements do not purport to represent what the combined
financial position and results of operations actually would have been if the
acquisitions referred to above had occurred as of the dates indicated instead of
the actual dates of consummation or what the financial position and results of
operations would be for any future periods. The unaudited pro forma condensed
combined financial statements and the accompanying notes should be read in
conjunction with the audited and unaudited historical financial statements of
BSD and RCS included elsewhere herein and the audited and unaudited historical
financial statements of Coventry included in its annual report on Form 10-KSB
for the year ended June 30, 1998 and its quarterly report on Form 10-QSB for the
three months ended September 30, 1998 previously filed with the Securities and
Exchange Commission which are incorporated herein by reference.
F-26
<PAGE>
COVENTRY INDUSTRIES CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Coventry Historical
Pro Forma Pro Forma -----------------------------
ASSETS Combined Adjustments Coventry BSD
------ -------- ----------- -------- ---
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 238,886 $ 141,910 $ 96,976
Accounts receivable, net 2,527,398 1,107,846 1,419,552
Inventory 866,550 866,550
Other current assets 354,024 196,581 157,443
----------- ------------ ----------
Total current assets 3,986,858 2,312,887 1,673,971
Property, plant and equipment, net of
accumulated depreciation 2,820,927 2,731,698 89,229
Goodwill, net of accumulated amortization 2,859,424 $ (57,274) (A) 1,374,154 1,542,544
Other assets 633,868 633,868
----------- ------------ ------------ ----------
Totals $10,301,077 $ (57,274) $ 7,052,607 $3,305,744
=========== ============ ============= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Current portion of long-term debt $ 431,095 $ 431,095
Notes payable 779,386 497,307 $ 282,079
Accounts payable and accrued expenses 1,722,195 1,256,554 465,641
Note payable to former stockholder 151,524 151,524
----------- ------------ ----------
Total current liabilities 3,084,200 2,336,480 747,720
Long-term debt, net of current portion 1,835,048 335,048 1,500,000
Minority interest 123,000 $ 123,000 (B)
----------- ---------- ------------ ----------
Total liabilities 5,042,248 123,000 2,671,528 2,247,720
----------- ---------- ------------ ----------
Stockholders' equity:
Preferred stock 146 146
Common stock:
Coventry (3,032,797 shares out-
standing; 3,978,797 shares
to be outstanding) 3,979 946 (C) 3,033
BSD (1,751) (C) 1,751
Additional paid-in capital 22,275,791 8,920 (C) 21,398,987 867,884
Unearned compensation and advertising
fees (2,311,292) (2,311,292)
Accumulated deficit (14,709,795) (188,389) (C) (14,709,795) 188,389
----------- ---------- ------------ ----------
Total stockholders' equity 5,258,829 (180,274) 4,381,079 1,058,024
----------- ---------- ------------ ----------
Totals $10,301,077 $ (57,274) $ 7,052,607 $3,305,744
=========== ========== ============ ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-27
<PAGE>
COVENTRY INDUSTRIES CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
Coventry BSD
Pro Forma (July 1, (July 1,
----------------------------- 1997 to 1997 to
June 30, June 30,
Combined Adjustments 1998) 1998)
-------- ----------- ----- -----
<S> <C> <C> <C> <C>
Revenue $12,084,635 $ 7,869,981 $4,214,654
Cost of revenue 8,647,453 6,532,924 2,114,529
------------ ----------- ----------
Gross profit 3,437,182 1,337,057 2,100,125
------------ ----------- ----------
Selling, general and administrative expenses 4,664,658 3,282,576 1,382,082
Marketing and public relations 3,710,714 3,710,714
Depreciation and amortization 679,322 $ (78,917) (4) 402,268 355,971
------------ ---------- ----------- ----------
Totals 9,054,694 (78,917) 7,395,558 1,738,053
------------ ---------- ----------- ----------
Operating income (loss) (5,617,512) 78,917 (6,058,501) 362,072
------------ ---------- ----------- ----------
Other income (expense):
Interest expense (398,032) (216,061) (181,971)
Other (724,669) (719,984) (4,685)
------------ ----------- ----------
Totals (1,122,701) (936,045) (186,656)
------------ ----------- ----------
Income (loss) before provision
(credit) for income taxes (6,740,213) 78,917 (6,994,546) 175,416
Provision (credit) for income taxes (79,015) 31,567 (5) (180,750) 70,168
------------ ---------- ----------- ----------
Income (loss) from continuing
operations (6,661,198) 47,350 (6,813,796) 105,248
Dividends paid 114,835 114,835
------------ ---------- ----------- ----------
Income (loss) from continuing operations
applicable to common stock $ (6,776,033) $ 47,350 $(6,928,631) $ 105,248
============ ========== =========== ===========
Basic loss from continuing operations
per share $(1.90) $(2.64)
====== ======
Weighted average shares outstanding 3,575,148 946,000 (6) 2,629,148
========= ======= =========
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Historical
----------------------------
BSD RCS
(July 1, (July 1,
1997 to 1997 to
Pro Forma June 30, January
Adjustments 1998) 31, 1998)
----------- ----- ---------
<S> <C> <C> <C>
Revenue $1,773,391 $2,441,263
Cost of revenue 836,750 1,277,779
---------- ----------
Gross profit 936,641 1,163,484
---------- ----------
Selling, general and administrative expenses 529,952 852,130
Marketing and public relations
Depreciation and amortization $ 355,971 (1)
---------- ---------- ----------
Totals 355,971 529,952 852,130
---------- ---------- ----------
Operating income (loss) (355,971) 406,689 311,354
---------- ---------- ----------
Other income (expense):
Interest expense (96,250) (2) (57,610) (28,111)
Other (22,739) 18,054
---------- ---------- ----------
Totals (96,250) (80,349) (10,057)
---------- ---------- ----------
Income (loss) before provision
(credit) for income taxes (452,221) 326,340 301,297
Provision (credit) for income taxes (60,368) (3) 130,536
---------- ---------- ----------
Income (loss) from continuing
operations (391,853) 195,804 301,297
Dividends paid
---------- ---------- ----------
Income (loss) from continuing operations
applicable to common stock $ (391,853) $ 195,804 $ 301,297
========== =========== ===========
Basic loss from continuing operations
per share
Weighted average shares outstanding
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-28
<PAGE>
COVENTRY INDUSTRIES CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Coventry Historical
Pro Forma Pro Forma ----------------------------
Combined Adjustments Coventry BSD
-------- ----------- -------- ---
<S> <C> <C> <C> <C>
Revenue $2,836,156 $1,615,595 $1,220,561
Cost of revenue 1,733,137 1,150,620 582,517
---------- ---------- ----------
Gross profit 1,103,019 464,975 638,044
---------- ---------- ----------
Operating expenses:
Selling, general and administrative
expenses 838,344 516,804 321,540
Depreciation and amortization 153,659 $ (19,729) (4) 84,395 88,993
---------- ---------- ---------- ----------
Totals 992,003 (19,729) 601,199 410,533
---------- ---------- ---------- ----------
Operating income (loss) 111,016 19,729 (136,224) 227,511
---------- ---------- ---------- ----------
Other expense:
Interest 95,659 43,100 52,559
Other 22,283 22,283
---------- ---------- ----------
Totals 117,942 43,100 74,842
---------- ---------- ----------
Income (loss) before provision for
income taxes (6,926) 19,729 (179,324) 152,669
Provision for income taxes (61,800) (5) 61,800
---------- ---------- ---------- ----------
Net income (loss) (6,926) 81,529 (179,324) 90,869
Preferred stock dividends (34,875) (34,875)
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock $ (41,801) $ 81,529 $ (214,199) $ 90,869
========== ========== ========== ==========
Basic net income (loss) per share $ (.01) $(.07)
======= =====
Weighted average common shares
outstanding 3,978,797 946,000 (6) 3,032,797
========= ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-29
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Purchase of BSD by Coventry:
Information with respect to the cost incurred by Coventry to acquire BSD on
December 7, 1998 and the expected allocation of such estimated costs in
accordance with the purchase method of accounting follows:
Issuance of 946,000 shares of common stock with an
estimated fair value of $.875 per share based on
the market value of Coventry's shares at the
date of acquisition $ 827,750
Estimated legal, accounting and other costs related to
the purchase 50,000
---------
Total cost to be allocated $ 877,750
=========
Historical carrying value of assets acquired 3,305,744
Less carrying value of goodwill (1,542,544)
---------
Cost allocated to fair value of assets acquired 1,763,200
Fair value of liabilities assumed (2,247,720)
Minority interest (123,000)
Excess of cost over fair value of net assets acquired allocated
to goodwill 1,485,270
---------
Total purchase price allocated $ 877,750
=========
Pro Forma Adjustments to the Unaudited Condensed Combined Balance Sheet as of
September 30, 1998:
(A) To record the net effect of the elimination of the historical net
carrying value of BSD's goodwill of $1,542,544 and the allocation of
$1,485,270 to goodwill as a result of Coventry's acquisition of BSD.
(B) To record the 19.9% minority interest in BSD.
(C) To record the issuance of 946,000 shares of Coventry common stock issued
to acquire 80.1% of the outstanding common stock of BSD at $827,750 based
on the market value of Coventry's shares at the date of acquisition and
eliminate the historical equity accounts of BSD.
F-30
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Adjustments to the Unaudited Condensed Combined Statements of
Operations for the Year Ended June 30, 1998 and the Three Months Ended September
30, 1998:
(1) To record the amortization of $1,770,858 allocated by BSD to goodwill in
connection with the acquisition of RCS for the period from July 1, 1997 to
January 31, 1998.
(2) To record the interest at 2.5% above the prime rate on notes payable of
$1,500,000 issued by BSD to a bank in connection with the acquisition of RCS
for the period from July 1, 1997 to January 31, 1998.
(3) To adjust BSD's pro forma provision for income tax for the period from July
1, 1997 to June 30, 1998 to reflect a 40% effective rate based on the
applicable statutory state and Federal income tax rates. No provision was
made in the historical statement of operations of RCS for the period from
July 1, 1997 to January 31, 1998 because Respiratory Care Services, Inc. and
RCS Subacute, Inc. had elected to be treated as "S" corporations.
(4) To adjust Coventry's pro forma combined depreciation and amortization for
the net effect of the elimination of the historical net carrying value of
BSD's goodwill of $1,542,544 and the allocation of $1,485,270 to goodwill as
a result of Coventry's acquisition of BSD. The goodwill resulting from the
acquisition of BSD will be amortized over a period of five years.
(5) To adjust Coventry's pro forma provision for income tax for the period from
July 1, 1997 to June 30, 1998 to reflect a 40% effective rate based on the
applicable statutory state and Federal income tax rates.
(6) To increase the weighted average number of Coventry's shares outstanding
based on the assumption that the 946,000 shares issued by Coventry to
acquire BSD would have been outstanding during the year ended June 30, 1998
and the three months ended September 30, 1998.
F-31
<PAGE>
EXHIBIT 2.8
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of September 29, 1998, by and among
COVENTRY INDUSTRIES, INC., a Florida corporation ("Coventry"), BSD HEALTHCARE
INDUSTRIES, INC., a Florida corporation ("BSD"), the Shareholders of BSD as set
forth on Schedule "A" attached hereto and made a part hereof (individually a
"Shareholder" and collectively, the "Shareholders"), PEOPLE FIRST STAFFING LLC,
an Ohio limited liability company ("PF"), and the Members of PF listed on
Schedule "B" attached hereto and made a part hereof (individually a "Member" and
collectively, the "Members").
WHEREAS, Coventry is a corporation organized under the laws of the
State of Florida and is responsible for filing certain reports with the
Securities and Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934;
WHEREAS, BSD operates a respiratory therapy and respiratory therapy
management business through its wholly owned subsidiaries, Respiratory Care
Services, Inc., an Indiana corporation ("RCS"), and RCS Subacute, Inc., also an
Indiana corporation ("RCSS");
WHEREAS, the Shareholders own an aggregate of 1,402,555 shares (or
80.10%) of the outstanding common stock of BSD (the "BSD Shares");
WHEREAS, at the time of the Second Closing (as hereinafter defined), PF
will be an employee leasing company which will have significant long-term
contracts for such services covering approximately six thousand (6,000)
employees;
WHEREAS, the Members own one hundred percent (100%) of the membership
interests in PF (the "PF Membership Interests");
WHEREAS, Coventry wishes to issue a number of shares equal to 19.95% of
its outstanding shares of common stock (the "BSD Consideration") to the
Shareholders in exchange for the BSD Shares, and the closing of the BSD
Consideration (the "First Closing") will occur pursuant to the terms and
conditions hereof;
WHEREAS, in exchange for the PF Membership Interests, Coventry wishes
to issue a number of shares to the Members, which, when aggregated with the
shares issued in the BSD Consideration, will equal an aggregate of 80.10% of the
issued and outstanding shares of Coventry on the date of such issuance (the "PF
Consideration") (the BSD Consideration and the PF Consideration sometimes
collectively referred to as the "Coventry Shares") and the Closing of the PF
Consideration (the "Second Closing") will occur pursuant to the terms and
conditions hereof.
WHEREAS, the parties desire both the BSD Exchange (as defined in
Section 2.2 hereof) and the PF Exchange (also as defined in Section 2.2 hereof)
(as defined in Section 2.2 hereof (the BSD Exchange and the PF Exchange
sometimes collectively referred to as the "Contemplated Transactions") to be
tax-free exchanges pursuant to Section 368 or 351 of the Internal Revenue Code;
<PAGE>
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the parties hereto hereby agree as follows:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
Article I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquired Companies"-- BSD, RCS, RCSS and PF, collectively.
"Applicable Contract"--any Contract (a) under which any Acquired
Company or Coventry has or may acquire any rights, (b) under which any Acquired
Company or Coventry has or may become subject to any obligation or liability, or
(c) by which any Acquired Company or Coventry or any of their respective assets
owned or used by it is or may become bound.
"Breach"--a " Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision.
"Closing Dates"--the dates and times as of which the First Closing and
the Second Closing actually take place.
"Consent"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contract"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Disclosure Letter"--the disclosure letter delivered by the parties to
each other prior to the First Closing and to be attached hereto and made a part
hereof, effective at the First Closing.
"Encumbrance"--any charge, claim, community property interest,
condition, encumbrance, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
2
<PAGE>
"Environmental, Health, and Safety Liabilities"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
any Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and responses,
investigative, remedial, or inspection costs and expenses arising under any
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by any applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencement of
activities, such as resource extraction or construction, that could have a
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
3
<PAGE>
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and the regulations and rules issued pursuant to that Act or any
successor law.
"Facilities"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company or Coventry, as
the case may be, and any buildings, plants, structures or equipment (including
motor vehicles, tank cars, and rolling stock) currently or formerly owned or
operated by any Acquired Company or Coventry, as the case may be.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the balance sheet and the other
financial statements referred to in Sections 3.4, 4.4 and 5.4 were prepared.
"Governmental Authorization"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal or other government; or
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal).
"Hazardous Activity"--the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that poses an unreasonable risk of harm
to persons or property on or off the Facilities, or that may affect the value of
the Facilities or the Acquired Companies.
"Hazardous Materials"--any waste or other hazardous substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive or toxic, or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
4
<PAGE>
"IRC"--the Internal Revenue Code of 1986 or any successor law, and the
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving or has served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"Legal Requirement"--any federal, state, local, municipal, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute or treaty including, without limitation, land use and zoning
restrictions, environmental laws and regulations, OSHA laws and regulations,
health and safety codes, labor and employment practices, immigration,
anti-competitive practices, advertising and labeling rules, customs, tariff and
importation rules, the Fair Packaging and Labeling Act, the Magnuson-Moss
Warranty Act, and the Consumer Product Safety Act.
"Occupational Safety and Health Law"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"Organizational Documents"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; (e) any
organizational document of a limited liability company; and (f) any amendment to
any of the foregoing.
5
<PAGE>
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with, such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least five
percent (5%) of the outstanding voting power of a Person or equity securities or
other equity interests representing at least five percent (5%) of the
outstanding equity securities or equity interests in a Person.
6
<PAGE>
"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act"--the Securities Act of 1933 or any successor law, and
the regulations and rules issued pursuant to that Act or any successor law.
"Subsidiary"--with respect to any Person (the "Owner"), any corporation
or other Person (x) of which securities or other interests having the power to
elect a majority of that corporation's or other Person's board of directors or
similar governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) or (y) of which fifty percent (50%) or more of any class of
securities or other equity interests, are held by the Owner or one or more of
its Subsidiaries; when used without reference to a particular Person,
"Subsidiary" means a Subsidiary of Coventry.
"Tax"--any tax imposed by any Legal Requirement.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or otherwise
pursued in the future.
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Article II
DUE DILIGENCE PERIOD; EXCHANGE OF SHARES
AND MEMBERSHIP INTERESTS FOR COMMON STOCK
1.1 DUE DILIGENCE
Each of Coventry, the Shareholders and the Members shall have a period
commencing on the date hereof and expiring at six o'clock (6:00) p.m. on the
date that is sixty (60) days following the parties' receipt of a fully-executed
copy of this Agreement (the "Due Diligence Period"), at their respective sole
cost and expense, to (a) inspect the Facilities, (b) evaluate the Contemplated
Transactions, (c) analyze and review the books, records, disclosures, documents,
agreements, assets and liabilities relating to Coventry and its Subsidiaries and
the Acquired Companies, and (d) conduct such tests, investigations, studies and
reports as they may determine to be desirable in connection therewith. If any
such review, inspections, tests, investigations or studies are unsatisfactory,
or, if there are any matters relating to Coventry or its Subsidiaries or their
businesses, assets or liabilities which are unsatisfactory, in each case in the
sole and absolute discretion of the Shareholders and Members, or if they
determine, in their sole and absolute discretion, during the Due Diligence
Period, not to proceed with the Contemplated Transactions, the Shareholders
and/or Members may terminate this Agreement by notice to Coventry not later than
six o'clock (6:00) p.m. on the last day of the Due Diligence Period. If any such
review, inspections, tests, investigations or studies are unsatisfactory, or, if
there are any matters relating to the Acquired Companies or their businesses,
assets or liabilities which are unsatisfactory, in each case in the sole and
absolute discretion of Coventry, or if it determines, in its sole and absolute
discretion, during the Due Diligence Period, not to proceed with the
Contemplated Transactions, Coventry may terminate this Agreement by notice to
the Shareholders and the Members not later than six o'clock (6:00) p.m. on the
last day of the Due Diligence Period. Upon any such termination pursuant to this
Section 2.1, neither party shall have any further liability to the other party
pursuant hereto, except for any liability that, pursuant to the provisions of
this Agreement, is expressly made to survive the termination hereof. Each party
shall cooperate with, and shall cause its Subsidiaries and Representatives to
cooperate with, the other parties in connection with the due diligence set forth
in this Section 2.1.
1.2 AGREEMENT TO EXCHANGE BSD SHARES AND MEMBERSHIP INTERESTS FOR THE
COVENTRY SHARES.
Upon the terms and subject to the conditions set forth herein, (i) the
Shareholders shall transfer the BSD Shares to Coventry and, simultaneously
therewith, Coventry shall transfer to the Shareholders the BSD Consideration
(the "BSD Exchange"); and (ii) the Members shall transfer the PF Membership
Interests to Coventry and, simultaneously therewith, Coventry shall transfer the
PF Consideration to the Members (the "PF Exchange").
1.3 CLOSING.
The closing of the BSD Exchange shall take place within ten (10) days
after the later of (x) the satisfaction, waiver or expiration of the Due
Diligence Period and (y) the conditions precedent to such Closing set forth in
Article XI hereof have been satisfied (the "First Closing"). The closing of the
PF Exchange shall take place as soon as practicable after the conditions
precedent to such closing set forth in Articles XII and XIII hereof have been
satisfied but in no event later than the Contingency Date (as defined in Article
XIII hereof) (the "Second Closing") (the First and Second Closing sometimes
collectively referred to as the "Closing"). Both the First Closing and the
Second Closing shall take place at the offices of Broad and Cassel, 7777 Glades
Road, Boca Raton, Florida 33434, or such other place as the parties shall agree.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BSD
BSD represents and warrants to Coventry, except as set forth in the
Disclosure Letter, as follows (all references in this Article III to the
delivery of documents or schedules shall mean delivery on or prior to the First
Closing Date and all representations and warranties in this Article III are made
as to BSD and all Subsidiaries thereof):
3.1 ORGANIZATION AND GOOD STANDING
(a) BSD and its subsidiaries, RCS and RCSS, are each corporations duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. As set forth on Part 3.1 of the Disclosure Letter,
BSD and its subsidiaries, RCS and RCSS, are duly qualified to do business as
foreign corporations and are in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by them, or the nature of the activities conducted by them, require such
qualification.
(b) BSD has delivered to Coventry copies of the Organizational
Documents of BSD, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of BSD, enforceable against BSD in accordance with its terms. Upon the execution
and delivery by BSD of this Agreement and all agreements contemplated herein to
which BSD are a party (collectively, the "BSD Closing Documents"), this
Agreement and the BSD Closing Documents will constitute the legal, valid, and
binding obligations of BSD, enforceable against BSD in accordance with their
respective terms except as such enforcement is limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally. BSD has the
absolute and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the BSD Closing Documents and to perform its
obligations under this Agreement and the BSD Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of BSD, or (B) any resolution adopted
by the board of directors or the shareholders of BSD;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which BSD, or any of the assets owned or
used by BSD, may be subject;
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(iii) contravene, conflict with, or result in a violation of, any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by BSD or that otherwise relates to the business of,
or any of the assets owned or used by, BSD;
(iv) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by BSD.
(c) Except as set forth in Part 3.2 of the Disclosure Letter, BSD is
not and will not be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The authorized equity securities of BSD consist of 50,000 shares of
common stock, par value $.001 per share, of which 1,751,005 shares are issued
and outstanding and the 5,000,000 shares of preferred stock, par value $.001 per
share, of which none are outstanding. The Shareholders are and will be on the
First Closing Date the record and beneficial owners of the BSD Shares. All of
the BSD Shares are free and clear of all Encumbrances. All of the BSD Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on Part 3.3 of the Disclosure Letter, there
are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of BSD. None of the outstanding equity securities
or other securities of BSD was issued in violation of the Securities Act or any
other Legal Requirement. BSD does not own, or have any Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business, except RCS and RCSS.
1.4 FINANCIAL STATEMENTS
BSD has delivered to Coventry: a balance sheet of BSD as at December
31, 1997 (including the notes thereto, the "BSD Balance Sheet"), and the related
statements of income, changes in shareholders' equity, and cash flow for the
fiscal years then ended, together with the report thereon of J.H. Cohn & Co.,
independent certified public accountants. Such financial statements and notes
fairly present the financial condition and the results of operations, changes in
the shareholders' equity, and cash flow of BSD as at the respective dates of and
for the periods referred to in such financial statements, all in accordance with
GAAP; the financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the periods
involved. No financial statements of any Person other than BSD, RCS and RCSS are
required by GAAP to be included in the financial statements of BSD.
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1.5 BOOKS AND RECORDS
The books of account, minute books and stock record books of BSD, all
of which have been made available to Coventry, are correct in all material
respects. The minute books of BSD contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors of BSD, and no meeting of
any shareholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute book. At the
Closing, all of those books and records will be in the possession of BSD.
1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 3.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by BSD. BSD
has delivered to Coventry copies of the deeds and other instruments (as
recorded) by which BSD acquired such real property and interests, and copies of
all title insurance policies, opinions, abstracts, and surveys in the possession
of BSD and relating to such property or interests. BSD owns (with good and
marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that it purports to
own located in the facilities owned or operated by BSD or reflected as owned in
the books and records of BSD, including all of the properties and assets
reflected in the BSD Balance Sheet (except for assets held under capitalized
leases disclosed in Part 3.6 of the Disclosure Letter and personal property sold
since the date of the BSD Balance Sheet, as the case may be, in the Ordinary
Course of Business), and all of the properties and assets purchased or otherwise
acquired by BSD since the date of the BSD Balance Sheet (except for personal
property acquired and sold since the date of the BSD Balance Sheet in the
Ordinary Course of Business and consistent with past practice). All properties
and assets reflected in the BSD Balance Sheet are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the BSD Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the BSD Balance Sheet (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (c) liens for current taxes
not yet due, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts from
the value or impairs the use of the property subject thereto, or impairs the
operations of BSD, and (ii) zoning laws and other land use restrictions that do
not impair the present or anticipated use of the property subject thereto.
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1.7 ACCOUNTS RECEIVABLE
All accounts receivable of BSD that are reflected on the BSD Balance
Sheet or on the accounting records of BSD as of the Closing Date (collectively,
the "BSD Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the Ordinary
Course of Business. Except as set forth in Part 3.7 of the Disclosure Letter,
all BSD Accounts Receivable are current and expected to be collectible in the
Ordinary Course of Business, net of reserves for uncollectible accounts;
provided, however, that this provision is not a guaranty of collectibility.
1.8 INVENTORY
All inventory of BSD, whether or not reflected in the BSD Balance
Sheet, consists of a quality and quantity usable and salable in the Ordinary
Course of Business, except for obsolete items and items of below-standard
quality, all of which have been written off or written down to net realizable
value in the BSD Balance Sheet or on the accounting records of BSD as of the
Closing Date, as the case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.9 of the Disclosure Letter, BSD has no
liabilities or obligations of any nature (whether known or unknown, and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the BSD Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date of the
BSD Balance Sheet.
1.10 TAXES
(a) BSD has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. BSD has delivered to Coventry copies of, and
Part 3.10 of the Disclosure Letter contains a complete and accurate list of, all
such Tax Returns filed since January 1, 1996. BSD has paid, or made provision
for the payment of, all Taxes that have or may have become due pursuant to those
Tax Returns or otherwise, or pursuant to any assessment received by BSD, except
such Taxes, if any, as are listed in Part 3.10 of the Disclosure Letter and are
being contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the BSD Balance Sheet.
(b) To the Knowledge of BSD, the charges, accruals, and reserves with
respect to Taxes on the books of BSD are adequate (determined in accordance with
GAAP) and are at least equal to BSD's liability for Taxes. There exists no
proposed tax assessment against BSD except as disclosed in the BSD Balance Sheet
or in Part 3.10 of the Disclosure Letter. All Taxes that BSD is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(c) All Tax Returns filed by BSD are true and correct in all material
respects. There is no tax sharing agreement that will require any payment by BSD
after the date of this Agreement.
(d) Except as set forth in Part 3.10 of the Disclosure Letter, BSD has
not been audited by, or received any notice of audit from, any taxing authority
since January 1, 1996.
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1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the BSD Balance Sheet, except as set forth in Part
3.11 of the Disclosure Letter, there has not been any material adverse change in
the business, operations, properties, assets, or condition of BSD, and to the
Knowledge of BSD, no event has occurred or circumstance exists that may result
in such a material adverse change.
1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 3.12 of the Disclosure Letter, neither
BSD nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) BSD and its Subsidiaries have paid in full all wages, salaries,
commissions, bonuses, vacation pay, sick pay and other direct and indirect
compensation and benefits earned by all employees, representatives, contractors
and agents through the date of the First Closing, as well as all payroll and
withholding taxes and all payroll overheads. There are no bonuses or commissions
accrued or payable by BSD or any Subsidiaries with respect to any fiscal periods
ending on or before June 30, 1998 that remain unpaid in whole or in part, or
which are in dispute or the subject of any claim.
(c) Part 3.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of BSD and its Subsidiaries, together with job title and description
and current compensation rates (salary, bonus, commission and otherwise), and
identification of which Subsidiary is the employer of such persons.
(d) Except as set forth in Part 3.12 of the Disclosure Letter, there
are no collective bargaining agreements or union or labor agreements to which
BSD or any Subsidiary is a party or is bound or affecting the business thereof.
Except as set forth in Part 3.12 of the Disclosure Letter, there are no pending,
and during the five (5) years preceding the date of this Agreement there have
been no, disputes, strikes, work slow-downs, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of BSD or any
Subsidiary, and BSD knows of no basis for any of the foregoing. Each collective
bargaining agreement or other union contract set forth in Part 3.12 of the
Disclosure Letter (each a "BSD Union Contract") is in full force and effect; BSD
has made all payments and contributions due under such BSD Union Contract and is
otherwise in full compliance with the terms and conditions of such BSD Union
Contract, and there are no defaults under the BSD Union Contract or claims
thereof by the union, any employees or any governmental or labor relations
agency. There are no disputes or grievances pending or Threatened with respect
to any BSD Union Contract or any employees covered thereby, and BSD knows of no
basis for any of the foregoing.
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(e) Except as set forth on Part 3.12 of the Disclosure Letter, BSD and
its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and BSD and its Subsidiaries have not been required to contribute to
any employee benefit plan which is a multi-employer plan (within the meaning of
Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. BSD and its Subsidiaries have no responsibility for and have not assumed
any pension-related or employee benefit plan-related liabilities (including,
without limitation, withdrawal liability) of any other predecessor business or
person. With respect to each and every employee benefit plan of BSD and its
Subsidiaries identified on Part 3.12 of the Disclosure Letter (each, a "BSD
Benefit Plan"), each BSD Benefit Plan conforms to, and its administration is in
compliance with, applicable federal laws, including, but not limited to, ERISA
and the IRC. There are no pending, or Threatened or anticipated, audits,
assessments, disputes or claims by, on behalf of, or against, any BSD Benefit
Plan, BSD or any Subsidiary by any participant or beneficiary thereunder or any
governmental agency.
(f) BSD and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 3.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, BSD or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.13 of the Disclosure Letter:
(i) BSD is in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by BSD of, or a material failure on the part of BSD to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of BSD to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) BSD has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
BSD to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
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(b) Part 3.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by BSD or that
otherwise relates to the business of, or to any of the assets owned or used by,
BSD. Each material Governmental Authorization listed or required to be listed in
Part 3.13 of the Disclosure Letter is valid and in full force and effect. Except
as set forth in Part 3.13 of the Disclosure Letter:
(i) BSD is in compliance in all material respects with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in Part 3.13 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 3.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 3.13 of the Disclosure
Letter;
(iii) BSD has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 3.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit BSD to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
BSD to own and use its assets in the manner in which it currently owns and uses
such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against BSD or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
BSD; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
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To the Knowledge of BSD, (1) no such Proceeding has been Threatened,
and (2) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. BSD has delivered
to Coventry copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.14 of the Disclosure Letter. The
Proceedings listed in Part 3.14 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of BSD.
(b) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) there is no Order to which BSD, or any of the assets owned or
used by BSD, is subject; and
(ii) no officer, director, agent, or key employee of BSD is subject
to any Order that prohibits such officer, director, agent, or key employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of BSD.
(c) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) BSD is in compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) No event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which BSD, or any of the assets owned or used by BSD, is subject; and
(iii) BSD has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which BSD, or
any of the assets owned or used by BSD, is or has been subject.
1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.15 of the Disclosure Letter, since the
date of the BSD Balance Sheet, BSD has conducted its business only in the
Ordinary Course of Business and there has not been any:
(a) change in BSD's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of BSD; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by BSD of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of BSD;
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(c) payment or increase by BSD of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of BSD;
(e) damage to or destruction or loss of any asset or property of BSD,
whether or not adequately covered by insurance.
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to BSD of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of BSD or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of BSD;
(h) cancellation or waiver of any claims or rights with a value to BSD
in excess of $25,000;
(i) material change in the accounting methods used by BSD;
(j) agreement, whether oral or written, by BSD to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth on Part 3.15 of the Disclosure Letter.
1.16 CONTRACTS; NO DEFAULTS
(a) Part 3.16 of the Disclosure Letter contains a complete and accurate
list, and BSD has delivered to Coventry true and complete copies, of: (i) all
agreements and other commitments for the purchase of any materials or supplies
that involve an expenditure by BSD of more than $10,000; (ii) all notes and
agreements relating to any indebtedness of BSD for borrowed money; (iii) all
leases or other rental agreements under which BSD is either lessor or lessee;
(iv) all other agreements (including, but not limited to, employment
agreements), commitments and understandings (written or oral) to which BSD is a
party or by which it is bound that require payment by BSD of more than $10,000
and that cannot be terminated by BSD on fewer than thirty (30) days' notice
without liability; and (v) all patents, trademarks (including service marks),
trade mark registrations, and applications for registering patents or
trademarks, owned by BSD (none of which is subject to a licensing or other
agreement with any other person). True and complete copies of all written
leases, agreements, commitments and understandings (collectively, the "BSD
Agreements") referred to in Part 3.16 of the Disclosure Letter have been
delivered to Coventry. Each BSD Agreement is, and at the First Closing will be,
in full force and effect, except for those that expire by their own terms or
which are terminated upon the request of BSD with the written consent of
Coventry. There is no existing default by BSD under any BSD Agreement, and, to
the Knowledge of BSD, there is no existing default under any BSD Agreement by
any other party to any BSD Agreement.
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(b) BSD and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 3.16 of the Disclosure Letter,
BSD and its Subsidiaries have not subcontracted or sublicensed to or from anyone
the performance of any of its contractual responsibilities with respect to any
Applicable Contract.
(c) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries are not a party to any loan, promissory note, credit agreement,
working capital line, factoring arrangement, security interest, pledge, or
mortgage with any bank, financial institution or other entity or person.
(d) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of BSD or any Subsidiary, or to
any other person or entity.
(e) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries (i) do not have any power of attorney outstanding and (ii) do
not have any obligations or liabilities (whether absolute, accrued, contingent
or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of any obligation of any other person or entity
(including without limitation, any director, officer, shareholder, employee,
consultant or contractor of BSD or any Subsidiary). Part 3.16 of the Disclosure
Letter sets forth any cross-guarantees or indemnities provided by or among BSD
or any Subsidiary to or for the benefit of BSD or any other Subsidiary.
(f) BSD and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) BSD and its Subsidiaries are not a party to (i) any contract,
pledge or commitment for charitable contributions, (ii) any contract with the
United States Government or any state or local government or public authority or
any agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
(h) BSD and its Subsidiaries are not, by non-competition agreement,
restrictive covenant, court order, injunction, or otherwise, restricted from
carrying on any business whatsoever anywhere in the world.
(i) BSD and its Subsidiaries are not required to provide any letters of
credit, bonding or financial security arrangements in connection with any of
their businesses, customers or suppliers and none are issued or outstanding.
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1.17 INSURANCE
Part 3.17 of the Disclosure Letter includes an insurance schedule
prepared by BSD's insurance broker identifying all insurance policies maintained
by BSD, the insurance carrier, type of coverage, amount of coverage, premium,
policy expiration dates, and loss experience. BSD has delivered to Coventry true
and complete copies of all policies of insurance to which BSD is a party or
under which BSD, or any director of BSD, is or has been covered at any time
within the three (3) years preceding the date of this Agreement, as set forth on
Part 3.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.18 of the Disclosure Letter:
(a) BSD is, and at all times has been, in material compliance with, and
has not been and is not in violation of or liable under, any Environmental Law.
BSD has not received any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which BSD has or had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by BSD, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which BSD has or had an interest.
(c) BSD has no Knowledge of any basis to expect, and has not received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which BSD has or had an interest, or with respect
to any property or facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by BSD, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) BSD has no Environmental, Health, and Safety Liabilities with
respect to the Facilities, or with respect to any other properties and assets
(whether real, personal, or mixed) in which BSD (or any predecessor), has or had
an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. BSD
has not permitted or conducted, and is not aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which BSD has or had an interest.
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(f) There has been no Release or Threat of Release of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which BSD
has or had an interest, or to the Knowledge of BSD, any geologically or
hydrologically adjoining property, whether by BSD or any other Person.
(g) BSD has delivered to Coventry true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by BSD pertaining to Hazardous Materials or Hazardous Activities in, on, or
under the Facilities, or concerning compliance by BSD with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
BSD owns or possesses adequate licenses or other rights to use all
computer software, software programs, patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, trade names, copyrights,
inventions, drawings, designs, customer lists, proprietary know-how or
information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. BSD's operations do not conflict with or infringe, and
no one has asserted that those operations conflict with or infringe, any rights
of any third party. Part 3.19 of the Disclosure Letter sets forth the status of
BSD's compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither BSD nor any director, officer, agent, or employee of BSD, nor
any other Person associated with or acting for or on behalf of BSD, has directly
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain special
concessions or for special concessions already obtained, for or in respect of
BSD or any Subsidiary of BSD, or (ii) in violation of any Legal Requirement, or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of BSD.
1.21 DISCLOSURE
No representation or warranty of BSD in this Agreement and no statement
by BSD in the Disclosure Letter omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
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1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 3.22 of the Disclosure Letter, no Related
Person of BSD has had any interest in any property (whether real, personal, or
mixed and whether tangible or intangible) used in or pertaining to BSD's
business. Except as set forth in Part 3.22 of the Disclosure Letter, no Related
Person of BSD is or has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with BSD;
or (ii) engaged in competition with BSD with respect to any line of the products
or services of BSD (a "Competing Business") in any market presently served by
BSD. Except as set forth in Part 3.22 of the Disclosure Letter, no Related
Person of BSD is a party to any Contract with, or has any claim or right
against, BSD.
1.23 BROKERS OR FINDERS
BSD has incurred no obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PF
As of the Second Closing Date, PF represents and warrants to Coventry,
except as set forth in the Disclosure Letter, as follows (all references in this
Article IV to the delivery of documents or schedules shall mean delivery on or
prior to the Second Closing Date and all representations and warranties in this
Article IV are made as to PF and all Subsidiaries thereof):
4.1 ORGANIZATION AND GOOD STANDING
(a) PF is a limited liability company duly organized, validly existing,
and in good standing under the laws of its jurisdiction of formation, with full
power and authority to conduct its business as it is now being conducted, to own
or use the properties and assets that it purports to own or use, and to perform
all its obligations under Applicable Contracts. As set forth on Part 4.1 of the
Disclosure Letter, PF and its subsidiaries are duly qualified to do business and
are in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by them, or the
nature of the activities conducted by them, require such qualification.
(b) PF has delivered to Coventry copies of the Organizational Documents
of PF, as currently in effect.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of PF enforceable against PF in accordance with its terms. Upon the execution
and delivery by PF of this Agreement and all agreements contemplated herein to
which PF is a party (the "PF Closing Documents"), the PF Closing Documents will
constitute the legal, valid, and binding obligations of PF enforceable against
PF in accordance with their respective terms except as such enforcement is
limited by bankruptcy, insolvency, or other laws affecting creditors' rights
generally. PF has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the PF Closing Documents and
to perform its obligations under this Agreement and the PF Closing Documents.
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(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of PF, or (B) any resolution adopted
by the Members of PF;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which PF, or any of the assets owned or
used by PF, may be subject;
(iii) contravene, conflict with, or result in a violation of, any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by PF or that otherwise relates to the business of,
or any of the assets owned or used by, PF;
(iv) cause PF to become subject to, or to become liable for the
payment of, any Tax;
(v) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by PF.
(c) Except as set forth in Part 4.2 of the Disclosure Letter, PF is not
and will not be required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The Members will on the Second Closing Date be the record and
beneficial owners of all of the PF Membership Interests. All of the PF
Membership Interests have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth on Part 4.3 of the Disclosure
Letter, there are no Contracts relating to the issuance, sale, or transfer of
any equity securities or other securities of PF. None of the outstanding equity
securities or other securities of PF was issued in violation of the Securities
Act or any other Legal Requirement. PF does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
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1.4 FINANCIAL STATEMENTS
PF has delivered to Coventry: a balance sheet of PF as at [to be filled
in on Second Closing Date] (including the notes thereto, the "PF Balance
Sheet"), and the related statements of income and cash flow for the fiscal year
then ended, together with the report thereon of [to be filled in on Second
Closing Date], independent certified public accountants. Such financial
statements and notes fairly present the financial condition and the results of
operations and cash flow of PF as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP; the
financial statements referred to in this Section 4.4 reflect the consistent
application of such accounting principles throughout the periods involved. No
financial statements of any Person other than PF are required by GAAP to be
included in the financial statements of PF.
1.5 BOOKS AND RECORDS
The books of account of PF, all of which have been made available to
Coventry, are correct in all material respects. Such documents contain accurate
and complete records of all meetings held of, and action taken by, the Members
of PF, and no meeting of any Members or managers of PF has been held for which
written records have not been prepared and are not contained in such books. At
the Closing, all of those books and records will be in the possession of PF.
1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 4.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by PF. PF has
delivered to Coventry copies of the deeds and other instruments (as recorded) by
which PF acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of PF and
relating to such property or interests. PF owns (with good and marketable title
in the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that it purports to own located in the
facilities owned or operated by or reflected as owned in the books and records
of PF, including all of the properties and assets reflected in the PF Balance
Sheet (except for assets held under capitalized leases disclosed in Part 4.6 of
the Disclosure Letter and personal property sold since the date of the PF
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by PF since the
date of the PF Balance Sheet (except for personal property acquired and sold
since the date of the PF Balance Sheet in the Ordinary Course of Business and
consistent with past practice). All properties and assets reflected in the PF
Balance Sheet are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the PF Balance Sheet as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the PF Balance Sheet (such mortgages and security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(c) liens for current taxes not yet due, and (d) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of PF, and (ii) zoning laws and other
land use restrictions that do not impair the present or anticipated use of the
property subject thereto.
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1.7 ACCOUNTS RECEIVABLE
All accounts receivable of PF that are reflected on the PF Balance
Sheet or on the accounting records of PF as of the Closing Date (collectively,
"PF Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Except as set forth in Part 4.7 of the Disclosure Letter, all PF
Accounts Receivable are current and expected to be collectible in the Ordinary
Course of Business, net of reserves for uncollectible accounts; provided,
however, that this provision is not a guaranty of collectibility.
1.8 INVENTORY
All inventory of PF, whether or not reflected in the PF Balance Sheet,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the PF
Balance Sheet or on the accounting records of PF as of the Closing Date, as the
case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 4.9 of the Disclosure Letter, PF has no
liabilities or obligations of any nature (whether known or unknown, or whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the PF Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date of the PF
Balance Sheet.
1.10 TAXES
(a) PF has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. PF has delivered to Coventry copies of, and
Part 4.10 of the Disclosure Letter contains a complete and accurate list of, all
such Tax Returns filed since the date of PF's formation. PF has paid, or made
provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by PF, except such Taxes, if any, as are listed in Part 4.10 of the
Disclosure Letter and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the PF
Balance Sheet.
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(b) To the Knowledge of PF, the charges, accruals, and reserves with
respect to Taxes on the books of PF are adequate (determined in accordance with
GAAP) and are at least equal to PF's liability for Taxes. There exists no
proposed tax assessment against PF except as disclosed in the PF Balance Sheet
or in Part 4.10 of the Disclosure Letter. All Taxes that PF is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(c) All Tax Returns filed by PF are true and correct in all material
respects. There is no tax sharing agreement that will require any payment by PF
after the date of this Agreement.
(d) Except as set forth in Part 4.10 of the Disclosure Letter, PF has
not been audited by, or received any notice of audit from, any taxing authority
since the date of PF's formation.
1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the PF Balance Sheet, except as set forth in Part
4.11 of the Disclosure Letter, there has not been any material adverse change in
the business, operations, properties, assets, or condition of PF, and to the
Knowledge of PF, no event has occurred or circumstance exists that may result in
such a material adverse change.
1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 4.12 of the Disclosure Letter, neither
PF nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) PF and its Subsidiaries have paid in full all wages, salaries,
commissions, bonuses, vacation pay, sick pay and other direct and indirect
compensation and benefits earned by all employees, representatives, contractors
and agents through the date of the Second Closing, as well as all payroll and
withholding taxes and all payroll overheads. There are no bonuses or commissions
accrued or payable by PF or any Subsidiaries with respect to any fiscal periods
ending on or before June 30, 1998 that remain unpaid in whole or in part, or
which are in dispute or the subject of any claim.
(c) Part 4.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of PF and its Subsidiaries, together with job title and description
and current compensation rates (salary, bonus, commission and otherwise), and
identification of which Subsidiary is the employer of such persons.
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(d) Except as set forth in Part 4.12 of the Disclosure Letter, there
are no collective bargaining agreements or union or labor agreements to which PF
or any Subsidiary is a party or is bound or affecting the business thereof.
Except as set forth in Part 4.12 of the Disclosure Letter, there are no pending,
and during the five (5) years preceding the date of this Agreement there have
been no, disputes, strikes, work slow-downs, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of PF or any
Subsidiary, and PF knows of no basis for any of the foregoing. Each collective
bargaining agreement or other union contract set forth in Part 4.12 of the
Disclosure Letter (each a "PF Union Contract") is in full force and effect; PF
has made all payments and contributions due under such PF Union Contract and is
otherwise in full compliance with the terms and conditions of such PF Union
Contract, and there are no defaults under the PF Union Contract or claims
thereof by the union, any employees or any governmental or labor relations
agency. There are no disputes or grievances pending or Threatened with respect
to any PF Union Contract or any employees covered thereby, and PF knows of no
basis for any of the foregoing.
(e) Except as set forth on Part 4.12 of the Disclosure Letter, PF and
its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and PF and its Subsidiaries have not been required to contribute to any
employee benefit plan which is a multi-employer plan (within the meaning of
Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. PF and its Subsidiaries have no responsibility for and have not assumed
any pension-related or employee benefit plan-related liabilities (including,
without limitation, withdrawal liability) of any other predecessor business or
person. With respect to each and every employee benefit plan of PF and its
Subsidiaries identified on Part 4.12 of the Disclosure Letter (each, a "PF
Benefit Plan"), each PF Benefit Plan conforms to, and its administration is in
compliance with, applicable federal laws, including, but not limited to, ERISA
and the IRC. There are no pending, or Threatened or anticipated, audits,
assessments, disputes or claims by, on behalf of, or against, any PF Benefit
Plan, PF or any Subsidiary by any participant or beneficiary thereunder or any
governmental agency.
(f) PF and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 4.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, PF or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 4.13 of the Disclosure Letter:
(i) PF is in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
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(ii) No event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by PF of, or a material failure on the part of PF to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of PF to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) PF has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
PF to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
(b) Part 4.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by PF or that
otherwise relates to the business of, or to any of the assets owned or used by,
PF. Each material Governmental Authorization listed or required to be listed in
Part 4.13 of the Disclosure Letter is valid and in full force and effect. Except
as set forth in Part 4.13 of the Disclosure Letter:
(i) PF is in compliance in all material respects with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in Part 4.13 of the Disclosure Letter;
(ii) No event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 4.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 4.13 of the Disclosure
Letter;
(iii) PF has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 4.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
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The Governmental Authorizations listed in Part 4.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit PF to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
PF to own and use its assets in the manner in which it currently owns and uses
such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 4.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against PF or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
PF; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of PF, (1) no such Proceeding has been Threatened, and
(2) no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such Proceeding. PF has delivered to
Coventry copies of all pleadings, correspondence, and other documents relating
to each Proceeding listed in Part 4.14 of the Disclosure Letter. The Proceedings
listed in Part 4.14 of the Disclosure Letter will not have a material adverse
effect on the business, operations, assets, condition, or prospects of PF.
(b) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) there is no Order to which PF, or any of the assets owned or
used by PF, is subject; and
(ii) no officer, director, agent or key employee of PF is subject
to any Order that prohibits such officer, director, agent or key employee from
engaging in or continuing any conduct, activity or practice relating to the
business of PF.
(c) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) PF is in material compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) No event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which PF, or any of the assets owned or used by PF, is subject; and
(iii) PF has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which PF, or
any of the assets owned or used by PF, is or has been subject.
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1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 4.15 of the Disclosure Letter, since the
date of the PF Balance Sheet, PF has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) change in PF's authorized or issued Membership Interests; grant of
any right to purchase such Membership Interests; or purchase of such Membership
Interests;
(b) amendment to the Organizational Documents of PF;
(c) payment or increase by PF of any bonuses, salaries, or other
compensation to any Member, manager, officer, or (except in the Ordinary Course
of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of PF;
(e) damage to or destruction or loss of any asset or property of PF,
whether or not adequately covered by insurance;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to PF of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of PF or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of PF;
(h) cancellation or waiver of any claims or rights with a value to PF
in excess of $25,000;
(i) material change in the accounting methods used by PF;
(j) agreement, whether oral or written, by PF to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth in Part 4.15 of the Disclosure Letter.
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1.16 CONTRACTS; NO DEFAULTS
(a) (Part 4.16 of the Disclosure Letter contains a complete and
accurate list, and PF has delivered to Coventry true and complete copies, of:
(i) all agreements and other commitments for the purchase of any materials or
supplies that involve an expenditure by PF of more than $10,000; (ii) all notes
and agreements relating to any indebtedness of PF for borrowed money; (iii) all
leases or other rental agreements under which PF is either lessor or lessee;
(iv) all other agreements (including, but not limited to, employment
agreements), commitments and understandings (written or oral) to which PF is a
party or by which it is bound that require payment by PF of more than $10,000
and that cannot be terminated by PF on fewer than thirty (30) days' notice
without liability; and (v) all patents, trademarks (including service marks),
trade mark registrations, and applications for registering patents or
trademarks, owned by PF (none of which is subject to a licensing or other
agreement with any other person). True and complete copies of all written
leases, agreements, commitments and understandings (collectively, the "PF
Agreements") referred to in Part 4.16 of the Disclosure Letter have been
delivered to Coventry. Each PF Agreement, at the Second Closing, will be in full
force and effect, except for those that expire by their own terms or which are
terminated upon the request of PF with the written consent of Coventry. There is
no existing default by PF under any PF Agreement, and, to the Knowledge of PF,
there is no existing default under any PF Agreement by any other party to any PF
Agreement.
(b) PF and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 4.16 of the Disclosure Letter,
PF and its Subsidiaries have not subcontracted or sublicensed to or from anyone
the performance of any of its contractual responsibilities with respect to any
Applicable Contract.
(c) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries are not a party to any loan, promissory note, credit agreement,
working capital line, factoring arrangement, security interest, pledge, or
mortgage with any bank, financial institution or other entity or person.
(d) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of PF or any Subsidiary, or to
any other person or entity.
(e) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries (i) do not have any power of attorney outstanding and (ii) do
not have any obligations or liabilities (whether absolute, accrued, contingent
or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of any obligation of any other person or
entity(including without limitation, any director, officer, shareholder,
employee, consultant or contractor of PF or any Subsidiary). Part 4.16 of the
Disclosure Letter sets forth any cross-guarantees or indemnities provided by or
among PF or any Subsidiary to or for the benefit of PF or any other Subsidiary.
(f) PF and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) PF and its Subsidiaries are not a party to (i) any contract, pledge
or commitment for charitable contributions, (ii) any contract with the United
States Government or any state or local government or public authority or any
agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
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(h) PF and its Subsidiaries are not, by non-competition agreement,
restrictive covenant, court order, injunction, or otherwise, restricted from
carrying on any business whatsoever anywhere in the world.
(i) PF and its Subsidiaries are not required to provide any letters of
credit, bonding or financial security arrangements in connection with any of
their businesses, customers or suppliers and none are issued or outstanding.
1.17 INSURANCE
Part 4.17 of the Disclosure Letter includes an insurance schedule
prepared by PF's insurance broker identifying all insurance policies maintained
by PF, the insurance carrier, type of coverage, amount of coverage, premium,
policy expiration dates and loss experience. PF has delivered to Coventry true
and complete copies of all policies of insurance to which PF is a party or under
which PF, or any member or manager of PF, is or has been covered at any time
within the three (3) years preceding the date of this Agreement, as set forth in
Part 4.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 4.18 of the Disclosure Letter:
(a) PF is, and at all times has been, in material compliance with, and
has not been and is not in violation of or liable under, any Environmental Law.
PF has not received any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which PF has or had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by PF, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which PF has or had an interest.
(c) PF has no Knowledge of any basis to expect, and has not received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which PF has or had an interest, or with respect to
any property or facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by PF, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
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(d) PF has no Environmental, Health, and Safety Liabilities with
respect to the Facilities, or with respect to any other properties and assets
(whether real, personal, or mixed) in which PF (or any predecessor), has or had
an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. PF
has not permitted or conducted, and is not aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which PF has or had an interest.
(f) There has been no Release or Threat of Release, of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which PF
has or had an interest, or to the Knowledge of PF, any geologically or
hydrologically adjoining property, whether by PF or any other Person.
(g) PF has delivered to Coventry true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by PF pertaining to Hazardous Materials or Hazardous Activities in, on, or under
the Facilities, or concerning compliance by PF with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
PF owns or possesses adequate licenses or other rights to use all
computer software, software programs, patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, trade names, copyrights,
inventions, drawings, designs, customer lists, proprietary know-how or
information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. PF's operations do not conflict with or infringe, and
no one has asserted that those operations conflict with or infringe, any rights
of any third party. Part 4.19 of the Disclosure Letter sets forth the status of
PF's compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither PF nor any manager, officer, agent, or employee of PF, nor any
other Person associated with or acting for or on behalf of PF, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain special
concessions or for special concessions already obtained, for or in respect of PF
or any Subsidiary of PF, or (ii) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of PF.
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1.21 DISCLOSURE
No representation or warranty of PF in this Agreement and no statement
by PF in the Disclosure Letter omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 4.22 of the Disclosure Letter, no Related
Person of PF has had any interest in any property (whether real, personal, or
mixed and whether tangible or intangible), used in or pertaining to PF's
business. Except as set forth in Part 4.22 of the Disclosure Schedule, no
Related Person of PF is or has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with PF; or (ii) engaged in competition with PF with respect to any line of the
products or services of PF (a "Competing Business") in any market presently
served by PF. Except as set forth in Part 4.22 of the Disclosure Letter, no
Related Person of PF is a party to any Contract with, or has any claim or right
against, PF.
1.23 BROKERS OR FINDERS
PF has incurred no obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COVENTRY
Coventry represents and warrants to the Shareholders and Members,
except as set forth in the Disclosure Letter, as follows (all references in this
Article V to the delivery of documents or schedules shall mean delivery on or
prior to the First Closing Date and all representations and warranties in this
Article V are made as to Coventry and all Subsidiaries thereof):
5.1 ORGANIZATION AND GOOD STANDING
(a) Coventry and its Subsidiaries are each corporations duly organized,
validly existing, and in good standing under the laws of their jurisdiction of
incorporation, with full corporate power and authority to conduct their business
as it is now being conducted, to own or use the properties and assets that they
purport to own or use, and to perform all of their obligations under Applicable
Contracts. As set forth on Part 5.1 of the Disclosure Letter, Coventry and its
Subsidiaries are duly qualified to do business as foreign corporations and are
in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by them, or the
nature of the activities conducted by them, require such qualification.
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(b) Coventry has delivered to the Shareholders and Members copies of
the Organizational Documents of Coventry and all of its Subsidiaries, as
currently in effect.
5.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of Coventry, enforceable against Coventry in accordance with its terms. Upon the
execution and delivery by Coventry of this Agreement and all agreements
contemplated herein to which Coventry is a party (the "Coventry Closing
Documents"), the Coventry Closing Documents will constitute the legal, valid,
and binding obligations of Coventry, enforceable against Coventry in accordance
with their respective terms except as such enforcement is limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally. Coventry has
the absolute and unrestricted right, power, authority, and capacity to execute
and deliver this Agreement and the Coventry Closing Documents and to perform its
obligations under this Agreement and the Coventry Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Coventry or its Subsidiaries, or
(B) any resolution adopted by the board of directors or the shareholders of
Coventry or its Subsidiaries;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Coventry or its Subsidiaries, or any
of the assets owned or used by Coventry or its Subsidiaries, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Coventry or its Subsidiaries or that otherwise relates to the
business of Coventry or its Subsidiaries, or any of the assets owned or used by,
Coventry or its Subsidiaries;
(iv) cause Coventry or its Subsidiaries to become subject to, or to
become liable for the payment of, any Tax;
(v) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by Coventry .
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(c) Except as set forth in Part 5.2 of the Disclosure Letter, Coventry
is not and will not be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The authorized equity securities of Coventry consist of 25,000,000
shares of Common Stock, par value $.001 per share, of which 3,385,485 shares are
issued and outstanding, plus 2,000,000 shares of Preferred Stock, par value
$.001 per share issued in series as set forth in Part 5.3 of the Disclosure
Letter. Part 5.3 of the Disclosure Letter sets forth the number of issued and
outstanding shares of Coventry Common and Preferred Stock and each series
thereof. The authorized equity securities of all Subsidiaries of Coventry,
together with the number of shares, par value, and number of issued and
outstanding shares, are set forth on Part 5.3 of the Disclosure Letter. All of
the outstanding equity securities of Coventry and its Subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth on Part 5.3 of the Disclosure Letter, there are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of Coventry and its Subsidiaries. None of the outstanding equity
securities or other securities of Coventry and its Subsidiaries were issued in
violation of the Securities Act or any other Legal Requirement. Except for
transactions contemplated by this Agreement, neither Coventry nor its
Subsidiaries own, or have any Contract to acquire, any equity securities or
other securities of any Person or any direct or indirect equity or ownership
interest in any other business.
1.4 FINANCIAL STATEMENTS
Coventry has delivered to the Shareholders and Members: an audited
balance sheet of Coventry as at June 30, 1998 (including the notes thereto, the
"Coventry Balance Sheet"), and the related statements of income, changes in
shareholders' equity, and cash flow for the fiscal years then ended, together
with the report thereon of Sweeney Gates & Co., independent certified public
accountants. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in shareholders' equity, and
cash flow of Coventry as at the respective dates of and for the periods referred
to in such financial statements, all in accordance with GAAP; the financial
statements referred to in this Section 5.4 reflect the consistent application of
such accounting principles throughout the periods involved. No financial
statements of any Person other than Coventry and the Subsidiaries identified in
Part 5.3 of the Disclosure Letter are required by GAAP to be included in the
financial statements of Coventry.
1.5 BOOKS AND RECORDS
The books of account, minute books and stock record books of Coventry,
all of which have been made available to the Shareholders and Members, are
correct in all material respects. The minute books of Coventry contain accurate
and complete records of all meetings held of, and corporate action taken by, the
shareholders, the Board of Directors, and committees of the Board of Directors
of Coventry, and no meeting of any shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute book. At the Closing, all of those books and records
will be in the possession of Coventry.
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1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 5.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by Coventry.
Coventry has delivered to the Shareholders and Members copies of the deeds and
other instruments (as recorded) by which Coventry acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Coventry and relating to such property or
interests. Coventry owns (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that it purports to own located in the facilities owned or
operated by Coventry or reflected as owned in the books and records of Coventry,
including all of the properties and assets reflected in the Coventry Balance
Sheet (except for assets held under capitalized leases disclosed in Part 5.6 of
the Disclosure Letter and personal property sold since the date of the Coventry
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by Coventry since
the date of the Coventry Balance Sheet (except for personal property acquired
and sold since the date of the Coventry Balance Sheet in the Ordinary Course of
Business and consistent with past practice). All properties and assets reflected
in the Coventry Balance Sheet are free and clear of all Encumbrances and are
not, in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Coventry Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Coventry Balance Sheet (such mortgages
and security interests being limited to the property or assets so acquired),
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (c) liens for current taxes not yet
due, and (d) with respect to real property, (i) minor imperfections of title, if
any, none of which is substantial in amount, materially detracts from the value
or impairs the use of the property subject thereto, or impairs the operations of
Coventry, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto.
1.7 ACCOUNTS RECEIVABLE
All accounts receivable of Coventry that are reflected on the Coventry
Balance Sheet or on the accounting records of Coventry as of the Closing Dates
(collectively, the "Coventry Accounts Receivable") represent or will represent
valid obligations arising from sales actually made or services actually
performed in the Ordinary Course of Business. Except as set forth in Part 5.7 of
the Disclosure Letter, all Coventry Accounts Receivable are current and expected
to be collectible in the Ordinary Court of Business, net of reserves for
uncollectible accounts; provided, however, that this provision is not a guaranty
of collectibility.
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1.8 INVENTORY
All inventory of Coventry, whether or not reflected in the Coventry
Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Coventry Balance Sheet or on the accounting records
of Coventry as of the Closing Date, as the case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 5.9 of the Disclosure Letter, Coventry has
no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Coventry Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since the date
of the Coventry Balance Sheet.
1.10 TAXES
(a) Coventry has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. Coventry has delivered to the Shareholders and
Members copies of, and Part 5.10 of the Disclosure Letter contains a complete
and accurate list of, all such Tax Returns filed since January 1, 1996. Coventry
has paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Coventry, except such Taxes, if any, as are listed in
Part 5.10 of the Disclosure Letter and are being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
provided in the Coventry Balance Sheet.
(b) To Coventry's Knowledge, the charges, accruals, and reserves with
respect to Taxes on the books of Coventry are adequate (determined in accordance
with GAAP) and are at least equal to Coventry's liability for Taxes. There
exists no proposed tax assessment against Coventry except as disclosed in the
Coventry Balance Sheet or in Part 5.10 of the Disclosure Letter. All Taxes that
Coventry is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(c) All Tax Returns filed by Coventry are true and correct in all
material respects. There is no tax sharing agreement that will require any
payment by Coventry after the date of this Agreement.
(d) Except as set forth in Part 5.10 of the Disclosure Letter, Coventry
has not been audited by, or received any notice of audit from, any taxing
authority since January 1, 1996.
1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the Coventry Balance Sheet, except as set forth in
Part 5.11 of the Disclosure Letter, there has not been any material adverse
change in the business, operations, properties, assets, or condition of
Coventry, and to the Knowledge of Coventry, no event has occurred or
circumstance exists that may result in such a material adverse change.
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1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 5.12 of the Disclosure Letter, neither
Coventry nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) Coventry and its Subsidiaries have paid in full all wages,
salaries, commissions, bonuses, vacation pay, sick pay and other direct and
indirect compensation and benefits earned by all employees, representatives,
contractors and agents through the dates of the First Closing and the Second
Closing, respectively, as well as all payroll and withholding taxes and all
payroll overheads. There are no bonuses or commissions accrued or payable by
Coventry or any Subsidiaries with respect to any fiscal periods ending on or
before June 30, 1998 that remain unpaid in whole or in part, or which are in
dispute or the subject of any claim.
(c) Part 5.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of Coventry and its Subsidiaries, together with job title and
description and current compensation rates (salary, bonus, commission and
otherwise), and identification of which Subsidiary is the employer of such
persons.
(d) Except as set forth in Part 5.12 of the Disclosure Letter, there
are no collective bargaining agreements or union agreements to which Coventry or
any Subsidiary is a party or is bound or affecting the business thereof. Except
as set forth in Part 5.12 of the Disclosure Letter, there are no pending, and
during the five (5) years preceding the date of this Agreement there have been
no, disputes, strikes, work slowdowns, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of Coventry or any
Subsidiary, and Coventry knows of no basis for any of the foregoing. Each
collective bargaining agreement or other union contract set forth in Part 5.12
of the Disclosure Letter (each a "Coventry Union Contract") is in full force and
effect; Coventry has made all payments and contributions due under such Coventry
Union Contract and is otherwise in full compliance with the terms and conditions
of such Coventry Union Contract, and there are no defaults under the Coventry
Union Contract or claims thereof by the union, any employees or any governmental
or labor relations agency. There are no disputes or grievances pending or
Threatened with respect to any Coventry Union Contract or any employees covered
thereby, and Coventry knows of no basis for any of the foregoing.
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(e) Except as set forth on Part 5.12 of the Disclosure Letter, Coventry
and its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and Coventry and its Subsidiaries have not been required to contribute
to any employee benefit plan which is a multi-employer plan (within the meaning
of Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. Coventry and its Subsidiaries have no responsibility for and have not
assumed any pension-related or employee benefit plan-related liabilities
(including, without limitation, withdrawal liability) of any other predecessor
business or person. With respect to each and every employee benefit plan of
Coventry and its Subsidiaries identified on Part 5.12 of the Disclosure Letter
(each, a "Coventry Benefit Plan"), each Coventry Benefit Plan conforms to, and
its administration is in compliance with, applicable federal laws, including,
but not limited to, ERISA and the IRC. There are no pending, or Threatened or
anticipated, audits, assessments, disputes or claims by, on behalf of, or
against, any Coventry Benefit Plan, Coventry or any Subsidiary by any
participant or beneficiary thereunder or any governmental agency.
(f) Coventry and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 5.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, Coventry or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 5.13 of the Disclosure Letter:
(i) Coventry is in compliance in all material respects with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by Coventry of, or a material failure on the part of Coventry
to comply with, any Legal Requirement, or (B) may give rise to any obligation on
the part of Coventry to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) Coventry has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
Coventry to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Part 5.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by Coventry or
that otherwise relates to the business of, or to any of the assets owned or used
by, Coventry. Each material Governmental Authorization listed or required to be
listed in Part 5.13 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 5.13 of the Disclosure Letter:
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(i) Coventry is in compliance in all material respects with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Part 5.13 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 5.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 5.13 of the Disclosure
Letter;
(iii) Coventry has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 5.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 5.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit Coventry to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
Coventry to own and use its assets in the manner in which it currently owns and
uses such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 5.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against Coventry or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by Coventry; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Coventry, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding.
Coventry has delivered to the Shareholders and Members copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
5.14 of the Disclosure Letter. The Proceedings listed in Part 5.14 of the
Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of Coventry.
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(b) Except as set forth in Part 5.14 of the Disclosure Letter:
(i) there is no Order to which Coventry, or any of the assets owned
or used by Coventry, is subject; and
(ii) Coventry is not subject to any Order that relates to the
business of, or any of the assets owned or used by, Coventry.
(iii) no officer, director, agent, or employee of Coventry is
subject to any Order that prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity, or practice relating to
the business of Coventry.
(c) Except as set forth in Part 5.14 of the Disclosure Letter:
(i) Coventry is in compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which Coventry, or any of the assets owned or used by Coventry, is subject; and
(iii) Coventry has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which Coventry,
or any of the assets owned or used by Coventry, is or has been subject.
1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 5.15 of the Disclosure Letter, since the
date of the Coventry Balance Sheet, Coventry and its Subsidiaries have conducted
their business only in the Ordinary Course of Business and there has not been
any:
(a) change in Coventry's or its Subsidiaries' authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of Coventry or its Subsidiaries; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by Coventry or its Subsidiaries of any shares
of any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of Coventry or its
Subsidiaries;
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(c) payment or increase by Coventry or its Subsidiaries of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of Coventry
or its Subsidiaries;
(e) damage to or destruction or loss of any asset or property of
Coventry or its Subsidiaries, whether or not adequately covered by insurance;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to Coventry of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of Coventry or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of Coventry;
(h) cancellation or waiver of any claims or rights with a value to
Coventry in excess of $25,000;
(i) material change in the accounting methods used by Coventry;
(j) agreement, whether oral or written, by Coventry to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth on Part 5.15 of the Disclosure Letter.
1.16 CONTRACTS; NO DEFAULTS
(a) (Part 5.16 of the Disclosure Letter contains a complete and
accurate list, and Coventry has delivered to the Shareholders and Members true
and complete copies, of: (i) all agreements and other commitments for the
purchase of any materials or supplies that involve an expenditure by Coventry or
its Subsidiaries of more than $10,000; (ii) all notes and agreements relating to
any indebtedness of Coventry or its Subsidiaries for borrowed money; (iii) all
leases or other rental agreements under which Coventry or its Subsidiaries is
either lessor or lessee; (iv) all other agreements (including, but not limited
to, employment agreements), commitments and understandings (written or oral) to
which Coventry or its Subsidiaries is a party or by which it is bound that
require payment by Coventry or its Subsidiaries of more than $10,000 and that
cannot be terminated by Coventry or its Subsidiaries on fewer than thirty (30)
days' notice without liability; and (v) all patents, trademarks (including
service marks), trade mark registrations, and applications for registering
patents or trademarks, owned by Coventry or its Subsidiaries (none of which is
subject to a licensing or other agreement with any other person). True and
complete copies of all written leases, agreements, commitments and
understandings (collectively, the "Coventry Agreements") referred to in Part
5.16 of the Disclosure Letter have been delivered to the Shareholders and
Members. Each Coventry Agreement is, and at the First Closing and the Second
Closing will be, in full force and effect, except for those that expire by their
own terms or which are terminated upon the request of Coventry with the written
consent of the Shareholders and Members. There is no existing default by
Coventry or its Subsidiaries under any Coventry Agreement, and, to the Knowledge
of Coventry, there is no existing default under any Coventry Agreement by any
other party to any Coventry Agreement.
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(b) Coventry and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 5.16 of the Disclosure Letter,
Coventry and its Subsidiaries have not subcontracted or sublicensed to or from
anyone the performance of any of its contractual responsibilities with respect
to any Applicable Contract.
(c) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries are not a party to any loan, promissory note, credit
agreement, working capital line, factoring arrangement, security interest,
pledge, or mortgage with any bank, financial institution or other entity or
person.
(d) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of Coventry or any Subsidiary,
or to any other person or entity.
(e) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries (i) do not have any power of attorney outstanding and (ii)
do not have any obligations or liabilities (whether absolute, accrued,
contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of any obligation of any other person or
entity (including without limitation, any director, officer, shareholder,
employee, consultant or contractor of Coventry or any Subsidiary). Part 5.16 of
the Disclosure Letter sets forth any cross-guarantees or indemnities provided by
or among Coventry or any Subsidiary to or for the benefit of Coventry or any
other Subsidiary.
(f) Coventry and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) Coventry and its Subsidiaries are not a party to (i) any contract,
pledge or commitment for charitable contributions, (ii) any contract with the
United States Government or any state or local government or public authority or
any agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
(h) Coventry and its Subsidiaries are not, by non-competition
agreement, restrictive covenant, court order, injunction, or otherwise,
restricted from carrying on any business whatsoever anywhere in the world.
(i) Coventry and its Subsidiaries are not required to provide any
letters of credit, bonding or financial security arrangements in connection with
any of their businesses, customers or suppliers, and none are issued or
outstanding.
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1.17 INSURANCE
Part 5.17 of the Disclosure Letter includes an insurance schedule
prepared by Coventry's insurance broker identifying all insurance policies
maintained by Coventry and its Subsidiaries, the insurance carrier, type of
coverage, amount of coverage, premium, policy expiration dates and loss
experience. Coventry has delivered to the Shareholders and Members true and
complete copies of all policies of insurance to which Coventry is a party or
under which Coventry, or any director of Coventry, is or has been covered at any
time within the three (3) years preceding the date of this Agreement, as set
forth on Part 5.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 5.18 of the Disclosure Letter:
(a) Coventry is, and at all times has been, in material compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. Coventry has no basis to expect, nor has it or any other
Person for whose conduct it is or may be held to be responsible received, any
actual or Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which Coventry
has or had an interest, or with respect to any property or Facility at or to
which Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Coventry, or any other Person for whose conduct
it is or may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which Coventry has or had an interest.
(c) Coventry has no Knowledge of any basis to expect, nor has it or any
other Person for whose conduct it is or may be held responsible, received, any
citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Coventry has or had an interest, or with
respect to any property or facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Coventry or any other Person for whose conduct it is or may be held responsible,
or from which Hazardous Materials have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.
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(d) Neither Coventry nor or any other Person for whose conduct it is or
may be held responsible, has any Environmental, Health, and Safety Liabilities
with respect to the Facilities, or with respect to any other properties and
assets (whether real, personal, or mixed) in which Coventry (or any
predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither Coventry, nor any other Person for whose conduct it is or may be held
responsible, or any other Person, has permitted or conducted, or is aware of,
any Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Coventry has or
had an interest.
(f) There has been no Release or Threat of Release of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which
Coventry has or had an interest, or to the Knowledge of Coventry, any
geologically or hydrologically adjoining property, whether by Coventry or any
other Person.
(g) Coventry has delivered to the Shareholders and Members true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Coventry pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Coventry, or any other Person for whose conduct it is or may be
held responsible, with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
(a) Coventry owns or possesses adequate licenses or other rights to use
all computer software, software programs, patents, patent applications,
trademarks, trademark applications, trade secrets, service marks, trade names,
copyrights, inventions, drawings, designs, customer lists, proprietary know-how
or information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. Coventry's operations do not conflict with or infringe,
and no one has asserted that those operations conflict with or infringe, any
rights of any third party.
(b) All licenses, agreements, registrations, applications and other
documentation of such intellectual property are listed and set forth on Part
5.19 of the Disclosure Letter, and Coventry has delivered to the Shareholders
and Members true and accurate copies thereof. Part 5.19 of the Disclosure Letter
identifies all such intellectual property which is (i) owned by Coventry or its
Subsidiaries, (ii) licensed from third parties (together with identification of
the license or other agreements relating to intellectual property licensed from
third parties), and (iii) licensed or sublicensed by Coventry or its
Subsidiaries to third parties. Except for the intellectual property licenses set
forth on Part 5.19 of the Disclosure Letter, neither Coventry nor any Subsidiary
is a party or subject to any trademark, copyright, patent, license, royalty or
proprietary rights agreements, and neither Coventry nor any Subsidiary pay any
license or royalty fees to any party in connection therewith.
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(c) No product made or sold by Coventry or its Subsidiaries infringes
any trademark, trade name, copyright, patent, know-how, trade secret or
proprietary right of any other party. No notifications, claims, actions, suits,
arbitrations, inquiries, proceedings or investigations of any kind have been
made or asserted or are pending or Threatened either (i) contesting Coventry's
or its Subsidiaries' right to sell, market and distribute the products utilizing
any intellectual property, (ii) based upon or challenging or seeking to deny or
restrict the use by Coventry or its Subsidiaries of any intellectual property,
or (iii) alleging that any products are being manufactured, sold, provided,
licensed or used by Coventry or its Subsidiaries in violation of any proprietary
rights of any third party.
(d) Part 5.19 of the Disclosure Letter sets forth the status of
Coventry's and its Subsidiaries' compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither Coventry nor any director, officer, agent, or employee of
Coventry, nor any other Person associated with or acting for or on behalf of
Coventry, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain special concessions or for special concessions already obtained,
for or in respect of Coventry or any Subsidiary of Coventry, or (ii) in
violation of any Legal Requirement, or (b) established or maintained any fund or
asset that has not been recorded in the books and records of Coventry.
1.21 DISCLOSURE
No representation or warranty of Coventry in this Agreement and no
statement by Coventry in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 5.22 of the Disclosure Letter, no Related
Person of Coventry has had any interest in any property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to
Coventry's business. Except as disclosed in Part 5.22 of the Disclosure
Schedule, no Related Person of Coventry is or has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with Coventry; or (ii) engaged in competition with Coventry
with respect to any line of the products or services of Coventry (a "Competing
Business") in any market presently served by Coventry. Except as set forth in
Part 5.22 of the Disclosure Letter, no Related Person of Coventry is a party to
any Contract with, or has any claim or right against, Coventry.
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1.23 BROKERS OR FINDERS
Coventry has incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
1.24 SEC DOCUMENTS
Coventry has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities and Exchange Act of 1934 (all of the foregoing,
including all exhibits filed therewith and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being hereinafter collectively referred to herein as the "Coventry SEC
Documents"). Coventry has delivered to the Shareholders and Members true and
complete copies of the Coventry SEC Documents. As of their respective dates, the
Coventry SEC Documents complied in all material respects with the requirements
of the Securities and Exchange Act of 1934 and the rules and regulations of the
SEC promulgated thereunder applicable to such Coventry SEC Documents, and none
of the Coventry SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted 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.
1.25 ACQUISITIONS AND DIVESTITURES
(a) Part 5.25 of the Disclosure Letter lists and identifies all
acquisitions or investments in the business, assets, capital stock, partnership
interests or membership interests in any other entity or division thereof
conducted at any time by Coventry, whether by purchase, merger, consolidation,
or any other form of transaction, as well as all divestitures or sales of any
business, Subsidiary, or division of Coventry or the assets, capital stock,
partnership interests or membership interests therein conducted at any time by
Coventry(such transactions referred to as "Acquisitions and Divestitures"); and
for each Acquisition or Divestiture, sets forth the date of the transaction, the
interests acquired or sold, the parties to the transaction and the consideration
therefor, and identifies all parties which have retained interests in any
business acquired by Coventry.
(b) Part 5.25 of the Disclosure Letter sets forth a listing of all
asset purchase, stock purchase, merger, consolidation, or other primary
agreement relating to each Acquisition and Divestiture as well as all promissory
notes, guarantees, security agreements, pledge agreements, preferred stock
designations, and other operative agreements relating to each Acquisition and
Divestiture; copies of all such documents have been delivered to the
Shareholders and Members.
(c) Part 5.25 of the Disclosure Letter sets forth a listing of all
agreements, reports, audits, and documentation relating to purchase price
adjustments, post-closing audits, post-closing amendments, revaluations or
reappraisals relating to all Acquisitions and Divestitures; copies of all such
documents have been delivered to the Shareholders and Members.
(d) Part 5.25 of the Disclosure Letter sets forth a listing of all
earnout agreements or other agreements relating to the payment of additional
purchase price or compensation, whether stock, cash or otherwise, based on
post-closing performance of businesses which are the subject of Acquisitions or
Divestitures, together with calculations, reports and statements of any amounts
paid thereunder; copies of all such documentation have been delivered to the
Shareholders and the Members.
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(e) Except as specifically described in Part 5.25 of the Disclosure
Letter, there are no claims for indemnification, adjustment, recission,
disputes, arbitration, accounting or breach or default, by Coventry or any other
party, under any agreement relating to any Acquisition or Divestiture. All
agreements relating to Acquisitions or Divestitures are in full force and
effect; there is no existing default by Coventry under any such agreement, and
to the actual Knowledge of Coventry, there is no existing default under any such
agreement by any other party thereto. Coventry has made all payments required to
be made to date (whether in cash, stock or property) under all Acquisitions, and
Coventry has received all payments required to be made to date (whether in cash,
stock or property) under all Divestitures.
(f) Part 5.25 of the Disclosure Letters identifies any Acquisition or
Divestiture involving a company or affiliate thereof which was the subject of
any bankruptcy, insolvency or reorganization proceedings; copies of the final
court orders approving the transaction(and the plan of reorganization if the
transaction was pursuant to such plan) have been delivered to the Shareholders
and Members.
1.26 CORPORATE STRUCTURE AND SUBSIDIARIES
(a) Part 5.26 of the Disclosure Letter sets forth an identification of
all subsidiaries, corporations, partnerships, limited liability companies or
other entities and affiliates in which Coventry has an interest, including
states of incorporation or organization and foreign qualification, sets forth
the exact authorized and outstanding shares and share ownership of all
subsidiaries and minority shareholdings, contains a chart of corporate
organization showing direct and indirect subsidiaries and chain of ownership,
and sets forth for each subsidiary or other entity, a brief description of the
business thereof and the directors and officers thereof.
(b) Except as set forth in Part 5.26 of the Disclosure Letter, neither
Coventry nor any Subsidiary has any legal or beneficial interest in any
subsidiary, corporation, partnership, joint venture or limited liability company
or other business entity. Coventry's business and assets are owned and operated
by the corporate entities of Coventry and the subsidiaries set forth in Part
5.26 of the Disclosure Letter directly and exclusively, and not through any
other affiliate or entity of any kind.
(c) Except as set forth in Part 5.26 of the Disclosure Letter, each
Subsidiary and other entity set forth in Part 5.26 is fully consolidated in the
federal tax returns filed by Coventry and fully consolidated in the Balance
Sheet of Coventry referred to in Section 5.4 hereof.
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1.27 COVENTRY STOCK ISSUED TO BSD AND PF
(a) The Coventry Shares to be delivered to BSD at the First Closing and
PF at the Second Closing will be duly authorized and issued, fully paid and
non-assessable. The shares of Coventry common stock to be delivered to BSD at
the First Closing, i.e. the BSD Consideration, shall aggregate 19.95% of the
Fully Diluted Capitalization(as defined below) of Coventry on the date of the
First Closing. The shares of Coventry common stock to be delivered to PF at the
Second Closing, i.e. the PF Consideration, shall be equal to the amount that,
when aggregated with the shares of Coventry common stock to be delivered to BSD
at the First Closing, shall total 80.1% of the Fully Diluted Capitalization of
Coventry on the date of the Second Closing. "Fully Diluted Capitalization" shall
mean the total number of outstanding shares of common stock of Coventry,
assuming that all options, warrants, convertible preferred stock, convertible
debt and other convertible securities or rights to acquire common stock of
Coventry have been fully exercised, converted and exchanged for, shares of
common stock of Coventry immediately prior to the applicable Closing. Part 5.27
of the Disclosure Letter sets forth a detailed calculation of the Fully Diluted
Capitalization of Coventry as of the dates of the First Closing and Second
Closing, respectively, giving effect to the issuance of shares to BSD and PF.
(b) All shares of Coventry common stock to be issued to BSD and PF in
accordance with this Agreement will be offered, issued, sold and delivered by
Coventry in compliance with all applicable state and federal laws and
regulations concerning the issuance of securities and none of such shares was or
will be issued in violation of the pre-emptive rights of any stockholder of
Coventry.
1.28 OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, OTHER MATTERS RELATING
TO SECURITIES OF COVENTRY
(a) Part 5.28 of the Disclosure Letter sets forth a table of all
outstanding options, warrants, convertible preferred stock, convertible
securities, convertible debt and other rights or arrangements for acquisition,
exercise, conversion or exchange into shares of common stock or other securities
of Coventry(or requiring Coventry to issue any shares of common stock or other
securities of Coventry), identifying the holders thereof, date of grant, vesting
requirements, exercise price, and number of underlying shares of common stock or
other securities of Coventry. Such table also identifies any vesting or
acceleration of such rights on any sale, transfer, merger or change of control
of Coventry or any Subsidiary thereof. Copies of all agreements relating to such
rights to acquire securities of Coventry have been delivered to the Shareholders
and Members.
(b) Part 5.28 of the Disclosure Letter sets forth a table of all stock
compensation agreements of Coventry (including marketing, advisory, consulting
or other agreements providing for payment or compensation in stock of Coventry
or rights thereto), identifying the holders thereof, date of grant, the number
of shares covered, and whether they remain outstanding, have been exercised or
have expired. Copies of all agreements relating to stock compensation have been
delivered to the Shareholders and Members.
(c) Except as set forth in Part 5.28 of the Disclosure Letter, no
present or former director, officer, employee or contractor of Coventry, or the
sellers or principals of any business which was the subject of any Acquisition
by Coventry, has the right to or has been promised a participation in any sale,
transfer, merger, change in control, Acquisition or Divestiture of Coventry or
any Subsidiary or business which was the subject of any Acquisition by Coventry.
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(d) Except as set forth in Part 5.28 of the Disclosure Letter, there
are no voting agreements, voting trusts, proxies, powers of attorney,
shareholder agreements, buy-sell agreements, put/call agreements, standstill
agreements, rights of first refusal, stock purchase, repurchase and redemption
agreements, stock restriction agreements, or other agreements relating to the
voting, transfer, or disposition of any class of securities of Coventry or any
Subsidiary.
(e) Part 5.28 of the Disclosure Letter sets forth an identification of
all stock option plans, stock incentive plans, stock appreciation rights plans,
"phantom stock" or similar incentive plans, together with evidence of Board and
shareholder approval thereof, where applicable. Copies of all such plans have
been provided to the Shareholders and Members.
(f) Except as set forth in Part 5.28 of the Disclosure Letter, no
holder of any securities of Coventry or any Subsidiary, or rights to obtain any
securities of Coventry or any Subsidiary, has any agreement or other rights
requiring Coventry or any Subsidiary thereof to register securities of any class
of Coventry or any Subsidiary at any time.
(g) The shares of common stock of Coventry are duly authorized for
trading on the NASDAQ Small Cap Market. On the date hereof and on the First
Closing and the Second Closing, Coventry will continue to meet all NASD
qualification requirements for continued trading on the NASDAQ Small Cap Market.
Coventry has not received any notices, warnings or actions from NASD or NASDAQ
relating to any delisting, suspension, removal, or failure to meet qualification
requirements of the NASDAQ Small Cap Market.
(h) Except as disclosed in Part 5.28 of the Disclosure Letter, Coventry
has not received any correspondence, notices, warnings, comment letters, or
actions from the United States Securities & Exchange Commission (the "SEC")or
any state securities regulator regarding any failure or potential failure to
comply with federal or state securities laws or regulations, or requiring
amendment or restatement of filings with the SEC or financial statements
included therein, or requiring any other corrective action on the part of
Coventry, or regarding any investigation, proceeding or audit of Coventry or its
Subsidiaries.
(i) All shares of capital stock of Coventry, and rights to acquire such
shares, since the formation of Coventry, have been offered, issued, sold and
delivered by Coventry in compliance with all applicable state and federal laws
and regulations concerning the issuance of securities. There has never been any
suit, claim or investigation by any shareholder of Coventry or any Subsidiary,
or by any purchaser, offeree or holder of any securities of Coventry or rights
to acquire such shares, or by the SEC or any state securities regulator, that
any securities of Coventry were offered, issued, sold or delivered in violation
of state or federal laws and regulations concerning the issuance of securities,
or requesting recission thereof, or damages in connection therewith.
(j) Except as set forth in Part 5.28 of the Disclosure Letter, neither
Coventry nor any Subsidiary is a party to any contract or understanding, oral or
written, with any underwriter, broker-dealer, placement agent, broker, finder,
agent, investment banker, investment advisor, bank, insurance company or other
Person or entity whereby any such party (i) has any rights or obligations to
conduct the offering, sale, underwriting, or placement of securities of Coventry
or any Subsidiary or to act as investment banker or investment advisor to
Coventry or any Subsidiary, or (ii) is entitled to any compensation or payments,
whether in the form of cash, stock, warrants, options or otherwise, with respect
to any offering, issuance, underwriting, sale or placement of securities of
Coventry or any Subsidiary.
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1.29 FACILITIES; LEASES; OWNED REAL PROPERTY
(a) Coventry and its Subsidiaries conduct business only at or from the
Facilities identified on Part 5.29 of the Disclosure Letter, which sets forth
the address of each location, the county in which it is located, whether such
Facility is owned or leased, the name of the Subsidiary which is the tenant or
owner of such Facility, and a general description of the use of the premises.
Except as set forth on Part 5.29 of the Disclosure Letter, all Facilities which
are owned by Coventry or its Subsidiaries ("Owned Real Property") are utilized
entirely by Coventry or its Subsidiaries and are not leased or subleased to
third parties. All Facilities which are leased by Coventry or its Subsidiaries
(collectively referred to as the "Real Property Leases") are leased from third
parties unaffiliated with Coventry, its Subsidiaries, or the officers,
directors, employees or shareholders thereof. Except as set forth on Part 5.29
of the Disclosure Letter, no consent or approval from any landlord under any of
the Real Property Leases is necessary in connection with the transactions
contemplated by this Agreement. At or prior to the First Closing and the Second
Closing, as applicable, and as a condition thereto, Coventry and its
Subsidiaries shall have received from the landlords of the Real Property Leases
identified on Part 5.29 of the Disclosure Letter as requiring such consent, a
written consent to the transactions contemplated by this Agreement and an
estoppel certificate in form and substance reasonably satisfactory to the
Shareholders and Members. Coventry shall bear all expenses of obtaining such
landlord consents. Coventry and its Subsidiaries have made all rental payments
due under the Real Property Leases to date (and through the dates of the First
Closing and the Second Closing) and are otherwise in full compliance with the
terms and conditions of such Real Property Leases.
(b) Coventry and its Subsidiaries do not share any space under the Real
Property Leases with any other person or entity; the Real Property Leases have
never been sublet or assigned by Coventry or its Subsidiaries; on the dates of
the First Closing and the Second Closing, the Real Property Leases shall be in
full force and effect; there are and will be no defaults under any Real Property
Leases or claims by the landlords thereof; and all rents under the Real Property
Leases have been paid and shall be paid in full through the dates of the First
Closing and the Second Closing. On the dates of the First Closing and the Second
Closing, the premises covered by the Real Property Leases shall not have been
damaged or otherwise adversely affected by any fire or casualty or the exercise
of the powers of eminent domain.
(c) All improvements, fixtures, machinery, equipment, structures,
heating, ventilation, air conditioning, lighting, security and other building
systems, plumbing and waste distribution systems relating to the Owned Real
Property are in good operating condition, working order and repair and are
adequate for the uses to which they are being put. The Owned Real Property and
all improvements thereon conform in all material respects with all applicable
building, zoning, environmental and other land use laws, ordinances, rules and
regulations and do not encroach in any respect on property of others. All
necessary occupancy, facility and other certificates and permits for the
occupancy and lawful use of the Owned Real Property for its current uses have
been issued and are presently in full force and effect. Except as set forth on
Part 5.29 of the Disclosure Letter, Coventry and its Subsidiaries have not
received any notices of violations of any Legal Requirements issued by any
state, county, municipal or local department having jurisdiction against or
affecting any of such Owned Real Property. Except to the extent set forth on
Part 5.29 of the Disclosure Letter, no use of the Owned Real Property is
dependent upon the continuance of a non-conforming use or special permit or
license. All service and maintenance contracts relating to the Owned Real
Property are set forth on Part 5.29 of the Disclosure Letter. There is no tax
assessment, revaluation or similar proceeding pending with respect to the Owned
Real Property. On the dates of the First Closing and the Second Closing, the
premises covered by the Owned Real Property shall not have been damaged or
otherwise adversely affected by any fire or casualty or the exercise of the
powers of eminent domain.
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(d) The transactions contemplated by this Agreement shall not, with
respect to the Facilities, require the consent or approval of or notification to
any federal, state or local agency under any environmental, industrial, labor,
plant closing, factory registration, or other laws or regulations.
(e) Coventry and its Subsidiaries have delivered to the Shareholders
and Members copies of all OSHA inspection reports, audits and surveys with
respect to the Facilities comprising the Owned Real Property and the Real
Property Leases within the past five (5) years. None of such Facilities have
been rated a high risk or high hazard facility or operation, nor are they
subject to or participate in any OSHA Cooperative Compliance Program or any
other remedial, corrective or compliance program imposed by OSHA.
1.30 FIXED ASSETS
(a) Certain of Coventry's and its Subsidiaries' Fixed Assets(as defined
below) are leased in accordance with the equipment leases described on Part 5.30
of the Disclosure Letter (the "Equipment Leases"). Coventry and its Subsidiaries
have made all rental payments due under such leases to date (and through the
dates of the First Closing and the Second Closing) and are otherwise in full
compliance with the terms and conditions of such leases.
(b) Coventry's and its Subsidiaries' Fixed Assets are in good operating
condition, working order and repair and are adequate for the uses to which they
are being put. Part 5.30 of the Disclosure Letter sets forth a schedule of
Coventry's and its Subsidiaries' Fixed Assets and identifies any Fixed Assets
which are not actually owned by them but are leased. "Fixed Assets" shall be
defined as fixtures, leasehold improvements, structures, machinery, equipment,
tools, furniture, pallets, telephones and systems, computer systems (including
software), and all other items of material personal property used or useful in
the business of Coventry and its Subsidiaries.
1.31 PRODUCT LINES
(a) Part 5.31 of the Disclosure Letter contains a complete and correct
list of all product types and product lines comprising the businesses of
Coventry and its Subsidiaries, identified by the specific Subsidiary or division
thereof. Coventry and its Subsidiaries have never been the subject of any
product liability, safety, or false, deceptive or misleading advertising claims
and have never been the subject of any investigation, proceeding, warning,
citation or other claim by any federal, state, foreign or local governmental
agency. Coventry and its Subsidiaries have not initiated any recall of any items
products or taken any similar action, and Coventry does not know of any basis
for any such action which should have been taken or may have to be taken in the
future. Coventry and its Subsidiaries have not engaged in any advertising
practices which are deceptive, misleading, or otherwise in violation of any
Legal Requirements.
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(b) Each item of merchandise included in the inventory of Coventry and
its Subsidiaries or which has been sold or shipped by Coventry and its
Subsidiaries is safe for its intended uses and conforms with all Legal
Requirements and product safety and testing codes and standards, and contains
all required labels, disclosures and warnings, including without limitation,
compliance with the requirements of the Magnuson-Moss Warranty Act and the
Consumer Product Safety Act. With regard to items of merchandise included in the
inventory of Coventry and its Subsidiaries or which has been sold or shipped by
Coventry or its Subsidiaries as to which safety or flammability standards have
been issued, Coventry and its Subsidiaries have performed the necessary tests to
demonstrate compliance of its products with such standards and maintains proper
documentation thereof.
1.32 BANK ACCOUNTS
Part 5.32 of the Disclosure Letter sets forth the name, account number,
signatories, financial institution (with branch, address and contact person) of
all banking or financial institution accounts, deposit or concentration
accounts, safety deposit boxes, money market accounts, brokerage accounts and
investment accounts maintained by Coventry and its Subsidiaries.
1.33 PURCHASE FOR INVESTMENT
All of the BSD Shares and the PF Membership Interests delivered
pursuant to this Agreement shall be acquired by Coventry for investment and not
with a view toward, or for sale in connection with, any distribution thereof;
provided, however, that the foregoing shall not constitute a restriction on
Coventry from transferring such BSD Shares and PF Membership Interests in
compliance with applicable Legal Requirements.
Article VI
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder individually represents and warrants to Coventry, as
to himself, except as set forth in the Disclosure Letter, as follows:
6.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding obligation
of such Shareholder, enforceable against the Shareholder in accordance with its
terms, to the extent applicable thereto. Upon the execution and delivery by the
Shareholder of this Agreement and all Agreements contemplated herein to which
the Shareholder is a party (collectively, the "Shareholder Closing Documents"),
this Agreement and the Shareholder Closing Documents will constitute the legal,
valid and binding obligations of the Shareholder enforceable against such
Shareholder in accordance with their respective terms except as such enforcement
is limited by bankruptcy, insolvency or other laws affecting creditor's rights
generally. The Shareholder has the absolute and unrestricted right, power,
authority and capacity to execute and deliver this Agreement and the Shareholder
Closing Documents and to perform his obligations under this Agreement and the
Shareholder Closing Documents.
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(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or directly (with or without notice or lapse of time or both);
(i) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any legal requirement or any order to which such Shareholder may be subject;
(ii) to the knowledge of the Shareholder, contravene, conflict
with, or result in a violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate or modify, any contract
to which such Shareholder is a party;
(c) Except as set forth in Part 6.1 of the Disclosure Letter, the
Shareholder is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement by such Shareholder or the consummation and performance of any of the
Contemplated Transactions by such Shareholder.
1.2 BSD SHARE OWNERSHIP
The Shareholder is and will be on the First Closing Date the record and
beneficial owner and holder of all of the BSD Shares identified on Part 6.2 of
the Disclosure Letter, free and clear of all Encumbrances.
1.3 PURCHASE FOR INVESTMENT
All shares of Coventry common stock delivered pursuant to this
Agreement shall be acquired by the Shareholders for investment and not with a
view toward, or for sale in connection with, any distribution thereof; provided,
however, that the foregoing shall not constitute a restriction on the
Shareholders from transferring such shares of Coventry in compliance with
applicable Legal Requirements.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF MEMBERS
As of the Second Closing Date, each Member individually represents and
warrants to Coventry, as to himself, except as set forth in the Disclosure
Letter, as follows:
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7.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding obligation
of such Member, enforceable against the Member in accordance with its terms, to
the extent applicable thereto. Upon the execution and delivery by the Member of
this Agreement and all Agreements contemplated herein to which the Member is a
party (collectively, the "Member Closing Documents"), this Agreement and the
Member Closing Documents will constitute the legal, valid and binding
obligations of the Member enforceable against such Member in accordance with
their respective terms except as such enforcement is limited by bankruptcy,
insolvency or other laws affecting creditor's rights generally. The Member has
the absolute and unrestricted right, power, authority and capacity to execute
and deliver this Agreement and the Member Closing Documents and to perform his
obligations under this Agreement and the Member Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or directly (with or without notice or lapse of time or both);
(i) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any legal requirement or any order to which such Member may be subject;
(ii) to the knowledge of the Member, contravene, conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify, any contract to
which such Member is a party;
(c) Except as set forth in Part 7.1 of the Disclosure Letter, the
Member is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement by such Member or the consummation and performance of any of the
Contemplated Transactions by such Member.
1.2 PF MEMBERSHIP INTEREST OWNERSHIP
The Member will be on the Second Closing Date the record and beneficial
owner and holder of all of the PF Membership Interests identified on Part 7.2 of
the Disclosure Letter, free and clear of all Encumbrances.
1.3 PURCHASE FOR INVESTMENT
All shares of Coventry common stock delivered pursuant to this
Agreement shall be acquired by the Members for investment and not with a view
toward, or for sale in connection with, any distribution thereof; provided,
however, that the foregoing shall not constitute a restriction on the Members
from transferring such shares of Coventry in compliance with applicable Legal
Requirements.
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ARTICLE VIII
COVENANTS OF BSD PRIOR TO DATE OF FIRST CLOSING
8.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the First Closing Date, BSD
will, and will cause its Representatives to, (a) afford Coventry and its
Representatives and prospective lenders and their Representatives (collectively,
"Coventry's Advisors") full and free access to BSD personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Coventry and Coventry's Advisors with copies of
all such contracts, books and records, and other existing documents and data as
Coventry may reasonably request, and (c) furnish Coventry and Coventry's
Advisors with such additional financial, operating, and other data and
information as Coventry may reasonably request.
8.2 OPERATION OF BSD BUSINESSES
Between the date of this Agreement and the First Closing Date, BSD
will:
(a) conduct the business of BSD only in the Ordinary Course of
Business;
(b) use its best efforts to: preserve intact the current business
organization of BSD, keep available the services of the current officers,
employees, and agents of BSD, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with BSD;
(c) confer with Coventry concerning operational matters of a material
nature; and
(d) otherwise report periodically to Coventry concerning the status of
the business, operations, and finances of BSD.
8.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the First Closing Date, BSD will not, without the
prior consent of Coventry, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 3.15 is likely to occur.
8.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, BSD will
make all filings required by Legal Requirements to be made by it in order to
consummate the Contemplated Transactions. Between the date of this Agreement and
the First Closing Date, BSD will (a) cooperate with Coventry with respect to all
filings that Coventry elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b) cooperate with
Coventry in obtaining all consents identified in Part 5.2 of Coventry's
Disclosure Letter.
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1.5 NOTIFICATION
Between the date of this Agreement and the First Closing Date, BSD will
promptly notify Coventry in writing if BSD becomes aware of any fact or
condition that causes or constitutes a Breach of any of BSD's representations
and warranties as of the date of this Agreement, or if BSD becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, BSD will promptly deliver to
Coventry a supplement to the Disclosure Letter specifying such change. During
the same period, BSD will promptly notify Coventry of the occurrence of any
Breach of any covenant of BSD in this Agreement or of the occurrence of any
event that may make the satisfaction of the conditions in Article XI impossible
or unlikely.
1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, the Shareholders will not, and will cause BSD and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Coventry) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of BSD, or any of the stock or equity security interests of BSD, or
any merger, consolidation, business combination, or similar transaction
involving BSD
1.7 BEST EFFORTS
Between the date of this Agreement and the First Closing Date, BSD will
use its best efforts to cause the conditions in Article XI to be satisfied.
1.8 SUBSIDIARIES
All references to "BSD" in this Article VIII shall include BSD and all
its Subsidiaries.
ARTICLE IX
COVENANTS OF PF PRIOR TO DATE OF SECOND CLOSING
9.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Second Closing Date, PF
will, and will cause its Representatives to, (a) afford Coventry and Coventry's
Advisors full and free access to PF personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data, (b)
furnish Coventry and Coventry's Advisors with copies of all such contracts,
books and records, and other existing documents and data as Coventry may
reasonably request, and (c) furnish Coventry and Coventry's Advisors with such
additional financial, operating, and other data and information as Coventry may
reasonably request.
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1.2 OPERATION OF PF BUSINESSES
From and after the inception of its business and until the Second
Closing Date, PF will:
(a) conduct the business of PF only in the Ordinary Course of Business;
(b) use its best efforts to: preserve intact the business organization
to be developed by PF, keep available the services of the officers, employees,
and agents to be appointed by PF, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others which
will have business relationships with PF;
(c) confer with Coventry concerning the acquisition and development of
its business and operational matters of a material nature; and
(d) otherwise report periodically to Coventry concerning the status of
the business, operations, and finances of PF;
provided, however, that Coventry recognizes and acknowledges that PF will be
acquiring and developing its business during the period prior to the Second
Closing Date.
1.3 INTENTIONALLY DELETED
1.4 REQUIRED APPROVALS
Prior to the Second Closing Date, PF will make all filings required by
Legal Requirements to be made by it in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Second Closing Date, PF
will (a) cooperate with Coventry with respect to all filings that Coventry
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Coventry in obtaining all
consents identified in Part 5.2 of Coventry's Disclosure Letter
1.5 NOTIFICATION
Between the date of this Agreement and the Second Closing Date, PF will
promptly notify Coventry in writing if PF becomes aware of any fact or condition
that causes or constitutes a Breach of any of PF's representations and
warranties as of the date of this Agreement, or if PF becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, PF will promptly deliver to Coventry
a supplement to the Disclosure Letter specifying such change. During the same
period, PF will promptly notify Coventry of the occurrence of any Breach of any
covenant of PF in this Agreement or of the occurrence of any event that may make
the satisfaction of the conditions in Article XII impossible or unlikely.
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1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, the Members will not, and will cause PF and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Coventry) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of PF, or any of the membership interests of PF, or any merger,
consolidation, business combination, or similar transaction involving PF,
provided, however, that Coventry recognizes and acknowledges that PF will be
acquiring and developing its business during the period prior to the Second
Closing Date.
1.7 BEST EFFORTS
Between the date of this Agreement and the Second Closing Date, PF will
use its best efforts to cause the conditions in Article XII to be satisfied.
1.8 SUBSIDIARIES
All references to "PF" in this Article IX shall include PF and all its
Subsidiaries.
ARTICLE X
COVENANTS OF COVENTRY
10.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Second Closing Date,
Coventry will, and will cause its Representatives to, (a) afford the
Shareholders, the Members and their Representatives and prospective lenders and
their Representatives (collectively, "Advisors") full and free access to
Coventry's personnel, properties (including subsurface testing), contracts,
books and records, and other documents and data, (b) furnish the Shareholders,
the Members and their Advisors with copies of all such contracts, books and
records, and other existing documents and data as they may reasonably request,
and (c) furnish the Shareholders, the Members and their Advisors with such
additional financial, operating, and other data and information as they may
reasonably request.
1.2 OPERATION OF COVENTRY'S BUSINESSES
Between the date of this Agreement and the Second Closing Date,
Coventry will:
(a) conduct the business of Coventry only in the Ordinary Course of
Business;
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(b) use its best efforts to: preserve intact the current business
organization of Coventry, keep available the services of the current officers,
employees, and agents of Coventry, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with Coventry;
(c) confer with the Shareholders and Members concerning operational
matters of a material nature; and
(d) otherwise report periodically to the Shareholders and Members
concerning the status of the business, operations, and finances of Coventry.
1.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Second Closing Date, Coventry will not, without
the prior consent of the Shareholders and Members, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 5.15 is likely to occur.
1.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Coventry
will make all filings required by Legal Requirements to be made by it in order
to consummate the Contemplated Transactions. Between the date of this Agreement
and the Second Closing Date, Coventry will (a) cooperate with BSD, PF, the
Shareholders and the Members with respect to all filings that they elect to make
or are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) cooperate with BSD, PF, the Shareholders and
Members in obtaining all consents identified in Part 3.2 of BSD's Disclosure
Letter or Part 4.2 of PF's Disclosure Letter.
1.5 NOTIFICATION
Between the date of this Agreement and the Second Closing Date,
Coventry will promptly notify the Shareholders and Members in writing if
Coventry becomes aware of any fact or condition that causes or constitutes a
Breach of any of Coventry's representations and warranties as of the date of
this Agreement, or if Coventry becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Disclosure Letter if the Disclosure
Letter were dated the date of the occurrence or discovery of any such fact or
condition, Coventry will promptly deliver to the Shareholders and Members a
supplement to the Disclosure Letter specifying such change. During the same
period, Coventry will promptly notify the Shareholders and Members of the
occurrence of any Breach of any covenant of Coventry in this Agreement, or of
the occurrence of any event that may make the satisfaction of the conditions in
Articles XI and XII impossible or unlikely.
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1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, Coventry will not, and will cause each of its Representatives not
to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than the Shareholders and Members) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of Coventry, or any acquisition of the business or assets of any
Person by Coventry or any of the stock or equity security interests of Coventry,
or any merger, consolidation, business combination, or similar transaction
involving Coventry.
1.7 BEST EFFORTS
Between the date of this Agreement and the Second Closing Date,
Coventry will use its best efforts to cause the conditions in Articles XI and
XII to be satisfied.
1.8 SUBSIDIARIES
All references in this Article X to "Coventry" shall include Coventry
and all its Subsidiaries.
1.9 SEC FILINGS AND SHAREHOLDER COMMUNICATIONS
From and after the date of this Agreement and until the completion of
the Second Closing, all of Coventry's SEC filings, communications with its
shareholders, proxy statements, prospectuses, and similar communications shall
be subject to the prior review and reasonable approval of the Shareholders and
Members.
1.10 SPECIAL RIGHTS OF SHAREHOLDERS/MEMBERS
From and after the First Closing, the Board of Directors of Coventry
shall consist of eight (8) members, of which four (4) shall be designated by the
Shareholders. On the First Closing and as a condition thereof, the Board of
Directors of Coventry shall appoint such four (4) designees of the Shareholders
to the Board of Directors of Coventry, and a sufficient number of existing
Directors of Coventry shall resign so as to accommodate such appointments. From
and after the First Closing, Stephen Rosedale shall be elected and shall serve
as the Chairman of the Board of Coventry, and Robert Hausman shall be elected
and shall serve as Chief Executive Officer of Coventry. From and after the
Second Closing and until the next annual meeting of shareholders of Coventry,
the Board of Directors of Coventry shall consist of nine (9) members, of which
five (5) shall be designated by the Shareholders and the Members. On the Second
Closing and as a condition thereof, the Board of Directors of Coventry shall
appoint such five (5) designees of the Shareholders and Members to the Board of
Directors of Coventry, and a sufficient number of existing Directors of Coventry
shall resign so as to accommodate such appointments.
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ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BSD,
SHAREHOLDERS AND COVENTRY AT FIRST CLOSING
BSD's, the Shareholders' and Coventry's (BSD, the Shareholders and
Coventry collectively referred to as the "Parties" in this Article XI)
obligations to consummate the transactions contemplated at the First Closing and
to take the other actions required to be taken by the Parties at the First
Closing are subject to the satisfaction, at or prior to the First Closing, of
each of the following conditions to be performed by Coventry in favor of the
Shareholders and BSD (any of which may be waived by the Shareholders, in whole
or in part) and to be performed by BSD or the Shareholders in favor of Coventry
(any of which may be waived by Coventry in whole or in part):
1.1 ACCURACY OF REPRESENTATIONS
All of the Parties' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the First Closing Date as if made on the First Closing Date, without giving
effect to any supplement (delivered after the First Closing Date) to the
Disclosure Letter.
1.2 PARTIES' PERFORMANCE
(a) All of the covenants and obligations that the Parties are required
to perform or to comply with pursuant to this Agreement at or prior to the First
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered by the Parties pursuant to
this Agreement must have been delivered, and each of the other covenants and
obligations to be performed by the Parties under this Agreement must have been
performed and complied with in all respects.
1.3 CONSENTS
Each of the Consents identified in the Disclosure Letter or otherwise
required by this Agreement to be obtained by a Party, must have been obtained
and must be in full force and effect.
1.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to the
opposite Party:
(a) an opinion of such Parties' counsel, identified in Section 16.4,
dated the First Closing Date;
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(b) such other documents as the other Party may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 11.4(a), (ii) evidencing the accuracy of any of the Party's
representations and warranties, (iii) evidencing the performance by the Party of
any covenant or obligation required to be performed or complied with by the
Party, (iv) evidencing the satisfaction of any condition referred to in this
Article XI, or (v) otherwise facilitating the consummation or performance of any
of the Contemplated Transactions.
1.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Party, or against any Person affiliated with the Party,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
1.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock or
membership interest, or any other voting, equity, or ownership interest in
Coventry or BSD, or (b) is entitled to all or any portion of the BSD
Consideration.
1.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time or both), materially contravene, or conflict with, or result in a material
violation of, or cause each respective Party or any Person affiliated therewith
to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
1.8 DUE DILIGENCE
All of the inspections, investigations, evaluations, due diligence and
other matters set forth in Section 2.1 hereof shall have been satisfactory to,
or waived by, Coventry, the Shareholders and the Members in accordance with
Section 2.1 hereof.
1.9 PRO FUTURES AGREEMENT
Coventry, the Shareholders, the Members and Pro Futures Fund shall have
entered into an agreement, satisfactory to the Shareholders and the Members,
whereby Pro Futures Fund agrees that prior to the Second Closing, it will
convert all shares of preferred stock of Coventry held or owned by Pro Futures
Fund to shares of common stock of Coventry.
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1.10 AGREEMENTS WITH CERTAIN COVENTRY SECURITY/OPTION HOLDERS
Each of certain Persons who are security holders of Coventry, or who
have stock compensation or stock option agreements, or other similar
arrangements, with Coventry, as specified by the Shareholders, shall have
entered into agreements in favor of Coventry, the Shareholders and the Members,
in each case satisfactory to the Shareholders and the Members, whereby such
Persons will confirm their specific arrangements as to Coventry securities and
will release Coventry, the Shareholders and the Members from any other rights to
securities of Coventry or liabilities in connection therewith.
1.11 NASDAQ COMPLIANCE.
Coventry shall be in full compliance with the requirements of Section
5.28(g) of this Agreement relating to NASDAQ qualification and compliance, and
accordingly, on the date of the First Closing, Coventry shall continue to be
fully qualified for NASDAQ Small Cap Market listing and trading, and all
necessary filings and registrations to maintain such qualification shall have
been made.
ARTICLE XII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PF,
MEMBERS AND COVENTRY AT SECOND CLOSING
PF's, the Members' and Coventry's (PF, the Members and Coventry
collectively referred to as the "Parties" in this Article XII) obligations to
consummate the transactions contemplated at the Second Closing and to take the
other actions required to be taken by the Parties at the Second Closing are
subject to the satisfaction, at or prior to the Second Closing, of each of the
following conditions to be performed by Coventry in favor of the Members and PF
(any of which may be waived by the Members, in whole or in part) and to be
performed by PF or the Members in favor of Coventry (any of which may be waived
by Coventry, in whole or in part):
1.1 ACCURACY OF REPRESENTATIONS
All of the Parties' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Second Closing Date as if made on the Second Closing Date, without giving
effect to any supplement to the Disclosure Letter.
1.2 PARTIES' PERFORMANCE
(a) All of the covenants and obligations that the Parties are required
to perform or to comply with pursuant to this Agreement at or prior to the
Second Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
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(b) Each document required to be delivered by the Parties pursuant to
this Agreement must have been delivered, and each of the other covenants and
obligations to be performed by the Parties pursuant to this Agreement must have
been performed and complied with in all respects.
1.3 CONSENTS
Each of the Consents identified in the Disclosure Letter or otherwise
required by this Agreement, must have been obtained and must be in full force
and effect.
1.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to the
opposite Party:
(a) an opinion of such Parties' counsel, identified in Section 16.4,
dated the Second Closing Date;
(b) such other documents as the other Party may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 12.4(a), (ii) evidencing the accuracy of any of the Party's
representations and warranties, (iii) evidencing the performance by the Party of
any covenant or obligation required to be performed or complied with by the
Party, (iv) evidencing the satisfaction of any condition referred to in this
Article XII, or (v) otherwise facilitating the consummation or performance of
any of the Contemplated Transactions.
1.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Party, or against any Person affiliated with the Party,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
1.6 NO CLAIM REGARDING STOCK OWNERSHIP OR MEMBERSHIP INTEREST OR SALE
PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock or
membership interest, or any other voting, equity, or ownership interest in
Coventry or PF, or (b) is entitled to all or any portion of the PF
Consideration.
1.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time or both), materially contravene, or conflict with, or result in a material
violation of, or cause each respective Party or any Person affiliated therewith
to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
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1.8 PRO FUTURES CONVERSION
The conversion of all shares of preferred stock of Coventry held or
owned by Pro Futures Fund to shares of common stock of Coventry shall have been
completed prior to the Second Closing Date, such that the representations and
warranties of Coventry set forth in Section 5.27 hereof shall be true and
accurate on the Second Closing Date.
1.9 NASDAQ COMPLIANCE
As provided in Section 5.28(g) of this Agreement, Coventry shall
continue to be fully qualified for NASDAQ Small Cap listing and trading on the
Second Closing Date, and all necessary filings and registrations to maintain
such qualification shall have been made.
ARTICLE XIII
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF MEMBERS AND
COVENTRY AT THE SECOND CLOSING; RECISSION.
In addition to the conditions set forth in Article XII hereof, the
obligations of each Member and Coventry to consummate the transactions
contemplated at the Second Closing shall be subject to: (i) the consummation of
the transactions contemplated at the First Closing; (ii) Coventry obtaining the
requisite approval of its shareholders to issue the PF Consideration; and (iii)
the transaction contemplated by the Second Closing qualifying as a tax free
transaction under the IRC. In the event that the Second Closing is not
consummated within one hundred eighty (180) days after consummation of the First
Closing (the "Contingency Date"), which Contingency Date may be extended by
either party for an additional ninety (90) days in order to obtain any necessary
approvals from the SEC, and extended thereafter only by mutual consent of the
parties hereto, or if Coventry has not satisfied any condition precedent set
forth in Article XII hereof or in this Article XIII on or before the Contingency
Date, as so extended, then, in addition to the rights and remedies set forth in
Articles XIV and XV hereof, the parties agree that, upon the written request of
a majority of the Shareholders and the Members, they shall take all actions
necessary to rescind this Agreement and to unwind the transactions consummated
at the First Closing in such a manner as will place the parties hereto in as
close to the same position as possible as such party was in on the date hereof
without unreasonable effort, expense or delay.
ARTICLE XIV
INDEMNIFICATION
14.1 INDEMNIFICATION BY COVENTRY
Coventry covenants and agrees as follows:
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(a) Coventry and its Subsidiaries shall, jointly and severally,
indemnify the Shareholders and the Members and their affiliates and the members,
officers and directors thereof and defend and hold each of them and their
respective successors, assigns, heirs and personal representatives
(collectively, the "Indemnitees") harmless of and from: (i) any breach of any
representations or warranties of Coventry contained herein; (ii) any breach of
any other covenants or obligations of Coventry contained herein; (iii) any and
all claims, suits and causes of action arising out of or by reason of any matter
or cause whatsoever, relating to or in connection with or arising out of the
business conducted by Coventry and its Subsidiaries prior to the First Closing
Date; (iv) any and all claims, suits and causes of action arising out of or by
reason of any matter or cause whatsoever, relating to or in connection with or
arising out of the business conducted by BSD from and after the First Closing
Date, except for claims, suits and causes of action arising out of or by reason
of any acts or omissions of the Shareholders after the First Closing Date
(provided, however, that this exception shall not limit the Shareholders' rights
to be indemnified by Coventry under other agreements and by applicable law); (v)
any and all claims, suits and causes of action arising out of or by reason of
any matter or cause whatsoever, relating to or in connection with or arising out
of the business conducted by PF from and after the Second Closing Date, except
for claims, suits and causes of action arising out of or by reason of any acts
or omissions of the Members after the Second Closing Date (provided, however,
that this exception shall not limit the Members' rights to be indemnified by
Coventry under other agreements and by applicable law); (vi) any and all
liabilities, claims, suits, or causes of action by or through any shareholders
(or holders of rights to acquire securities) of Coventry or its Subsidiaries, or
by any Governmental Body, or by any other Person, contesting, challenging,
objecting to, delaying, or otherwise interfering with, the Contemplated
Transactions or alleging that any such transactions are in violation of law or
contract or seeking damages, dissenter's rights, appraisal rights, recission or
other remedies in connection therewith; and (vii) any and all liabilities,
claims, suits, causes of action relating to, or in connection with, the existing
claims against Coventry and its Subsidiaries identified in Part 5.14 of the
Disclosure Letter. Such indemnity shall only cover all damages, losses, costs
and expenses of the Indemnitees, including, without limitation, amounts paid in
settlement or satisfaction of claims; judgments; fines; penalties; and
reasonable attorneys' fees and disbursements.
(b) In the event that Coventry shall have breached any of its
obligations, representations, warranties or covenants contained in this
Agreement, or Coventry and its Subsidiaries are obligated to make any
indemnification as provided herein, the Indemnitees shall notify Coventry in
writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.1, Coventry and its Subsidiaries shall
have the obligation to defend any such claim at their own expense and with
counsel reasonably acceptable to the Indemnitees; provided, however, that if
Coventry and its Subsidiaries fail to undertake such defense or procure a
settlement releasing the Indemnitees by written notification to the Indemnitees
within twenty (20) days after the date of the Indemnitees' notification of
indemnification claim, or if thereafter, Coventry and its Subsidiaries fail to
maintain such defense to the reasonable satisfaction of the Indemnitees, then
the Indemnitees shall have the option, but not the obligation, to defend such
claim with any counsel of their choosing, all at the joint and several expense
of Coventry and its Subsidiaries, provided that Coventry shall not be liable for
the fees and expenses of more than one firm. Notwithstanding the foregoing, the
Indemnitees may elect to defend any such third party claim which is the subject
of indemnification with their own counsel, all at the joint and several expense
of Coventry and its Subsidiaries. Neither Coventry or its Subsidiaries, on one
hand, nor the Indemnitees, on the other hand, shall enter into a settlement of
any such third party claim without the other party's written consent, which will
not be unreasonably withheld or delayed; provided, however, that the Indemnitees
shall have no obligation to consent to any settlement unless it provides for a
complete release of the Indemnitees with respect to such third party claim.
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(d) If any Indemnitee is entitled to be indemnified by Coventry and its
Subsidiaries pursuant to this Agreement, then, promptly following the final
determination of the amount thereof, at the election of the Indemnitee in its
sole discretion, (i) Coventry or its Subsidiaries shall pay to the Indemnitee
the Adjusted Indemnification Amount (as defined below) in cash, or (ii) Coventry
shall pay to the Indemnitee the Adjusted Indemnification Amount by issuing to
Indemnitee that number of shares of common stock of Coventry (which shall be
duly issued, fully paid and non-assessable) computed by dividing the Adjusted
Indemnification Amount by the fair market value of Coventry common stock on the
date of the final determination. For example, if the Adjusted Indemnification
Amount were $100,000, and Coventry common stock's fair market value on the final
determination date was $2.00 per share, then Coventry would issue an additional
50,000 shares of its common stock to the Indemnitee. The "Adjusted
Indemnification Amount" is one hundred thirty-five percent (135%) of the final
determination of the amount of indemnification to be provided to Indemnitee
pursuant to this Agreement.
(e) The representations, warranties and covenants made by Coventry
herein shall be deemed and construed to be continuing representations,
warranties and covenants and shall survive the execution and delivery of this
Agreement and the First Closing and the Second Closing for a period of two (2)
years thereafter.
(f) Notwithstanding anything to the contrary in this Section 14.1, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
1.2 INDEMNIFICATION BY BSD
BSD covenants and agrees as follows:
(a) BSD and its Subsidiaries shall, jointly and severally, indemnify
Coventry and its affiliates and the officers and directors thereof and defend
and hold each of them and their respective successors, assigns, heirs and
personal representatives (collectively, the "Coventry Indemnitees") harmless of
and from: (i) any breach of any representations or warranties of BSD contained
herein; (ii) any breach of any other covenants or obligations of BSD contained
herein; (iii) any and all claims, suits and causes of action arising out of or
by reason of any matter or cause whatsoever, relating to or in connection with
or arising out of the business conducted by BSD and its Subsidiaries prior to
the First Closing Date; (iv) any and all liabilities, claims, suits, or causes
of action by or through any shareholders (or holders of rights to acquire
securities) of BSD or its Subsidiaries, or by any Governmental Body, or by any
other Person, contesting, challenging, objecting to, delaying, or otherwise
interfering with, the Contemplated Transactions or alleging that any such
transactions are in violation of law or contract or seeking damages, dissenter's
rights, appraisal rights, recission or other remedies in connection therewith;
and (v) any and all liabilities, claims, suits, causes of action relating to, or
in connection with, the existing claims against BSD and its Subsidiaries
identified in Part 3.14 of the Disclosure Letter. Such indemnity shall only
cover all damages, losses, costs and expenses of the Coventry Indemnitees,
including, without limitation, amounts paid in settlement or satisfaction of
claims; judgments; fines; penalties; and reasonable attorneys' fees and
disbursements.
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(b) In the event that BSD shall have breached any of its obligations,
representations, warranties or covenants contained in this Agreement, or BSD and
its Subsidiaries are obligated to make any indemnification as provided herein,
the Coventry Indemnitees shall notify BSD in writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.2, BSD and its Subsidiaries shall have the
obligation to defend any such claim at their own expense and with counsel
reasonably acceptable to the Coventry Indemnitees; provided, however, that if
BSD and its Subsidiaries fail to undertake such defense or procure a settlement
releasing the Coventry Indemnitees by written notification to the Coventry
Indemnitees within twenty (20) days after the date of the Coventry Indemnitees'
notification of indemnification claim, or if thereafter, BSD and its
Subsidiaries fail to maintain such defense to the reasonable satisfaction of the
Coventry Indemnitees, then the Coventry Indemnitees shall have the option, but
not the obligation, to defend such claim with any counsel of their choosing, all
at the joint and several expense of BSD and its Subsidiaries, provided that BSD
shall not be liable for the fees and expenses of more than one firm.
Notwithstanding the foregoing, the Coventry Indemnitees may elect to defend any
such third party claim which is the subject of indemnification with their own
counsel, all at the joint and several expense of BSD and its Subsidiaries.
Neither BSD or its Subsidiaries, on one hand, nor the Coventry Indemnitees, on
the other hand, shall enter into a settlement of any such third party claim
without the other party's written consent, which will not be unreasonably
withheld or delayed; provided, however, that the Coventry Indemnitees shall have
no obligation to consent to any settlement unless it provides for a complete
release of the Coventry Indemnitees with respect to such third party claim.
(d) The representations, warranties and covenants made by BSD herein
shall be deemed and construed to be continuing representations, warranties and
covenants and shall survive the execution and delivery of this Agreement and the
First Closing and the Second Closing for a period of two (2) years thereafter.
(e) Notwithstanding anything to the contrary in this Section 14.2, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
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1.3 INDEMNIFICATION BY PF
PF covenants and agrees as follows:
(a) PF shall indemnify Coventry and its affiliates and the officers and
directors thereof and defend and hold each of them and their respective
successors, assigns, heirs and personal representatives (collectively, the
"Coventry Indemnitees") harmless of and from: (i) any breach of any
representations or warranties of PF contained herein; (ii) any breach of any
other covenants or obligations of PF contained herein; (iii) any and all claims,
suits and causes of action arising out of or by reason of any matter or cause
whatsoever, relating to or in connection with or arising out of the business
conducted by PF and its Subsidiaries prior to the Second Closing Date; (iv) any
and all liabilities, claims, suits, or causes of action by or through any
members (or holders of rights to acquire securities) of PF, or by any
Governmental Body, or by any other Person, contesting, challenging, objecting
to, delaying, or otherwise interfering with, the Contemplated Transactions or
alleging that any such transactions are in violation of law or contract or
seeking damages, dissenter's rights, appraisal rights, recission or other
remedies in connection therewith; and (v) any and all liabilities, claims,
suits, causes of action relating to, or in connection with, the existing claims
against PF identified in Part 4.14 of the Disclosure Letter. Such indemnity
shall only cover all damages, losses, costs and expenses of the Coventry
Indemnitees, including, without limitation, amounts paid in settlement or
satisfaction of claims; judgments; fines; penalties; and reasonable attorneys'
fees and disbursements.
(b) In the event that PF shall have breached any of its obligations,
representations, warranties or covenants contained in this Agreement, or PF is
obligated to make any indemnification as provided herein, the Coventry
Indemnitees shall notify PF in writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.3, PF shall have the obligation to defend
any such claim at its own expense and with counsel reasonably acceptable to the
Coventry Indemnitees; provided, however, that if PF fails to undertake such
defense or procure a settlement releasing the Coventry Indemnitees by written
notification to the Coventry Indemnitees within twenty (20) days after the date
of the Coventry Indemnitees' notification of indemnification claim, or if
thereafter, PF fails to maintain such defense to the reasonable satisfaction of
the Coventry Indemnitees, then the Coventry Indemnitees shall have the option,
but not the obligation, to defend such claim with any counsel of their choosing,
all at the expense of PF, provided that PF shall not be liable for the fees and
expenses of more than one firm. Notwithstanding the foregoing, the Coventry
Indemnitees may elect to defend any such third party claim which is the subject
of indemnification with their own counsel, all at the expense of PF. Neither PF,
on one hand, nor the Coventry Indemnitees, on the other hand, shall enter into a
settlement of any such third party claim without the other party's written
consent, which will not be unreasonably withheld or delayed; provided, however,
that the Coventry Indemnitees shall have no obligation to consent to any
settlement unless it provides for a complete release of the Coventry Indemnitees
with respect to such third party claim.
(d) The representations, warranties and covenants made by PF herein
shall be deemed and construed to be continuing representations, warranties and
covenants and shall survive the execution and delivery of this Agreement and the
First Closing and the Second Closing for a period of two (2) years thereafter.
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(e) Notwithstanding anything to the contrary in this Section 14.3, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
ARTICLE XV
TERMINATION
15.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at either the First or
Second Closing, be terminated:
(a) by any party if a Material Breach of any provision of this
Agreement has been committed by the other party and such Material Breach has not
been waived after notice of such Material Breach has been provided and such
breaching party has been given an opportunity to be heard. As used herein, a
"Material Breach" shall mean a Breach which substantially interferes with the
ability of any party to comply with the closing conditions to this Agreement or
to consummate the Contemplated Transactions;
(b) (i) by Coventry, if any of the conditions in Articles XI or XII to
be performed by BSD, PF, the Shareholders or the Members, as the case may be,
has not been satisfied as of the Closing Dates applicable thereto or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Coventry to comply with its obligations under this Agreement) and
Coventry has not waived such condition on or before the Closing Dates applicable
thereto;
(ii) by the Shareholders or Members, if any of the conditions in
Articles XI or XII to be performed by Coventry has not been satisfied as of the
Closing Dates applicable thereto or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Shareholders or
Members to comply with their obligations under this Agreement) and the
Shareholders or Members have not waived such condition on or before the Closing
Dates applicable thereto;
(c) by mutual consent of the parties hereto;
(d) by either Coventry, the Shareholders or the Members if the First
Closing has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under this
Agreement) on or before the date set forth in the first sentence of Section 2.3
hereof, or such later date as the parties may agree upon;
(e) by either Coventry, the Shareholders or the Members if the Second
Closing has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under this
Agreement) on or before the Contingency Date, as defined in, and as may be
extended pursuant to, Article XIII hereof, or such later date as the parties
agree upon; or
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(f) by Coventry, the Shareholders and/or the Members at any time on or
before the expiration of the Due Diligence Period, pursuant to Section 2.1.
1.2 EFFECT OF TERMINATION
Each party's right of termination under Section 15.1 is in addition to
any other rights that it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 15.1, all further obligations of the
parties under this Agreement will terminate, except that the obligations in
Articles XIII, XIV and XVI will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE XVI
GENERAL PROVISIONS
16.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a Breach of this Agreement by another party.
16.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Coventry, the Shareholders and the Members shall
determine. Unless consented to by all parties hereto in advance or required by
Legal Requirements, prior to the Closing, all parties hereto shall keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person, except as required by law. The parties hereto will
consult with each other concerning the means by which the employees, customers,
and suppliers and others having dealings with them will be informed of the
Contemplated Transactions.
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16.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, BSD, PF,
Coventry, the Shareholders and the Members will maintain in confidence, and will
cause the directors, officers, employees, agents and advisors of Coventry and
the Acquired Companies to maintain in confidence, and not use to the detriment
of another party or an Acquired Company, any written, oral, or other information
obtained in confidence from another party or an Acquired Company in connection
with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is required by, or necessary or appropriate in connection with,
legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
16.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
SHAREHOLDERS:
Ronald Wilheim
Steven Rosedale
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
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MEMBERS:
Ronald Wilheim
Steven Rosedale
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
BSD:
BSD Healthcare Industries, Inc.
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Attention: Ronald Wilheim, Secretary
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
PF:
People First Staffing, LLC
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Attention: Ronald Wilheim, Secretary
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
COVENTRY:
Coventry Industries, Inc.
7777 Glades Road
Boca Raton, Florida 33434
Attention: Robert Hausman, CEO
Facsimile No.: 561-488-3419
with a copy to: Michael Karsch, Esq.
Broad and Cassel
Suite 3000
201 South Biscayne Boulevard
Miami, Florida 33131
74
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16.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Florida, Palm Beach County, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Southern District of Florida, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
16.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
16.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
16.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
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16.9 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any
supplement thereto, relate only to the representations and warranties in the
Section of the Agreement to which they expressly refer and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
16.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
16.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
16.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
16.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
16.14 0GOVERNING LAW
This Agreement will be governed by the laws of the [State of Florida]
without regard to conflicts of laws principles.
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16.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
COVENTRY INDUSTRIES, INC. SHAREHOLDERS:
By: /s/ Robert Hausman /s/ Ronald Wilheim
----------------------- --------------------
Robert Hausman, CEO Ronald Wilheim
/s/ Steven Rosedale
--------------------
Steven Rosedale
MEMBERS:
/s/ Ronald Wilheim
- ------------------
Ronald Wilheim
/s/ Steven Rosedale
- -------------------
Steven Rosedale
BSD HEALTHCARE INDUSTRIES, INC.
By: /s/ Steven Rosedale
- -----------------------
Name: Steven Rosedale
Title: President
PEOPLE FIRST STAFFING, LLC
By: /s/ Steven Rosedale
- -----------------------
Name: Steven Rosedale
Title: Member
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<PAGE>
TERMINATION AND AMENDMENT AGREEMENT
-----------------------------------
AGREEMENT made and entered into on this 9th day of December, 1998, by
and among Barron Chase Securities, Inc. ("BCS") and Coventry Industries Corp.
(the "Company").
WHEREAS, the Company and BCS entered into a Financial Advisory
Agreement (the "Advisory Agreement") and Investment Banking Warrant Agreement
(the "Warrant Agreement") each dated January 20, 1998; and
WHEREAS, the parties desire to terminate the Financial Advisory
Agreement and amend the terms of the Warrant Agreement, except for the rights
relating to the receipt by BCS and its assigns of 300,000 warrants of the
Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, promises, and undertakings set forth herein, as complete and full
satisfaction of the Advisory Agreement, the parties agree as follows:
1. (a) Effective immediately, the Financial Advisory Agreement is
terminated and BCS waives all claims that it may have to any amounts that may be
payable or rights it may have under the Financial Advisory Agreement.
(b) The first paragraph of Article 1 of the Warrant Agreement is
amended to read in its entirety:
"The aforesaid recitals are true and accurate. Pursuant to the
Warrants, the Holders are hereby granted the right to purchase from the
Company, at any time during the period commencing on January 20, 1998
and expiring on January 20, 2001 (the "Expiration Time"), up to 300,000
shares of the Company's Common Stock at an initial exercise price
(subject to adjustment as provided in Article 8 hereof) of $.75 per
share (the "Exercise Price" or "Purchase Price")."
(c) The Warrant Certificate shall be amended to conform to the
changes set forth in Paragraph 1(b) above. All other terms and
conditions of the Warrant Agreement shall remain the same.
2. BCS waives and hereby releases and discharges the Company, and the
Company waives and hereby releases and discharges BCS, from any and all
liability of whatever kind or nature arising from any acts or omissions of
either party, known or unknown, asserted or unasserted, which occurred up to the
date of this Agreement, including but not limited to all liability for any acts
that may have violated their rights under any contract, tort, or other common
law, or any other duty or obligation of any kind; all liability, asserted or
unasserted, known or unknown, suspected or unsuspected, which was or may have
been alleged against or imputed to either party by the other party up to the
date of this Agreement.
3. Neither BCS nor the Company shall in the future initiate or cause to
be initiated any judicial or administrative charge, complaint, action, or
proceeding relating to claims released under paragraph 2 of this Agreement and
that were or could have been raised against
1
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either party in any forum as of the date of this Agreement. In the event that
any such judicial or administrative charge, complaint, action, or proceeding is
presently pending, or if in the future any such proceeding is commenced by
either party or any person or party acting on that party's behalf, the party
with such notice shall promptly notify the other party of the existence of that
proceeding, withdraw it, with prejudice, to the extent that party has the power
to do so, and except to the extent required or compelled by law, legal process,
or subpoena, shall refrain from participating, testifying or producing documents
or information therein.
4. This Agreement constitutes the entire agreement between the parties
in relation to its subject matter, supersedes all prior agreements between the
parties, if any, concerning its subject matter, and may not be altered, amended,
modified, superseded, canceled, or terminated except by a writing duly executed
by the parties or their attorneys on their behalf
5. If any of the provisions, terms, clauses, waivers, or releases of
claims or rights contained in this Agreement are declared illegal,
unenforceable, or ineffective in a legal forum of competent jurisdiction, then
such provisions, terms, clauses, waivers, or releases of claims or rights shall
be deemed severable, such that all other provisions, terms, clauses, waivers,
and releases of claims and rights contained in this Agreement shall remain valid
and binding upon the parties.
6. This Agreement shall be governed by the laws of the State of
Florida.
IN WITNESS WHEREOF, Coventry Industries Corp. and Barron Chase
Securities, Inc. have acknowledged and executed this Agreement as of the date
hereof
COVENTRY INDUSTRIES CORP.
By:
------------------------------
Robert Hausman, President
BARRON CHASE SECURITIES, INC.
By:
------------------------------
Robert T. Kirk, President
2
<PAGE>
EXHIBIT 10.13
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
DATED MAY 1, 1998 BETWEEN
-------------------------
INDUSTRIAL FABRICATION AND REPAIR,
----------------------------------
COVENTRY INDUSTRIES CORP, AND LESTER GANN
-----------------------------------------
This Amendment dated November 9, 1998 is being entered into by the
parties as a condition of the pending change of control of Coventry that will
occur upon the completion of the exchange agreement between Coventry, BSD
Healthcare Industries, Inc. ("BSD"), and People First Staffing, LLC ("PF"). In
consideration for waiving and/or modifying certain sections of the employment
agreement as outlined below, Coventry agrees to issue to the employee 665,000
shares of its common stock. Employee further acknowledges that Industrial
Fabrication & Repair, Inc. ("IFR") is a key asset to preserving Coventry's
Nasdaq SmallCap Market listing and must remain in Coventry in order for the
successful completion of the exchange agreement among Coventry, BSD, and PF to
occur.
The Employee agrees to the following modifications to the agreement:
4. Term - The term of employment shall be extended to three (3) years
from the date of this amendment.
5.1 Signing Bonus - Paragraph 5.1 is deleted and replaced in its entirety
as follows: "In consideration for entering into this amendment to the
agreement, Coventry hereby agrees to pay to the employee the balance of
his prior signing bonus of 70,000 shares of Coventry common stock
pursuant to the Company's 1997 Employee Stock Option Plan at a price
equal to $0.001 per share (par value). The shares are to be paid upon
the closing of the "PF" transaction."
7.6 Business Activities - Paragraph 7.6 is deleted and replaced in its
entirety as follows: "Business Activities" shall be deemed to include
any business activities, which the Company or any of its affiliates may
engage in during the term of this agreement."
10. Employee's Stock in Coventry -Section 10 is deleted and replaced in its
entirety as follows: "Coventry agrees in the event of its bankruptcy,
reorganization, change of control (as hereinafter defined in section
10.1 below) delisting of its Common Stock from the Nasdaq SmallCap
Market, Coventry will purchase Employee's 665,000 shares of stock in
Coventry (adjusted for any subsequent stock splits or reverses) (the
"Coventry Shares") for (i) Seven Hundred Fifty Thousand Dollars; or,
(ii) the fair market value of said stock, whichever is greater.
Following the occurrence of any of the conditions listed in
the first paragraph of this Section 10, at Employee's option and in his
sole and absolute discretion, Employee may instead elect to transfer
the Coventry Shares to Coventry in exchange for Coventry returning to
him all of the issued and previously outstanding stock of IFR. Upon
Employee's written notification of his election to reacquire IFR,
Coventry shall convey such stock to Employee. Upon the occurrence of
such conditions and Employee's election to reacquire IFR, this
Agreement shall terminate immediately in its entirety. The parties
agree that they shall in good faith execute any and all stock
certificates or other
<PAGE>
legal documents reasonably required by counsel for either party which
are deemed necessary to consummate this transfer of shares.
If at the expiration of the term of this Agreement, IFR is not
willing to agree to an extension of this Agreement or a new agreement
with at least a one-year term with substantially similar terms and
conditions, then Employee shall have the option to reacquire all of the
issued and previously outstanding stock of IFR in exchange for, at
Employee's option, either (i) $750,000 in cash, (ii) $750,000 of
Coventry Common stock (calculated using 90% of the average closing bid
price for the five days prior to closing), or (c) the Coventry Shares.
In the event Employee elects to reacquire IFR, the parties
agree that in conjunction with such acquisition, Employee shall also
have the option to acquire the real property and improvements located
at 2415 Sycamore Drive, Knoxville, Knox County, Tennessee 37931, in
exchange for Employee's assumption of all liabilities related to this
real property and equipment and $200,000 payable in either cash, a note
with mutually agreeable terms, or an equivalent number in shares of
Coventry stock at 90% of the bid price based on the five day average
prior to closing to Coventry.
10.1 Change of Control Defined. For purposes of Section 10 of this
Agreement, "change of control" shall be defined as any event(s) in
which persons or a group (as defined pusuant to the Securities Exchange
Act of 1934) excluding Stephen Rosedale and/or Ronald Wilheim and/or
their respective affiliates acquire thirty five percent (35%) or more
of the voting power in Coventry. Affiliates are defined as any members
of their respective families and other entities owned by the
Rosedale/Wilheim families."
All other terms and conditions of the agreement remain the same. Agreed
and accepted as of this 9th day of November, 1998.
Industrial Fabrication & Repair, Inc.
By:
-------------------------------
Title:
----------------------------
Coventry Industries Corp.
By: /s/Robert Hausman
-------------------------------
Title: President
Employee:
/s/ Lester Gann
----------------------------------
<PAGE>
EXHIBIT 10.14
SECOND AMENDMENT TO MANAGEMENT AGREEMENT
THIS AMENDMENT TO MANAGEMENT AGREEMENT (this "Agreement") is made and
entered into as of December 1, 1998 (the "Effective Date") between Coventry
Industries Corp., a Florida corporation whose principal place of business is
7777 Glades Road, Suite 211, Boca Raton, Florida 33434 (the "Company"), and
Robert Hausman, an individual whose address is 3785 NW 65th Lane, Boca Raton,
Florida 33496 (the "Manager").
RECITALS
WHEREAS, the Company and Hausman are parties to that certain Management
Agreement dated as of July 1, 1997 and amended as of November 1, 1997, a copy of
which is attached hereto as Exhibit A and incorporated herein by such reference
(the "Management Agreement").
WHEREAS, the parties wish to amend certain specific terms of the
Management Agreement as herein after set forth.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Manager do hereby agree as follows:
1. The Executive shall serve as the President and Chief Executive
Officer of the Company and shall be responsible for all tasks and activities
that are customarily the responsibility of such officer and all tasks and
activities reasonably determined by the Board of Directors of the Company. The
Executive shall continue to serve on the Board of Directors of the Company or
any committee thereof without additional compensation.
2. Paragraph 3. is hereby deleted in its entirety and substituted as
follows:
3. Compensation and Benefits. (a) As his sole compensation payable by
the Company under this Agreement, the Manager shall be entitled to receive the
following:
(1) an annual management fee of one hundred thirty one thousand
($131,000) dollars, payable in twelve equal monthly installments, with an annual
incremental increases of the greater of (i) the percentage increase in the
Consumer Price Index, all items, as published by the United States Department of
Labor, since the date of this Agreement (in the case of the first annual
increase) or since the most recent anniversary of the date of this Agreement (in
the case of all subsequent annual increases), or (ii) six percent (6%) of the
previous year's base management fee; provided that payment of the monthly
installments shall not be made until such time as the Company raises at least
$500,000 of new financing, and at such time the Company shall pay to the Manager
the full amount of the deferral.
(2) an annual cash bonus equal to 3% of the Company's Net Pre-Tax
Income (as that term is hereinafter defined), payable within 10 business days of
the filing with the Securities and Exchange Commission of the Company's annual
report on Form 10-KSB. For the purposes of this Agreement, "Net Pre-Tax Income"
shall mean the gross revenues of the Company, less the
<PAGE>
costs of the revenues earned, less selling, general and administrative expenses,
as reflected on the financial statements of the Company for the fiscal years
ending June 30, which such financial statements shall be prepared in accordance
with generally accepted accounting principles applied on a consistent basis;
(3) the exercise price of the options to purchase 200,000 shares of
common stock of the Company at an exercise prices of $5.00 and $4.00 per share
shall be adjusted to options to purchase 50,000 shares each with exercise prices
of $1.75, $2.00, $2.25 and $2.50 per share, which such options shall immediately
vest and be exercisable at any time and from time to time during the Term of
this Agreement; provided, however, that any options which shall not have been
exercised by the Manager prior to the expiration of the Term of this Agreement
pursuant to the provisions of Section 5 hereof shall immediately expire; and
(4) a car allowance of $1,500 per month to cover the cost of Manager's
automobile and operating expenses;
(5) to participate in any hospitalization or disability insurance
plans, health programs, pension plans, bonus plans or similar benefits that may
be available to other executives of the Company (including coverage under any
officers and directors liability insurance policy);
(6) such other compensation, including, without limitation, bonus
compensation, as may be determined by a majority of the Company's Board of
Directors, in their sole discretion.
b. The Manager shall be reimbursed for all reasonable expenses incurred
in the rendering of the services hereunder.
3. A new paragraph 5 is added:
5. Repayment of Loans, Accrued Dividends and Accrued Salary.
As of the date of this Agreement, Manager is owed approximately $282,000
consisting of accrued salary, accrued dividends and loans to the Company. In
order to repay such amount as promptly as practicable, the Company will issue a
note (the "Note") to Manager. The Note will have the following terms:
(1) bear interest at 8% per annum,
(2) provide for 24 equal monthly installments of principal and
interest that are payable in either cash or the Company's Common
Stock at the Company's option,
(3) provide for acceleration upon the termination of this Agreement
without cause.
4. A new paragraph 6 is added:
6. Redemption of Preferred Stock. (a) Manager and Manager's
wife own 115,000 shares of the Company's Series E Preferred Stock (the
"Preferred Stock"). Manager and the Company have agreed that the Preferred Stock
will be exchanged for 1,150,000 shares of Common Stock, of which 600,000 shares
shall be exchanged prior to the closing of the BSD transaction and the remaining
550,000 shall be exchanged prior to the closing of the People First transaction.
Effective on such exchange, the Management Fee payable pursuant to Section 3(1)
<PAGE>
above will be increased by $77,000, which amount is equal to the dividends on
the Preferred Stock. The Company agrees that the net cash proceeds from the sale
of its Federal Supply subsidiary will first be used to redeem any outstanding
Preferred Stock and then to repurchase Common Stock from Manager at a price of
$1.00 per share. The Company and Manager will agree to facilitate the sale of
these shares of Common Stock and Manager will use these management fee proceeds,
proceeds of such sales and from Federal Supply to repay principal and interest
on the Manager's loan from Chase Manhattan Bank in the approximate principal
amount of $1,115,000 (the "Loan"). The management fee shall be reduced pro rata
as Manager receives funds from the Company with respect to the sale of Federal
Supply or from the sale of Common Stock and the interest payments decrease.
5. Manager and the Company agree not to invoke the "change in control"
provisions of Section 4 as a result of the transactions set forth in the
Exchange Agreement dated as of September 30, 1998.
6. Paragraphs 5 through 17 shall be renumbered to be 7 through 19. The
remaining terms and conditions of the Management Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written in Boca Raton, Florida.
COVENTRY INDUSTRIES CORP.
By:
------------------------------
Name:
Title:
MANAGER
/s/ Robert Hausman
----------------------------------
Robert L. Hausman
<PAGE>
EXHIBIT 10.15
VOTING AGREEMENT
VOTING AGREEMENT, dated as of December 3, 1998 (this "Agreement"),
among Robert Hausman, Lester Gann, Ronald Wilhelm, Stephen Rosedale, Yucatan
Holdings, Connie Steinmetz, Strategic Capital Holdings, Inc. and Arizona
Development Corporation (collectively, the "Shareholders").
WHEREAS, Coventry Industries Corp., a Florida corporation ("Coventry"),
BSD Healthcare Industries, Inc. ("BSD"), People First Staffing, LLC ("PF") and
the shareholders and members of BSD and PF have entered into an Exchange
Agreement dated as of September 29, 1998 (the "Exchange Agreement") pursuant to
which 80.1% of the outstanding equity of BSD and PF will be exchanged for 80.1%
of the outstanding common stock of Coventry (the "Exchange"); and
WHEREAS, as of the date hereof, the Shareholders are the beneficial
owners of 3,777,961 shares of Coventry's common stock, par value $.001 per share
("Coventry Common Stock") and each Shareholder owns of record and beneficially
the number of shares of Coventry Common Stock set forth on Schedule A hereto;
WHEREAS, approval of the Exchange Agreement and the issuance of in
excess of 19.9% of Coventry Common Stock by Coventry's Shareholders at a
Shareholders meeting (the "Shareholder Meeting") is a condition to the
consummation of the Exchange;
WHEREAS, certain Shareholders of Coventry have requested that the
Shareholders enter into this Agreement and such Shareholders have agreed to
enter into this Agreement to vote in favor of the Exchange and certain other
events;
WHEREAS, in order to effectuate the Exchange, the Shareholders have
agreed, among other things, to enter into this Agreement with respect to all of
the shares of Coventry Common Stock now owned and which may hereafter be
acquired by the Shareholders (the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
VOTING OF SHARES
----------------
SECTION 1.01. Voting Agreement. (a) During the term of this Agreement, the
Shareholders agree to attend the Shareholder Meeting or any other shareholder
meeting in person or by proxy, and to vote (or cause to be voted) all Shares,
and any other voting securities of Coventry, whether issued heretofore or
hereafter, that the Shareholder beneficially owns or has the right to vote for
approval and adoption of the Exchange Agreement (as amended from time to time),
the Exchange, the other transactions contemplated by the Exchange Agreement and
any other transactions or items recommended by Coventry's Board of Directors,
with such agreement to vote to apply also to any adjournment of the Shareholder
Meeting.
<PAGE>
(b) Except as provided in this Agreement and during the term of this
Agreement, the Shareholders shall not, directly or indirectly, grant any proxy
or power of attorney with respect to the Shares, deposit any of such Shares into
a voting trust or enter into any voting agreement or arrangement inconsistent
with this Agreement.
(c) During the term of this Agreement, each Shareholder agrees that,
without the prior written consent of Coventry, such Shareholder shall not,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
pledge, assign, hypothecate, tender or otherwise transfer or dispose of, or
enter into any agreement to do any of the foregoing with respect to, any Shares
or any other voting securities of Coventry that the Shareholder beneficially
owns except to a purchaser who agrees in writing prior to such acquisition to be
bound by the terms of this Agreement with respect to the Shares being acquired
by such purchaser.
(d) During the term of this Agreement, each Shareholder agrees to vote
(or cause to be voted) all Shares, and any other voting securities of the
Company, whether issued heretofore or hereafter, that he beneficially owns or
has the right to vote against any action or agreement that could result in a
material breach of any covenant, representation or warranty or any other
obligation or agreement of Coventry, BSD or PF under the Exchange Agreement or
that could result in any of the conditions to the obligations of Coventry, BSD
or PF under the Exchange Agreement not being fulfilled.
SECTION 1.02. Irrevocable Proxy. Each Shareholder hereby irrevocably
appoints Ronald Wilheim, until termination of this Agreement, as the
Shareholder's attorney and proxy pursuant to the provisions of Section 607.0731
of the Florida Business Corporation Act, with full power of substitution, to
vote, and otherwise act (by written consent or otherwise) with respect to the
Shares which the Shareholder is entitled to vote at any shareholder meeting
(whether annual or special and whether or not an adjourned or postponed meeting)
or consent in lieu of any such meeting or otherwise, only on the specific
matters and in the manner specified in Section 1.01 hereof. THIS PROXY AND POWER
OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Each Shareholder hereby
revokes all other proxies and powers of attorney with respect to the Shares
which the Shareholder may have heretofore appointed or granted, and no
subsequent proxy or power of attorney shall be given or written consent executed
(and if given or executed, shall not be effective) by the Shareholder with
respect thereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
Each Shareholder hereby represents and warrants to Coventry and the
other Shareholders as follows:
SECTION 2.01. Authority Relative to This Agreement. This Agreement has
been duly and validly executed and delivered by the Shareholder and, assuming
the due authorization, execution and delivery by Coventry, constitutes a legal,
valid and binding obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization
2
<PAGE>
or other laws affecting the enforcement of creditors' rights generally or by
general equitable principles.
SECTION 2.02. No Conflict. (a) The execution and delivery of this
Agreement by the Shareholder does not, and the performance of this Agreement by
the Shareholder shall not, (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Shareholder or by which
the Shareholder is bound, or (ii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Shareholder is party or by which the
Shareholder is bound or affected, except, in the case of the foregoing, for any
such conflicts, violations, breaches, defaults or other occurrences which would
not prevent or materially delay the performance by Shareholder of its
obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Shareholder
does not, and the performance of this Agreement by the Shareholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any domestic governmental or regulatory authority, except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended.
SECTION 2.03. Title to the Shares. The Shareholder hereby represents
that (a) as of the date hereof, the Shareholder is either the record owner or
the beneficial owner of the number of shares of Coventry Common Stock set forth
on Exhibit A hereto, and (b) except as provided by this Agreement as of the date
hereof and at any Shareholder Meeting held during the term of this Agreement,
the Shareholder has, and shall have, the ability to vote all of the Shares in
accordance with Section 1.01 of this Agreement. Except as provided in this
Agreement, the Shareholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Shares.
ARTICLE III
MISCELLANEOUS
-------------
SECTION 3.01. Termination. This Agreement shall terminate upon the
earlier of (a) the termination of the Exchange Agreement or (b) the consummation
of the Exchange, in each case in accordance with the terms and conditions of the
Exchange Agreement.
SECTION 3.02. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction to prevent any breach of this Agreement and to enforce
specifically the terms and provisions hereof in any Florida court, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 3.03. Successors and Affiliates.This Agreement shall inure to
the benefit and shall be binding upon the parties hereto and their respective
successors, assigns,
3
<PAGE>
heirs, executors, administrators and representatives. If any person shall
acquire additional Shares from a Shareholder in any manner, whether by operation
of law or otherwise, such Shares shall be held subject to all of the terms of
this Agreement, and by taking and holding such Shares, such person shall be
conclusively deemed to have agreed to be bound by and to comply with all of the
terms and provisions of this Agreement. Without limiting the foregoing, each
Shareholder specifically agrees that its obligations hereunder shall not be
terminated by operation of law.
SECTION 3.04. Entire Agreement.This Agreement constitutes the entire
agreement among the Shareholders with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral, among
the Shareholders with respect to the subject matter hereof.
SECTION 3.05. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 3.06. Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
SECTION 3.07. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 3.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 3.09. Counterparts. This Agreement may be executed in
counterparts by manual or facsimile signature of each undersigned party, and all
such counterparts shall be deemed to constitute one and the same instrument.
SECTION 3.10. Notices. All notices, requests, claims, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been effectively given when delivered personally, when dispatched by
electronic facsimile transmission (with receipt thereof electronically
confirmed) or one day after having been sent by overnight courier to the parties
at the addresses set forth on the signature pages hereto (or such other address
for a party as shall be specified by like notice).
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date hereof.
ROBERT HAUSMAN STEPHEN ROSEDALE
--------------------------- ------------------------------
Address Address::
LESTER GANN YUCATAN HOLDINGS
By:
--------------------------- ---------------------------
Address: Name:
Address:
RONALD WILHELM CONNIE STEINMETZ
--------------------------- ------------------------------
Address: Address:
STRATEGIC CAPITAL ARIZONA DEVELOPMENT CORP.
HOLDINGS, INC.
By: By:
------------------------ ---------------------------
Name Name:
Address: Address:
5
<PAGE>
SCHEDULE A
----------
Name Number of Shares
- ---- ----------------
Robert Hausman 718,380
Lester Gann 728,581
Ronald Wilhelm 189,200
Stephen Rosedale 756,800
Yucatan Holdings 250,000
Connie Steinmetz 145,000
Strategic Capital Holdings, Inc. 250,000
Arizona Development Corp. 120,000
6
<PAGE>
FINANCIAL CONSULTING AGREEMENT
------------------------------
This FINANCIAL CONSULTING AGREEMENT (this "Agreement") made as of this
2nd day of November, 1998 is by and between Coventry Industries Corp., a Florida
corporation, with its principal place of business at 7777 Glades Road, Suite
211, Boca Raton, FL 33434 (the "Company"), and Connie Steinmetz, an individual,
having her principal place of business in Memphis, TN (the "Consultant").
RECITALS:
---------
A. The Company is a public company with a class of equity securities
publicly traded, and desires to retain Consultant to provide certain financial
consulting services.
B. Consultant desires to provide certain financial consulting services
to the Company in accordance with the terms and conditions contained
hereinafter.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto hereby agree as follows:
1. Consulting Services. During the term of this Agreement, Consultant
is hereby retained by the Company to provide financial consulting services to
the Company, as said services relate to corporate finance matters, including,
without limitation, advice regarding acquisitions, consolidations, mergers,
joint ventures and financial strategies. Consultant shall provide such financial
consulting services as reasonably requested by the Company during the term of
this Agreement, provided that nothing hereunder shall require Consultant to
devote a minimum number of hours per calendar month toward the performance of
services hereunder. The level and scope of services that may reasonably be
requested hereunder shall be dependent, in part, on the amount of compensation
to be paid Consultant by the Company hereunder. Unless otherwise agreed to by
Consultant, all services hereunder shall be performed by Consultant, in its sole
discretion, at its principal place of business or other offices. Notwithstanding
anything contained herein to the contrary, the services to be performed by
Consultant hereunder may be performed by any employee or consultant to
Consultant.
2. Term. The term of this Agreement shall be for two years commencing
as of the date first written above and terminating one day prior to the second
anniversary hereof; provided, however, that this Agreement shall be renewable
for subsequent one year terms, by mutual agreement of the parties in writing, at
least thirty (30) days prior to the expiration of the then current term.
3. Compensation. In consideration for the performance of services
hereunder, the Company hereby agrees to pay Consultant the aggregate sum of
145,000 shares of the Company's restricted common stock as full compensation for
the term of this Agreement within 30 days of the execution of this Agreement.
These shares are being issued as payment for $145,000 in value of services to be
rendered. If, at the time that the shares mature and can be liquidated under the
"144" sales rules, the value is less than $145,000, the Company will
<PAGE>
issue additional shares to make up the shortfall upon proper presentation of the
documented sales of the stock by the Consultant. The Company hereby agrees to
pay on a pre-approval basis all out-of-pocket expenses incurred by Consultant in
connection with such services to be rendered hereunder. Consultant may, from
time to time, deem it to be in the best interests of the Company to retain an
outside consultant in connection with certain specific acquisitions or proposed
transactions. In such event, the Company hereby agrees to pay any and all fees
and expenses of such consultant.
4. Representations of the Company. The Company hereby represents and
warrants that any and all information supplied hereunder to Consultant in
connection with any and all services to be performed hereunder by Consultant for
and on behalf of the Company shall be true, complete and correct as of the date
of such dissemination and shall not fail to state a material fact necessary to
make any of such information not misleading. The Company hereby acknowledges
that the ability of Consultant to adequately provide financial consulting
services hereunder and/or to initiate and/or effectuate introductions on behalf
of the Company with respect to potential acquisitions is dependent upon the
prompt dissemination of accurate, correct and complete information to
Consultant. In addition, and notwithstanding anything contained herein to the
contrary, nothing hereunder shall obligate Consultant to make any minimum number
of introductions hereunder or to initiate any merger or acquisitions involving
or relating to the Company. The Company further represents and warrants
hereunder that this Agreement and the transactions contemplated hereunder, have
been duly and validly authorized by all requisite corporate action; that the
Company has the full right, power and capacity to execute, deliver and perform
its obligations hereunder; and that this Agreement, upon execution and delivery
of the same by the Company, will represent the valid and binding obligation of
the Company enforceable in accordance with its terms. The representations and
warranties set forth herein shall survive the termination of this Agreement.
5. Indemnification.
(a) The Company hereby agrees to indemnify, defend and hold harmless
Consultant, its officers, directors, principals, employees, affiliates, and
shareholders, and their successors and assigns from and against any and all
claims, damages, losses, liability, deficiencies, actions, suits, proceedings,
costs or legal expenses (collectively the "Losses") arising out of or resulting
from: (i) any breach of a representation, or warranty by the Company contained
in this Agreement; or (ii) any activities or services performed hereunder by
Consultant, unless such Losses were the result of the intentional misconduct or
gross misconduct of Consultant; or (iii) any and all costs and expenses
(including reasonable attorneys' and paralegals' fees) related to the foregoing,
and as more fully described below.
(b) If Consultant receives written notice of the commencement of any
legal action, suit or proceeding with respect to which the Company is or may be
obligated to provide indemnification pursuant to Section 7 above, Consultant
shall, within thirty (30) days of the receipt of such written notice, give the
Company written notice thereof (a "Claim Notice"). Failure to give such Claim
Notice within such thirty (30) day period shall not constitute a waiver by
Consultant of its right to indemnity hereunder with respect to such action, suit
2
<PAGE>
or proceeding. Upon receipt by the Company of a Claim Notice from Consultant
with respect to any claim for indemnification which is based upon a claim made
by a third party ("Third Party Claim"), Consultant may assume the defense of the
Third Party Claim with counsel of its own choosing, as described below. The
Company shall cooperate in the defense of the Third Party Claim and shall
furnish such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trial and appeals as may be reasonably
required in connection therewith. Consultant shall have the right to employ its
own counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of Consultant unless the Company shall not have promptly
employed counsel to assume the defense of the Third Party Claim, in which event
such fees and expenses shall be borne solely by the Company. The Company shall
not satisfy or settle any Third Party Claim for which indemnification has been
sought and is available hereunder, without the prior written consent of
Consultant. If the Company shall fail with reasonable promptness either to
defend such Third Party Claim or to satisfy or settle the same, Consultant may
defend, satisfy or settle the Third Party Claim at the expense of the Company
and the Company shall pay to Consultant the amount of any such Loss within ten
(10) days after written demand therefor. The indemnification provisions
hereunder shall survive the termination of this Agreement.
6. Amendment. No modification, waiver, amendment, discharge or change
of this Agreement shall be valid unless the same is evidenced by a written
instrument, executed by the party against which such modification, waiver,
amendment, discharge, or change is sought.
7. Notices. All notices, demands or other communications given
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile transmission or the third
calendar day after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, to the addresses herein above first
mentioned or to such other address as any party hereto shall designate to the
other for such purpose in the manner hereinafter set forth.
8. Entire Agreement. This Agreement contains all of the understandings
and agreements of the parties with respect to the subject matter discussed
herein. All prior agreements, whether written or oral, are merged herein and
shall be of no force or effect.
9. Severability. The invalidity, illegality or unenforceability of any
provision or provisions of this Agreement will not affect any other provision of
this Agreement, which will remain in full force and effect, nor will the
invalidity, illegality or unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event that any one or
more of the provisions contained in this Agreement or any portion thereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be reformed, construed and enforced as if such invalid,
illegal or unenforceable provision had never been contained herein.
10. Construction and Enforcement. This Agreement shall be construed in
accordance with the laws of the State of Florida, without application of the
principles of
3
<PAGE>
conflicts of laws. If it becomes necessary for any party to institute legal
action to enforce the terms and conditions of this Agreement, the successful
party will be awarded reasonable attorneys' fees at all trial and appellate
levels, expenses and costs. Any suit, action or proceeding with respect to this
Agreement shall be brought in the state or federal courts located in Palm Beach
County in the State of Florida. The parties hereto hereby accept the exclusive
jurisdiction of those courts for the purpose of any such suit, action or
proceeding. Venue for any such action, in addition to any other venue permitted
by statute, will be Palm Beach County, Florida. The parties hereto hereby
irrevocably waive, to the fullest extent permitted by law, any objection that
any of them may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement or any judgment
entered by any court in respect thereof brought in Palm Beach County, Florida,
and hereby fur ther irrevocably waive any claim that any suit, action or
proceeding brought in Palm Beach County, Florida, has been brought in an
inconvenient forum.
11. Binding Nature. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties, and their respective
successors and assigns.
12. Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile signatures which shall be deemed as original
signatures. All executed counterparts shall constitute one Agreement,
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Coventry Industries, Corp
By:__________________________________________________
Name:________________________________________________
Title:_______________________________________________
Connie Steinmetz
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
4
<PAGE>
FINANCIAL CONSULTING AGREEMENT
------------------------------
This FINANCIAL CONSULTING AGREEMENT (this "Agreement") made as of this
9th day of November, 1998 is by and between Coventry Industries Corp., a Florida
corporation, with its principal place of business at 7777 Glades Road, Suite
211, Boca Raton, FL 33434 (the "Company"), and Strategic Capital Holdings, a
Florida Corporation, having its principal place of business in Ft Lauderdale,
Fl. (the "Consultant").
R E C I T A L S:
----------------
A. The Company is a public company with a class of equity securities
publicly traded, and desires to retain Consultant to provide certain financial
consulting services.
B. Consultant desires to provide certain financial consulting services
to the Company in accordance with the terms and conditions contained
hereinafter.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto hereby agree as follows:
1. Consulting Services. During the term of this Agreement, Consultant
is hereby retained by the Company to provide financial consulting services to
the Company, as said services relate to corporate finance matters, including,
without limitation, advice regarding acquisitions, consolidations, mergers,
joint ventures and financial strategies. Consultant shall provide such financial
consulting services as reasonably requested by the Company during the term of
this Agreement, provided that nothing hereunder shall require Consultant to
devote a minimum number of hours per calendar month toward the performance of
services hereunder. The level and scope of services that may reasonably be
requested hereunder shall be dependent, in part, on the amount of compensation
to be paid Consultant by the Company hereunder. Unless otherwise agreed to by
Consultant, all services hereunder shall be performed by Consultant, in its sole
discretion, at its principal place of business or other offices. Notwithstanding
anything contained herein to the contrary, the services to be performed by
Consultant hereunder may be performed by any employee or consultant to
Consultant.
2. Term. The term of this Agreement shall be for two years commencing
as of the date first written above and terminating one day prior to the second
anniversary hereof; provided, however, that this Agreement shall be renewable
for subsequent one year terms, by mutual agreement of the parties in writing, at
least thirty (30) days prior to the expiration of the then current term.
3. Compensation. In consideration for the performance of services
hereunder, the Company hereby agrees to pay Consultant the aggregate sum of
250,000 shares of the Company's restricted common stock as full compensation for
the term of this Agreement within 30 days of the execution of this Agreement.
These shares are being issued as payment for $250,000 in value of services to be
rendered. If, at the time that the shares mature and can be liquidated under the
"144" sales rules, the value is less than $250,000, the Company will
<PAGE>
issue additional shares to make up the shortfall upon proper presentation of the
documented sales of the stock by the Consultant. The Company hereby agrees to
pay on a pre-approval basis all out-of-pocket expenses incurred by Consultant in
connection with such services to be rendered hereunder. Consultant may, from
time to time, deem it to be in the best interests of the Company to retain an
outside consultant in connection with certain specific acquisitions or proposed
transactions. In such event, the Company hereby agrees to pay any and all fees
and expenses of such consultant.
4. Representations of the Company. The Company hereby represents and
warrants that any and all information supplied hereunder to Consultant in
connection with any and all services to be performed hereunder by Consultant for
and on behalf of the Company shall be true, complete and correct as of the date
of such dissemination and shall not fail to state a material fact necessary to
make any of such information not misleading. The Company hereby acknowledges
that the ability of Consultant to adequately provide financial consulting
services hereunder and/or to initiate and/or effectuate introductions on behalf
of the Company with respect to potential acquisitions is dependent upon the
prompt dissemination of accurate, correct and complete information to
Consultant. In addition, and notwithstanding anything contained herein to the
contrary, nothing hereunder shall obligate Consultant to make any minimum number
of introductions hereunder or to initiate any merger or acquisitions involving
or relating to the Company. The Company further represents and warrants
hereunder that this Agreement and the transactions contemplated hereunder, have
been duly and validly authorized by all requisite corporate action; that the
Company has the full right, power and capacity to execute, deliver and perform
its obligations hereunder; and that this Agreement, upon execution and delivery
of the same by the Company, will represent the valid and binding obligation of
the Company enforceable in accordance with its terms. The representations and
warranties set forth herein shall survive the termination of this Agreement.
5. Indemnification.
(a) The Company hereby agrees to indemnify, defend and hold harmless
Consultant, its officers, directors, principals, employees, affiliates, and
shareholders, and their successors and assigns from and against any and all
claims, damages, losses, liability, deficiencies, actions, suits, proceedings,
costs or legal expenses (collectively the "Losses") arising out of or resulting
from: (i) any breach of a representation, or warranty by the Company contained
in this Agreement; or (ii) any activities or services performed hereunder by
Consultant, unless such Losses were the result of the intentional misconduct or
gross misconduct of Consultant; or (iii) any and all costs and expenses
(including reasonable attorneys' and paralegals' fees) related to the foregoing,
and as more fully described below.
(b) If Consultant receives written notice of the commencement of any
legal action, suit or proceeding with respect to which the Company is or may be
obligated to provide indemnification pursuant to Section 7 above, Consultant
shall, within thirty (30) days of the receipt of such written notice, give the
Company written notice thereof (a "Claim Notice"). Failure to give such Claim
Notice within such thirty (30) day period shall not constitute a waiver by
Consultant of its right to indemnity hereunder with respect to such action, suit
2
<PAGE>
or proceeding. Upon receipt by the Company of a Claim Notice from Consultant
with respect to any claim for indemnification which is based upon a claim made
by a third party ("Third Party Claim"), Consultant may assume the defense of the
Third Party Claim with counsel of its own choosing, as described below. The
Company shall cooperate in the defense of the Third Party Claim and shall
furnish such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trial and appeals as may be reasonably required
in connection therewith. Consultant shall have the right to employ its own
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of Consultant unless the Company shall not have promptly employed
counsel to assume the defense of the Third Party Claim, in which event such fees
and expenses shall be borne solely by the Company. The Company shall not satisfy
or settle any Third Party Claim for which indemnification has been sought and is
available hereunder, without the prior written consent of Consultant. If the
Company shall fail with reasonable promptness either to defend such Third Party
Claim or to satisfy or settle the same, Consultant may defend, satisfy or settle
the Third Party Claim at the expense of the Company and the Company shall pay to
Consultant the amount of any such Loss within ten (10) days after written demand
therefor. The indemnification provisions hereunder shall survive the termination
of this Agreement.
6. Amendment. No modification, waiver, amendment, discharge or change
of this Agreement shall be valid unless the same is evidenced by a written
instrument, executed by the party against which such modification, waiver,
amendment, discharge, or change is sought.
7. Notices. All notices, demands or other communications given
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile transmission or the third
calendar day after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, to the addresses herein above first
mentioned or to such other address as any party hereto shall designate to the
other for such purpose in the manner hereinafter set forth.
8. Entire Agreement. This Agreement contains all of the understandings
and agreements of the parties with respect to the subject matter discussed
herein. All prior agreements, whether written or oral, are merged herein and
shall be of no force or effect.
9. Severability. The invalidity, illegality or unenforceability of any
provision or provisions of this Agreement will not affect any other provision of
this Agreement, which will remain in full force and effect, nor will the
invalidity, illegality or unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event that any one or
more of the provisions contained in this Agreement or any portion thereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be reformed, construed and enforced as if such invalid,
illegal or unenforceable provision had never been contained herein.
10. Construction and Enforcement. This Agreement shall be construed in
accordance with the laws of the State of Florida, without application of the
principles of
3
<PAGE>
conflicts of laws. If it becomes necessary for any party to institute legal
action to enforce the terms and conditions of this Agreement, the successful
party will be awarded reasonable attorneys' fees at all trial and appellate
levels, expenses and costs. Any suit, action or proceeding with respect to this
Agreement shall be brought in the state or federal courts located in Palm Beach
County in the State of Florida. The parties hereto hereby accept the exclusive
jurisdiction of those courts for the purpose of any such suit, action or
proceeding. Venue for any such action, in addition to any other venue permitted
by statute, will be Palm Beach County, Florida. The parties hereto hereby
irrevocably waive, to the fullest extent permitted by law, any objection that
any of them may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement or any judgment
entered by any court in respect thereof brought in Palm Beach County, Florida,
and hereby further irrevocably waive any claim that any suit, action or
proceeding brought in Palm Beach County, Florida, has been brought in an
inconvenient forum.
11. Binding Nature. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties, and their respective
successors and assigns.
12. Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile signatures which shall be deemed as original
signatures. All executed counterparts shall constitute one Agreement,
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Coventry Industries, Corp
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
Strategic Capital Holdings
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
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