EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SYMBION, INC.,
SYMBION ACQUISITION SUB, INC. AND
PHYSICIANS SURGICAL CARE, INC.
DATED AS OF MARCH 7, 2002
TABLE OF CONTENTS
Article I The Merger......................................................................................1
Section 1.1 The Merger...................................................................1
Section 1.2 Effective Time of the Merger.................................................2
Article II The Surviving Corporation......................................................................2
Section 2.1 Charter......................................................................2
Section 2.2 Bylaws.......................................................................2
Section 2.3 Directors and Officers of Surviving Corporation..............................2
Article III Conversion of Shares..........................................................................2
Section 3.1 Exchange Ratios..............................................................2
Section 3.2 Pre-Closing Exchange Ratios Adjustment.......................................5
Section 3.3 Post-Closing Purchase Price Adjustment.......................................5
Section 3.4 Escrow Fund..................................................................6
Section 3.5 No Fractional Shares.........................................................6
Section 3.6 Closing of Company Transfer Books............................................7
Section 3.7 Closing......................................................................7
Section 3.8 Exchange of Certificates.....................................................7
Section 3.9 Lost Certificates............................................................8
Section 3.10 Dissenting Shares............................................................8
Section 3.11 Earn-out.....................................................................9
Article IV Representations and Warranties of Parent......................................................11
Section 4.1 Organization................................................................11
Section 4.2 Capitalization..............................................................11
Section 4.3 Parent Subsidiaries.........................................................12
Section 4.4 Authority Relative to this Agreement........................................12
Section 4.5 Consents and Approvals; No Violations.......................................13
Section 4.6 Financial Statements........................................................13
Section 4.7 Absence of Certain Changes or Events........................................14
Section 4.8 Litigation..................................................................14
Section 4.9 Absence of Undisclosed Liabilities..........................................14
Section 4.10 No Default..................................................................14
Section 4.11 Taxes.......................................................................14
Section 4.12 Title to Properties; Encumbrances...........................................15
Section 4.13 Compliance with Applicable Law..............................................15
Section 4.14 Labor Matters...............................................................16
Section 4.15 Employee Benefit Plans; ERISA...............................................16
Section 4.16 Contracts; Agreements and Commitments.......................................19
Section 4.17 Insurance...................................................................20
Section 4.18 Environmental Matters.......................................................20
Section 4.19 Intellectual Properties, Computer Software, Etc.............................21
Section 4.20 Medicare Participation/Accreditation........................................21
Section 4.21 Disclosure..................................................................22
Section 4.22 Approval of Merger..........................................................22
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TABLE OF CONTENTS
Section 4.23 Opinion of Financial Advisor................................................22
Section 4.24 No Excess Parachute Payments................................................22
Section 4.25 Minute Books................................................................23
Article V Representations and Warranties of Company......................................................23
Section 5.1 Organization................................................................23
Section 5.2 Capitalization..............................................................23
Section 5.3 Company Subsidiaries........................................................24
Section 5.4 Authority Relative to this Agreement........................................24
Section 5.5 Consents and Approvals; No Violations.......................................25
Section 5.6 Financial Statements........................................................26
Section 5.7 Absence of Certain Changes or Events........................................26
Section 5.8 Litigation..................................................................26
Section 5.9 Absence of Undisclosed Liabilities..........................................26
Section 5.10 No Default..................................................................26
Section 5.11 Taxes.......................................................................27
Section 5.12 Title to Properties; Encumbrances...........................................27
Section 5.13 Compliance with Applicable Law..............................................28
Section 5.14 Labor Matters...............................................................28
Section 5.15 Employee Benefit Plans; ERISA...............................................28
Section 5.16 Contracts; Agreements and Commitments.......................................32
Section 5.17 Insurance...................................................................32
Section 5.18 Environmental Matters.......................................................32
Section 5.19 Intellectual Properties, Computer Software, etc.............................33
Section 5.20 Medicare Participation/Accreditation........................................33
Section 5.21 Disclosure..................................................................34
Section 5.22 Approval of Merger..........................................................34
Section 5.23 Retirement or Re-Acquisition of Parent Shares...............................34
Section 5.24 No Excess Parachute Payments................................................34
Section 5.25 Minute Books................................................................34
Article VI Conduct of Business Pending the Merger........................................................35
Section 6.1 Conduct of Business by Parent Pending the Merger............................35
Section 6.2 Conduct of Business by Company Pending the Merger...........................36
Section 6.3 Conduct of Business of Sub..................................................37
Article VII Additional Agreements........................................................................37
Section 7.1 Access and Information......................................................37
Section 7.2 Acquisition Proposals.......................................................38
Section 7.3 Cooperation.................................................................38
Section 7.4 Stockholder Approvals.......................................................39
Section 7.5 Employee Stock Options......................................................40
Section 7.6 Public Announcements........................................................40
Section 7.7 Expenses....................................................................40
Section 7.8 Additional Agreements.......................................................40
Section 7.9 Directors of Parent.........................................................41
Section 7.10 Private Offering Memorandum.................................................41
Section 7.11 Notice of Subsequent Events.................................................42
Section 7.12 Other Actions...............................................................42
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TABLE OF CONTENTS
Section 7.13 Preparation of Tax Returns..................................................42
Section 7.14 Continuance of Existing Indemnification Rights..............................43
Section 7.15 Use of Name.................................................................44
Section 7.16 Investor Questionnaires.....................................................44
Section 7.17 Title Policy for Owned Real Property........................................44
Section 7.18 Surveys for Owned Real Property.............................................44
Section 7.19 Title Searches for Real Property Leasehold Interests........................44
Section 7.20 Insurance Matters...........................................................44
Section 7.21 Consolidation of NorthStar Surgical Center, L.P.............................45
Article VIII Conditions to Consummation of the Merger....................................................45
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger..................45
Section 8.2 Conditions to Obligation of Company to Effect the Merger....................46
Section 8.3 Conditions to Obligations of Parent and Sub to Effect the Merger............48
Article IX Survival Of Representations And Warranties; Escrow............................................52
Section 9.1 Survival of Representations and Warranties; Sole Remedy.....................52
Section 9.2 Company Indemnification.....................................................52
Section 9.3 Parent Indemnification......................................................53
Section 9.4 Resolution of Conflicts; Arbitration........................................55
Article X Termination, Amendment and Waiver..............................................................56
Section 10.1 Termination.................................................................56
Section 10.2 Effect of Termination.......................................................57
Section 10.3 Amendment...................................................................57
Section 10.4 Waiver......................................................................57
Article XI General Provisions............................................................................57
Section 11.1 Brokers.....................................................................57
Section 11.2 Notices.....................................................................58
Section 11.3 Descriptive Headings; Drafting..............................................58
Section 11.4 Entire Agreement; Assignment................................................58
Section 11.5 Severability................................................................59
Section 11.6 Governing Law...............................................................59
Section 11.7 Specific Performance........................................................59
Section 11.8 Counterparts................................................................59
Section 11.9 Interpretation..............................................................59
Section 11.10 Waiver of Jury Trial........................................................60
Section 11.11 Tax Advice and Reliance.....................................................60
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EXHIBITS
Exhibit A Company Stockholder Agreements
Exhibit B Parent Shareholder Agreements
Exhibit 3.2 Exchange Ratio Formula
Exhibit 3.3(b) Form of Escrow Agreement
Exhibit 6.1(b)(1) Parent Amended and Restated Charter
Exhibit 6.1(b)(2) Parent Amended and Restated Bylaws
Exhibit 7.4(b)(i)(C) Form of Amendment to Amended and Restated Charter
Exhibit 7.4(b)(i)(D)(1) Form of Agreement and Plan of Merger for
Reincorporation
Exhibit 7.4(b)(i)(D)(2) Form of Certificate of Incorporation and Bylaws of
Symbion Delaware Subsidiary, Inc.
Exhibit 7.7 Shut-Down Costs
Exhibit 7.21 Consolidation of Northstar Surgical Center, L.P.
Exhibit 8.1(c) Consents and Approvals
Exhibit 8.2(b) Form of Opinion of Counsel to Parent and Sub
Exhibit 8.2(d) Form of Amendment No. 2 to Parent Investors'
Rights Agreement
Exhibit 8.2(e) List of Company 5% Stockholders
Exhibit 8.2(f) Form of Director Nomination Agreement
Exhibit 8.2(g) Form of Amendment No. 2 to Parent Voting Agreement
Exhibit 8.3(b) Form of Opinion of Counsel to Company
Exhibit 8.3(g) Form of Noncompetition Agreement
Exhibit 8.3(m) Form of South Shore Ambulatory Surgery Center
Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
March 7, 2002, is by and among SYMBION, INC., a Tennessee corporation
("Parent"), SYMBION ACQUISITION SUB, INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and PHYSICIANS SURGICAL CARE, INC., a
Delaware corporation ("Company").
WHEREAS, the Boards of Directors of Parent, Sub and Company deem it
advisable and in the best interests of their respective stockholders to
consummate, and have approved, the merger (the "Merger") of Sub with and into
Company upon the terms and subject to the conditions set forth herein.
WHEREAS, concurrently with the execution of this Agreement, as a
condition to the willingness of Parent to enter into this Agreement, certain
holders of Company Shares (as hereinafter defined) are entering into one or more
stockholder agreements, dated the date hereof, with Parent and Company, copies
of which are attached to this Agreement as Exhibit A (the "Company Stockholder
Agreements"), which provide, among other things, that such stockholders will
vote their respective Company Shares in favor of the approval of the Merger and
the adoption of this Agreement.
WHEREAS, concurrently with the execution of this Agreement, as a
condition to the willingness of Company to enter into this Agreement, certain
holders of Parent Shares (as hereinafter defined) are entering into one or more
shareholder agreements, dated the date hereof, with Parent and Company, copies
of which are attached to this Agreement as Exhibit B (the "Parent Shareholder
Agreements"), which provide, among other things, that such shareholders will
vote their respective Parent Shares in favor of the approval of the Merger and
adoption of this Agreement.
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for purposes of section
368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2), Sub shall be merged
with and into Company and the separate corporate existence of Sub shall
thereupon cease, and Company shall be the surviving corporation in the Merger
(the "Surviving Corporation"). The Merger shall have the effects set forth in
Section 251 of the Delaware General Corporation Law.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective when a properly executed Certificate of Merger is duly filed with the
Secretary of State of the
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State of Delaware, which filing shall be made as soon as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all of the
conditions to each party's obligations to consummate the Merger contained in
Article VIII. When used in this Agreement, the term "Effective Time" shall mean
the date and time at which the Certificate of Merger is so filed.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Charter. The Certificate of Incorporation of Sub as in
effect at the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation.
Section 2.2 Bylaws. The Bylaws of Sub as in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation.
Section 2.3 Directors and Officers of Surviving Corporation.
(a) The directors of Sub at the Effective Time shall be the
initial directors of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation,
or as otherwise provided by law.
(b) The officers of Sub at the Effective Time shall be the
initial officers of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation,
or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratios. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each of the shares of the Common Stock, par value $.001
per share, of Company (collectively, the "Company Common Shares"),
issued and outstanding immediately prior to the Effective Time (other
than Company Common Shares held in the treasury of Company or by any
subsidiary of Company) shall be converted into the right to receive
0.414423 shares (the "Common Exchange Ratio") of Common Stock, no par
value, of Parent (the "Parent Common Shares"), and cash in lieu of
fractional Parent Common Shares, if any, payable pursuant to Section
3.5, issuable or payable upon the surrender of the certificate formerly
representing such Company Common Share;
(b) Each of the shares of the Series A Convertible Preferred
Stock, par value $.001 per share, of Company (collectively, the
"Company Series A Preferred Shares"), issued and outstanding
immediately prior to the Effective Time (other than Company Series A
Preferred Shares held in the treasury of Company or by any subsidiary
of Company) shall be converted into the right to receive 0.427823
shares
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(the "Series A Exchange Ratio") of Series A Convertible Preferred
Stock, $.01 par value, of Parent having the rights and preferences set
forth in Exhibit 6.1(b)(1) hereto (collectively, the "Parent Series A
Preferred Shares"), and cash in lieu of fractional Parent Series A
Preferred Shares, if any, payable pursuant to Section 3.5, issuable or
payable upon the surrender of the certificate formerly representing
such Company Series A Preferred Share;
(c) Each of the shares of the Series B Convertible Preferred
Stock, par value $.001 per share, of Company (collectively, the
"Company Series B Preferred Shares" and together with the Company
Common Shares and the Company Series A Preferred Shares, the "Company
Shares"), issued and outstanding immediately prior to the Effective
Time (other than Company Series B Preferred Shares held in the treasury
of Company or by any subsidiary of Company) shall be converted into the
right to receive 0.427823 shares (the "Series B Exchange Ratio") of
Series B Convertible Preferred Stock, $.01 par value, of Parent having
the rights and preferences set forth in Exhibit 6.1(b)(1) hereto
(collectively, the "Parent Series B Preferred Shares" and together with
the Parent Common Shares and the Parent Series A Preferred Shares, the
"Parent Shares"), and cash in lieu of fractional Parent Series B
Preferred Shares, if any, payable pursuant to Section 3.5, issuable or
payable upon the surrender of the certificate formerly representing
such Company Series B Preferred Share;
(d) Each Company Share held in the treasury of Company, if
any, and each Company Share held by any subsidiary of Company
immediately prior to the Effective Time shall be canceled and retired
and cease to exist;
(e) Each of the Company Employee Stock Options (as hereinafter
defined) which is outstanding and unexercised at the Effective Time
shall be converted automatically into an option to purchase Parent
Common Stock (as hereinafter defined) (the "Parent Stock Options") in
an amount and at an exercise price determined as provided below and
otherwise subject to the terms of the Stock Incentive Plan of Parent;
provided, however that any material right of a holder of Company
Employee Stock Options shall be preserved upon conversion:
(i) The number of shares of Parent Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of Company Common Stock (as hereinafter
defined) subject to the original option and the Common
Exchange Ratio, provided that any fractional share of Parent
Common Stock resulting from such multiplication shall be
rounded down to the nearest share; and
(ii) The exercise price per share of Parent Common
Stock under the new option shall be equal to the aggregate
exercise price of the original option divided by the total
number of full shares of Parent Common Stock subject to the
new option (as determined under (i) immediately above),
provided that such exercise price shall be rounded up to the
nearest cent.
The adjustment provided herein with respect to any ISOs shall be and is
intended to be effected in a manner that is consistent with Section
424(a) of the Code. The
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duration and other terms of the new option shall be the same as that of
the original option, except that all references to Company shall be
deemed to be references to Parent; and
(f) Each warrant to purchase shares of Company Common Stock
(the "Company Warrants") which is outstanding and unexercised at the
Effective Time shall be converted automatically into a warrant to
purchase Parent Common Stock (the "Parent Warrants") in an amount and
at an exercise price determined as provided below (and otherwise
subject to the terms and conditions of the agreement pursuant to which
such Company Warrant was subject immediately prior to the Effective
Time):
(i) The number of shares of Parent Common Stock to be
subject to the new warrant shall be equal to the product of
the number of shares of Company Common Stock subject to the
original warrant and the Common Exchange Ratio, provided that
any fractional shares of Parent Common Stock resulting from
such multiplication shall be rounded down to the nearest
share;
(ii) The exercise price per share of Parent Common
Stock under the new warrant shall be equal to the aggregate
exercise price of the original warrant divided by the total
number of full shares of Parent Common Stock subject to the
new warrant (as determined under (i) immediately above),
provided that such exercise price shall be rounded up to the
nearest cent; and
(iii) The provisions of Sections 3.1(f)(i) and (ii)
above notwithstanding, the Roll-up Warrants, as defined
herein, shall be converted to Parent Warrants as provided in
Section 8.2(h).
The duration and other terms of the new warrant shall be the same as that of the
original warrant, except that all references to Company shall be deemed to be
references to Parent.
The consideration for the Merger contemplated in paragraphs 3.1(a), (b)
and (c) above is referred to in the aggregate herein as the "Merger
Consideration."
Except for reductions resulting from the exercise of dissenters' rights
by the holders of Company Shares in accordance with the Delaware General
Corporation Law, immediately following the Effective Time, the sum of the total
number of Parent Common Shares (i) reserved for exercise of Parent Warrants,
(ii) reserved for exercise of Parent Stock Options and (iii) to be included as
Merger Consideration, immediately after Closing, on an as-converted basis shall
equal 19.1 percent of the outstanding Parent Common Shares, computed on a
fully-diluted basis and assuming the exercise and conversion of all options,
warrants and other securities convertible into Parent Common Shares (subject to
appropriate adjustment in accordance with Section 3.2 of this Agreement).
Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time, the outstanding Parent Common Shares or outstanding
securities convertible into or exercisable for Parent Common Shares shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision,
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reclassification, recapitalization, split, combination or exchange of shares,
the Merger Consideration, the Parent Stock Options and the Parent Warrants shall
be correspondingly adjusted on a per-share basis to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares.
The Common Exchange Ratio, the Series A Exchange Ratio and the Series B
Exchange Ratio are collectively referred to herein as the "Exchange Ratios."
Section 3.2 Pre-Closing Exchange Ratios Adjustment. If the redemption
amount in respect of the Parent Series A Preferred Shares and the Parent Series
B Preferred Shares pursuant to the terms thereof exceeds $31,831,700, then the
Exchange Ratios shall be recalculated using the formula attached hereto as
Exhibit 3.2.
Section 3.3 Post-Closing Purchase Price Adjustment.
(a) Not more than 60 days after the Effective Time (the
"Closing Balance Sheet Date"), Parent shall deliver to X.X. Xxxxxxx
Equity Partners III, L.L.C. (the "Stockholder Representative"), acting
in respect of the interests of the former stockholders of Company
pursuant to the authority granted to it in the Escrow Agreement, as
defined herein, a balance sheet of Company as of the month-end
immediately preceding the Effective Time prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
with Company's past practice (the "Closing Balance Sheet"). The Net
Working Capital (as defined below) of Company reflected on the Closing
Balance Sheet is referred to herein as the "Final Working Capital
Position." For purposes of this Agreement, "Net Working Capital" shall
mean, as of the date of determination, an amount equal to (a) the sum
of the current assets, including, without limitation, the following
items: (i) cash, (ii) accounts receivables, (iii) inventories and
supplies and (iv) prepaid expenses minus (b) the sum of the current
liabilities, including, without limitation, the following items: (i)
accounts payable and (ii) accrued expenses, but excluding the current
portion of long-term debt. Within thirty (30) days after Parent's
delivery of the Closing Balance Sheet, the Stockholder Representative
shall, in a written notice to Parent, either accept or describe in
reasonable detail any proposed adjustments to the Closing Balance
Sheet and the reasons therefor, and shall include pertinent
calculations. If the Stockholder Representative fails to deliver
notice of acceptance or objection to the Closing Balance Sheet within
such thirty (30) day period, Company shall be deemed to have accepted
the Closing Balance Sheet. In the event that Parent and the
Stockholder Representative are not able to agree on the Closing
Balance Sheet within thirty (30) days from and after the receipt by
Parent of any objections raised by the Stockholder Representative,
such dispute shall be submitted to Deloitte & Touche, LLP (the
"Accountant") for computation or verification in accordance with the
provisions of this Agreement. The foregoing provision for Accountant
review shall be specifically enforceable by the parties; the decision
of the Accountant shall be final and binding upon Parent, Company and
all former stockholders of Company; there shall be no right of appeal
from such decision; and Accountant's fees and expenses shall be borne
equally by Parent and the former stockholders; provided however that
if the Accountant determines that one party (Parent or the former
stockholders) has adopted a position or positions with respect to the
determination of Net Working Capital that
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is frivolous or clearly without merit, the Accountant may, in its
discretion, assign a greater portion of such fees and expenses to such
party. Notwithstanding the foregoing, the parties hereby agree that
any amounts due and owing by Parent, Company and the former
stockholders of Company to Accountant shall be paid to Accountant by
Parent and that Parent shall be reimbursed for such payment from the
Escrow Fund (as hereinafter defined) but only to the extent of such
Escrow Fund to the extent such costs are to be borne by the former
stockholders pursuant to the preceding sentence. Any payments due
under this Section 3.3 shall bear interest at eight percent per annum
from the Closing Balance Sheet Date.
(b) After the Closing Balance Sheet is agreed to, or
determined pursuant to Section 3.3(a) hereof, Parent will be paid from
the Escrow Fund (as hereinafter defined) as provided in the Escrow
Agreement attached hereto as Exhibit 3.3(b) (the "Escrow Agreement")
the amount by which $9,555,000 exceeds the Final Working Capital
Position.
Section 3.4 Escrow Fund. Concurrently with the execution of this
Agreement, as a condition to the willingness of Parent to enter into this
Agreement, the holders of Company Shares entering into the Company Stockholder
Agreements are also entering into the Escrow Agreement. As soon as practicable
after the Effective Time, ten percent of the Merger Consideration otherwise
payable to each holder of Company Shares party to the Escrow Agreement
(collectively, the "Escrow Shares"), without any act of any stockholder, will be
transferred to Bank of America, N.A. (the "Escrow Agent") and will be deposited
with the Escrow Agent to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth in the Escrow Agreement; provided, however, that
with regard to the Parent Series A Preferred Shares and the Parent Series B
Preferred Shares held in escrow, Parent's rights against the Escrow Fund shall
apply only to the Parent Common Stock into which such Parent Series A Preferred
Shares and the Parent Series B Preferred Shares are converted or convertible and
not to the redemption amount in respect of such Parent Series A Preferred Shares
or Parent Series B Preferred Shares.
Section 3.5 No Fractional Shares. No certificates or scrip
representing fractional Parent Shares shall be issued upon the surrender for
exchange of certificates representing Company Shares pursuant to this Article
and no dividend, stock split or other change in the capital structure of Company
shall relate to any fractional security. In lieu of any such fractional
securities, each holder of Company Shares who would otherwise be entitled to a
fraction of a Parent Share upon surrender of stock certificates for exchange
pursuant to this Article shall be entitled to receive a cash adjustment in
respect of such fraction of a share in an amount based upon a value of a Parent
Share equal to $3.13 per whole share. For this purpose, Company Shares of any
holder represented by two or more certificates shall be aggregated.
Section 3.6 Closing of Company Transfer Books. At the Effective Time,
the stock transfer books of Company shall be closed and no transfer of Company
Shares shall thereafter be made. If, after the Effective Time, certificates
evidencing Company Shares are presented to the Surviving Corporation, they shall
be canceled and exchanged for certificates representing Parent Shares.
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Section 3.7 Closing. The closing of the transaction contemplated by
this Agreement (the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx
Xxxxxx & Xxxxx, A Professional Limited Liability Company, 000 Xxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxxxx, Xxxxxxxxx 00000, at 10:00 a.m., local time, on the later
of (i) the date of the stockholders' meetings referred to in Section 7.4, or
(ii) the day on which all of the conditions set forth in Article VIII are
satisfied or waived, or at such other date, time and place as Parent and Company
shall agree.
Section 3.8 Exchange of Certificates.
(a) Prior to the Effective Time, Company shall request from
each holder of record a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Shares (the
"Certificates"). Parent shall cancel each Certificate and shall cause
to be delivered to the holder of such Certificate following such
holder's execution and delivery of the Escrow Agreement, a certificate
representing that number of whole Parent Shares and cash representing
any fractional Parent Shares, if applicable, which such holder has the
right to receive pursuant to the provisions of this Article III. In the
event of a transfer of ownership of Company Shares which is not
registered in the transfer records of Company, a certificate
representing the proper number of Parent Shares may be issued to a
person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required
by reason of the issuance of Parent Shares to a person other than the
registered holder of such Certificate or establish to the satisfaction
of Parent that such tax has been paid or is not applicable. Until
surrender as contemplated by this Article III, each Certificate shall
be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the certificate representing the
whole number of Parent Shares, including such Parent Shares to be held
in escrow, and cash representing any fractional Parent Shares, if
applicable.
(b) No dividends or other distributions with respect to Parent
Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent
Shares represented thereby until the surrender of such Certificate in
accordance with this Article III. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid
to the holder of the certificate representing Parent Shares issued in
exchange therefor, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after
the Effective Time theretofore paid with respect to such Parent Share,
and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such
surrender payable with respect to such Parent Shares.
(c) Parent Shares issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article III shall be
deemed to have been issued in full satisfaction of all rights
pertaining to the exchanging Company Shares theretofore represented by
such Certificates, other than obligations under the
7
Escrow Agreement. If, after the Effective Time, Certificates are
presented to Parent for any reason, they shall be canceled and
exchanged as provided in this Article III, except as otherwise provided
by law.
Section 3.9 Lost Certificates. If any Certificate shall be lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond, in such reasonable amount as
Parent may direct, as indemnity against any claim that may be made against it
with respect to such Certificate, Parent will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration to be paid in respect
of the Company Shares represented by such Certificates as contemplated by this
Article III.
Section 3.10 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a stockholder who has
not voted such Company Shares in favor of the adoption of this
Agreement and the Merger and with respect to which appraisal shall have
been duly demanded and perfected in accordance with Section 262 of the
Delaware General Corporation Law and not effectively withdrawn or
forfeited prior to the Effective Time (the "Dissenting Stockholder").
Dissenting Shares shall not be converted into or represent the right to
receive any Merger Consideration, unless such Dissenting Stockholders
shall have forfeited their right to appraisal under the Delaware
General Corporation Law or properly withdrawn their demand for
appraisal. If such Dissenting Stockholders have so forfeited or
withdrawn their right to appraisal of Dissenting Shares, then as of the
occurrence of such event, such Dissenting Stockholder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into
and represent the right to receive the Merger Consideration issuable in
respect of such Company Shares pursuant to this Article III.
(b) Company shall give Parent (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such
demands and any other instruments that relate to such demands received
by Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the Delaware
General Corporation Law. Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to
any demands for appraisal of Company Shares or offer to settle or
settle any such demands.
Section 3.11 Earn-out.
(a) On or before March 31, 2004, Parent shall deliver to X.X.
Xxxxxxx Equity Partners III, L.L.C. as stockholder agent appointed
pursuant to the Letter of Transmittal and Appointment of Stockholders'
Agent delivered by each of the former stockholders of Company (the
"Stockholders' Agent") a copy of the reviewed financial statements,
including an income statement (the "Earn-Out Income Statement"), of
Houston PSC, L.P., a Texas limited partnership ("Houston PSC"), for the
12 month period ended on December 31, 2003 or, if Parent shall sell all
of its ownership interest in Houston PSC prior to December 31, 2003 or
all or substantially all of the assets of
8
Houston PSC are sold prior to December 31, 2003, the 12 month period
ended on the closing date of such sale (the "Earn-Out Period") and a
computation of the Earn-Out Shares (as defined below). In the event
that the Earn-Out Period ends on a date prior to December 31, 2003 by
reason of a sale of all of Parent's ownership interest in Houston PSC
or a sale of all or substantially all of the assets of Houston PSC,
this Section 3.11 shall terminate upon payment of the Earn-Out Shares
following the closing of such sale and the parties shall have no
further rights or obligations pursuant to this Section 3.11. As used
herein, (i) "2003 EBITDA" shall mean the net income of Houston PSC for
the Earn-Out Period plus interest, management fees, income taxes,
depreciation and amortization; (ii) "Minority Interest" shall mean 52%
of the net income of Houston PSC for the Earn-Out Period; and (iii)
"Earn-Out EBITDA" shall mean 2003 EBITDA less the Minority Interest.
The Earn-Out Income Statement shall be prepared in accordance with GAAP
consistently applied with Houston PSC's past practice.
(b) Within thirty (30) days after Parent's delivery of the
Earn-Out Income Statement and computation of the Earn-Out Shares
("Earn-Out Computation"), the Stockholders' Agent shall, in a written
notice to Parent, either accept or describe in reasonable detail any
proposed adjustments to the Earn-Out Income Statement or Earn-Out
Computation and the reasons therefor, and shall include pertinent
calculations. If the Stockholders' Agent fails to deliver notice of
acceptance or objection to the Earn-Out Income Statement or Earn-Out
Computation within such thirty (30) day period, the Stockholders'
Agent on behalf of all former stockholders of Company shall be deemed
to have accepted the Earn-Out Income Statement and Earn-Out
Computation. In the event that Parent and the Stockholders' Agent are
not able to agree on the Earn-Out Income Statement or Earn-Out
Computation within thirty (30) days from and after the receipt by
Parent of any objections raised by the Stockholders' Agent, such
dispute shall be submitted to the Accountant for computation or
verification in accordance with the provisions of this Agreement. The
foregoing provision for Accountant review shall be specifically
enforceable by the parties; the decision of the Accountant shall be
final and binding upon Parent, Company and all former stockholders of
Company; there shall be no right of appeal from such decision; and
Accountant's fees and expenses shall be borne equally by Parent and
the former stockholders; provided however that if the Accountant
determines that one party (Parent or the former stockholders) has
adopted a position or positions with respect to the determination of
the Earn-Out EBITDA or Earn-Out Computation that is frivolous or
clearly without merit, the Accountant may, in its discretion, assign a
greater portion of such fees and expenses to such party. Any payments
due under this Section 3.11 shall bear interest at eight percent per
annum from the date of the Earn-Out Income Statement.
(c) After the Earn-Out Income Statement and Earn-Out
Computation are agreed to, or determined pursuant to Section 3.11(b)
hereof, Parent shall issue to the former stockholders of Company an
aggregate number of Parent Common Shares (the "Earn-Out Shares") which
is equal to the product of 2,189,887 shares multiplied by the
percentage equal to the quotient of (i) the Earn-Out EBITDA minus
$850,000 and (ii) $883,000; provided, however, that if the Earn-Out
EBITDA is greater than $1,733,000, the Earn-Out EBITDA shall be deemed
to be $1,733,000 for purposes of this Agreement and provided, further,
that if the Earn-Out EBITDA
9
is less than $850,000, no Earn-Out Shares shall be issued. The
Earn-Out Shares will be issued 72.73% to the former holders of Company
Series A Preferred Shares and Company Series B Preferred Shares and
27.27% to the former holders of Company Common Shares. Certificates
representing the shares to be issued pursuant to this Section 3.11
shall be delivered to the former stockholders of Company as soon as
practicable following the acceptance by the Stockholders' Agent of the
computation of the Earn-Out Shares.
(d) Notwithstanding the foregoing, if between the date of this
Agreement and the issuance of the Earn-Out Shares, the outstanding
Parent Common Shares or outstanding securities convertible into or
exercisable for Parent Common Shares shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Earn-Out Shares shall be
correspondingly adjusted on a per-share basis to reflect such stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as otherwise disclosed to Company in a Disclosure Schedule
delivered to it prior to the execution hereof (the "Parent Disclosure
Schedule"), Parent represents and warrants to Company as follows:
Section 4.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the corporate power to carry on its business as it is
now being conducted or presently proposed to be conducted. Each of Parent and
Sub is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not individually or
in the aggregate have a material adverse effect on the business, assets,
liabilities, results of operations or financial condition of Parent and the
Parent Subsidiaries (as defined in Section 4.3), taken as a whole (a "Parent
Material Adverse Effect").
Section 4.2 Capitalization. The authorized capital stock of Parent
consists of 60,000,000 shares of Common Stock, no par value ("Parent Common
Stock"), and 7,042,738 shares of Preferred Stock, no par value, of which
2,571,429 shares are designated as Series A Preferred Stock and 1,866,667 shares
are designated as Series B Preferred Stock ("Parent Preferred Stock"). As of the
date hereof, (i) 43,912,409 Parent Common Shares are issued and outstanding (ii)
no shares of Parent Preferred Stock are issued and outstanding, (iii) employee
and non-employee director stock options to acquire 2,924,050 shares of Parent
Common Stock (the "Parent Employee Stock Options") are outstanding under all
stock option plans and agreements of Parent and owned by the persons whose
names, addresses and option ownership are set forth in the Parent Disclosure
Schedule, (iv) warrants (the "Parent Warrants") to purchase 874,581 shares of
Parent Common Stock are issued and outstanding and owned by the persons whose
names, addresses and warrant ownership are set forth in the Parent Disclosure
Schedule, (v) 5,120,550 shares of Parent Common Stock are reserved for issuance
upon exercise of the Parent Employee Stock Options and (vi)
10
874,581 shares of Parent Common Stock are reserved for issuance upon exercise of
the Parent Warrants. Parent has no treasury shares and no Parent Shares are held
by Parent's subsidiaries. All of the issued and outstanding Parent Shares are,
and immediately prior to the Effective Time, will be validly issued, fully paid
and nonassessable and free of preemptive rights. All of the Parent Shares
issuable in exchange for Company Shares at the Effective Time in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid and nonassessable and free of preemptive rights. The authorized capital
stock of Sub consists of 1,000 shares of Common Stock, $.01 par value, all of
which shares are validly issued and outstanding, fully paid and nonassessable
and are owned by Parent. Except as set forth above and except as otherwise
provided for in this Agreement, as of the date hereof, there are, and
immediately prior to the Effective Time there will be, no shares of capital
stock of Parent issued or outstanding or any options, warrants, subscriptions,
calls, rights, convertible securities or other agreements or commitments
obligating Parent to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock or securities, or the capital stock or
securities of Sub.
Section 4.3 Parent Subsidiaries. The Parent Disclosure Schedule
contains a list of all corporations, partnerships, limited liability companies,
joint ventures or other business associations or entities, foreign or domestic,
in which Parent, directly or indirectly, owns an interest (such corporations,
partnerships, limited liability companies, joint ventures or other business
entities, the financial statements of which are included in the consolidated
financial statements of Parent prepared in accordance with GAAP, being
hereinafter referred to as the "Parent Subsidiaries"). Each Parent Subsidiary
that is a corporation is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each Parent
Subsidiary that is a partnership or limited liability company is duly formed and
validly existing under the laws of its jurisdiction of formation. Each Parent
Subsidiary has the corporate power or the partnership power or the limited
liability company power, as the case may be, to carry on its business as it is
now being conducted or presently proposed to be conducted. Each Parent
Subsidiary that is a corporation is duly qualified as a foreign corporation
authorized to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where a failure to be so
qualified would not individually or in the aggregate have a Parent Material
Adverse Effect. Each Parent Subsidiary that is a partnership or limited
liability company is duly qualified as a foreign partnership or limited
liability company authorized to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where a
failure to be so qualified would not individually or in the aggregate have a
Parent Material Adverse Effect. All of the outstanding shares of capital stock
of the Parent Subsidiaries that are corporations are validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Parent Subsidiaries are owned, directly or
indirectly, by Parent, free and clear of any liens, claims, charges or
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Parent or any Parent
Subsidiary to issue, transfer or sell any securities of any Parent Subsidiary.
Sub is a newly incorporated company formed solely for purposes of the
transactions contemplated by this Agreement and has engaged in no activity other
than as provided in or contemplated by this Agreement.
11
Section 4.4 Authority Relative to this Agreement. Each of Parent and
Sub has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by each of
Parent and Sub and the consummation by each of Parent and Sub of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of each of Parent and Sub and by Parent as the sole stockholder of
Sub, and, except for the approval of Parent's stockholders to be sought at the
stockholders' meeting contemplated by Section 7.4(b), no other corporate action
or proceedings on the part of Parent or Sub are necessary to authorize this
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Sub and constitutes a
valid and binding agreement of each of Parent and Sub, enforceable against each
of Parent and Sub in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally or to general principles of
equity. Parent has received the Parent Shareholder Agreements from the holders
of a majority of its capital stock entitled to vote on the Merger and the
transactions contemplated hereby (including the Parent Amended and Restated
Charter (as hereinafter defined)) indicating such holders' agreement to vote in
favor of the Merger and such transactions.
Section 4.5 Consents and Approvals; No Violations. Except for
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), state securities or blue sky laws, certain state and
regulatory filings relating to health care licensing and similar matters, and
the filing of a Certificate of Merger as required by the Delaware General
Corporation Law, no filing with, and no permit, authorization, consent or
approval of, any public body or authority is necessary for the consummation by
Parent or Sub of the transactions contemplated by this Agreement, except for
such filings, permits, authorizations, consents or approvals, the failure of
which to be made or obtained would not individually or in the aggregate have a
Parent Material Adverse Effect. Neither the execution and delivery of this
Agreement by Parent or Sub, nor the consummation by Parent or Sub of the
transactions contemplated hereby, nor compliance by Parent or Sub with any of
the provisions hereof will (a) conflict with or result in any breach of any
provisions of the charter documents or Bylaws of Parent or Sub or any similar
documents of the Parent Subsidiaries, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which Parent
or any of the Parent Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of the
Parent Subsidiaries or any of their properties or assets, except in the case of
clauses (b) and (c) for violations, breaches or defaults which would not
individually or in the aggregate have a Parent Material Adverse Effect. No
filing is required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, in connection with the acquisition of the Company Shares
pursuant to this Agreement, and the Board of Directors of Parent has determined
in reliance on the valuation of Xxxxxxx Xxxxx & Associates, Inc. ("Xxxxxxx
Xxxxx") in accordance with 16 C.F.R. ss.801.10 that the aggregate fair market
value of such voting securities to be acquired pursuant to this Agreement is
less than $50,000,000.
12
Section 4.6 Financial Statements. Parent has furnished Company with
true and complete copies of the audited balance sheets and related statements of
operations, shareholders' equity and cash flows, together with all schedules and
notes thereto, of Parent and its consolidated subsidiaries for the years ended
December 31, 1999 and 2000 (the "Parent Audited Financial Statements"), and the
unaudited balance sheet and related statements of operations and cash flows of
Parent and its consolidated subsidiaries for the year ended December 31, 2001
(the "Parent Unaudited Financial Statements" and, together with the Parent
Audited Financial Statements, the "Parent Financial Statements"). The Parent
Financial Statements fairly present, in all material respects, the financial
position of Parent and its consolidated subsidiaries as of the respective dates
thereof, and the results of operations and the changes in cash flows of Parent
and its consolidated subsidiaries for the respective periods or as of the
respective dates set forth therein, all in conformity with GAAP consistently
applied during the periods involved, except that the Parent Unaudited Financial
Statements do not include footnotes as required by GAAP and are subject to
normal, recurring year-end audit adjustments.
Section 4.7 Absence of Certain Changes or Events. Since July 31, 2001
and except as set forth in the Parent Financial Statements, neither Parent nor
any of the Parent Subsidiaries has: (a) taken any of the actions set forth in
Sections 6.1(b), 6.1(c) or 6.1(e); or (b) suffered any material adverse change
in the business, financial condition, results of operations, properties, assets
or liabilities of Parent and the Parent Subsidiaries taken as a whole (other
than any change relating to the United States economy in general).
Section 4.8 Litigation. There is no suit, action or proceeding pending
or, to Parent's knowledge, threatened against or affecting Parent or any of the
Parent Subsidiaries, nor, to Parent's knowledge, is there any judgment, decree,
injunction, citation, settlement agreement, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Parent or any of the Parent Subsidiaries; provided, however,
that the representation and warranty contained in this Section 4.8 shall not
apply to any professional liability suit, action or proceeding against any of
the physician practices or individual physicians affiliated with Parent or any
of the Parent Subsidiaries.
Section 4.9 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which (i) are accrued or reserved against in the Parent Financial
Statements (or reflected in the notes thereto), or (ii) were incurred after
December 31, 2001, in the ordinary course of business and consistent with past
practices, neither Parent nor any of the Parent Subsidiaries has any liabilities
or obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a balance sheet of Parent and its
consolidated subsidiaries or the notes thereto.
Section 4.10 No Default. Neither Parent nor any of the Parent
Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (a) its charter documents or Bylaws, or (b)
any note, bond, mortgage, indenture, license, agreement, contract, lease,
commitment or other obligation to which Parent or any of the Parent Subsidiaries
is a party or by which they or any of their properties or assets may be bound,
except in the case of clause (b) above for defaults or violations which would
not individually or in the aggregate have a Parent Material Adverse Effect.
13
Section 4.11 Taxes. Parent and the Parent Subsidiaries have duly filed
all Federal, state, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns (collectively "Tax Returns")
and any amended Tax Returns required to be filed by Parent or the Parent
Subsidiaries and have paid all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto (collectively "Taxes") shown to be due thereon. To Parent's knowledge,
all such Tax Returns are true, correct and complete in all material respects.
The most recent Parent Financial Statements provide an adequate accrual for
Taxes for the periods covered by such Parent Financial Statements. No
deficiencies for Taxes have been assessed or asserted by a "30-Day Letter" or a
notice of deficiency as defined in section 6212 of the Internal Revenue Code, as
amended (the "Code") (or similar notice under state, local or foreign law) for
which adequate reserves have not been established in the most recent Parent
Financial Statements as of the date hereof. The Parent Disclosure Schedule sets
forth a description of all audits or investigations by Federal, state, local or
foreign tax authorities currently pending or, to the best of Parent's knowledge,
threatened. There is not currently in effect any waiver of a statute of
limitations in respect of any Taxes by Parent or any agreement to extend the
time with respect to a tax assessment of deficiency. Parent is not a party to
any tax allocation or sharing agreement. Except for the group of which Parent is
currently the parent, Parent neither is nor has been a member of an affiliated
group filing a consolidated Federal income tax return.
Section 4.12 Title to Properties; Encumbrances. Neither Parent nor any
of the Parent Subsidiaries is subject to a contractual obligation to acquire
title to any real property. Parent and the Parent Subsidiaries have good and
marketable title to, or a valid leasehold interest in, as applicable, all of
their properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
Parent Financial Statements, other than those which have been disposed of in the
ordinary course of business since the date of the latest Parent Financial
Statements. To Parent's knowledge, all leases under which such leasehold
interests are held are in full force and effect, are valid and enforceable in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or state of facts which with
notice or lapse of time, or both, would constitute a default or event of
default) that would either permit termination of such lease or give rise to a
claim against Parent or any of the Parent Subsidiaries. Except as reflected in
the Parent Financial Statements, the fee simple title, or leasehold interest, as
applicable, for such properties or assets is not subject to any liability,
obligation, claim, lien (other than contractual and statutory liens which arise
in favor of the landlords under the leases which are the subject of the
leasehold interests), mortgage, pledge, security interest, conditional sale
agreement, charge, or taxes other than taxes for the current year or taxes which
are a lien but not yet due and payable. To Parent's knowledge, none of such
properties or assets are subject to any encumbrances, easements, encroachments,
privileges, rights of way, building use restrictions, variances, reservations,
restrictions, or limitations of any nature (whether absolute, accrued,
contingent, or otherwise) (collectively "Encumbrances") which have a material
adverse effect on the use, occupancy, operation, value, or merchantability of
such properties or assets.
Section 4.13 Compliance with Applicable Law. Each of Parent and the
Parent Subsidiaries is in compliance with all applicable laws (whether statutory
or otherwise),
14
rules, regulations, orders, ordinances, judgments or decrees of all governmental
authorities (federal, state, local, foreign or otherwise) (collectively, "Laws")
except where the failure to be in such compliance would not individually or in
the aggregate have a Parent Material Adverse Effect.
Section 4.14 Labor Matters. (a) Neither Parent nor any of the Parent
Subsidiaries is a party to, or bound by, any collective bargaining agreement
with a labor union or labor organization; (b) there is no unfair labor practice
or labor arbitration proceeding pending, or to the knowledge of Parent,
threatened against Parent or the Parent Subsidiaries relating to their
businesses; and (c) to the knowledge of Parent, there are no organizational
efforts with respect to the formation of a collective bargaining unit currently
being made or threatened involving any employees of Parent or the Parent
Subsidiaries.
Section 4.15 Employee Benefit Plans; ERISA.
(a) The Parent Disclosure Schedule contains a true and
complete list of each bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, severance or termination pay, disability
hospitalization or other medical, cafeteria, health or dependent care
flexible spending account, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit
plan, program, agreement (including but not limited to employment
agreements and whether or not covered under Section 3(3) of ERISA) or
arrangement (collectively, "Parent Plans") currently maintained in
whole or in part or contributed to, or required to be contributed to,
by (i) Parent, or (ii) any Parent Subsidiary, or (iii) any trade or
business, whether or not incorporated (a "Parent ERISA Affiliate"),
that together with Parent would be deemed a "single employer" within
the meaning of section 4001 of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA") for the benefit of any employee or former employee
of Parent, any Parent Subsidiary or any Parent ERISA Affiliate. With
respect to each of the Parent Plans, Parent has delivered to Company
complete and genuine copies of each of the following documents:
(i) a copy of each Parent Plan (including all
amendments thereto) and participating employer agreements;
(ii) a copy of the annual report and actuarial
report, if required under ERISA, with respect to each such
Parent Plan for the last two plan years ending prior to the
date hereof;
(iii) a copy of the most recent Summary Plan
Description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such
Parent Plan;
(iv) if the Parent Plan is funded through a trust or
any third party funding vehicle, a copy of the trust or other
funding agreement (including all amendments thereto) and the
latest financial statements and any actuarial
15
reports required by ERISA with respect to the last reporting
period ended immediately prior to the date thereof;
(v) all pending applications, including all
attachments, submitted to the Internal Revenue Service for
Internal Revenue Service determination letters or rulings with
respect to Parent Plans, the latest determination letters or
rulings issued by the Internal Revenue Service regarding the
Parent Plans and all other material correspondence for the
last six years ending on the Closing Date with the Internal
Revenue Service or U.S. Department of Labor relating to plan
qualification, filing of required forms or pending,
contemplated or announced plan audits with respect to the
Parent Plans; and
(vi) each written employment agreement, change in
control agreement, severance agreement or similar agreement
and all handbooks, memoranda or other statements of employment
policies.
(b) No liability under Title IV of ERISA has been incurred by
Parent, any Parent Subsidiary or any Parent ERISA Affiliate that has
not been satisfied in full when due, and no condition exists that
presents a material risk to Parent or any Parent Subsidiary or any
Parent ERISA Affiliate of incurring a liability under such Title. To
the extent this representation applies to Sections 4064, 4069 or 4204
of Title IV of ERISA, it is made not only with respect to the Parent
ERISA Plans but also with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which
Parent, any Parent Subsidiary or any Parent ERISA Affiliate made, or
was required to make, contributions during the five-year period ending
on the Effective Time.
(c) No Parent Plan subject to the minimum funding requirements
of Section 412 of the Code or Section 302 of ERISA or any trust
established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, any "unfunded benefit liability" (as
defined in Section 4001(a)(18) of ERISA) or any "liquidity shortfall"
(as defined in Section 412(m)(5) of the Code), as of the last day of
the most recent fiscal year of such Parent Plan ended prior to the date
hereof; and all contributions required to be made with respect thereto
(whether pursuant to the terms of any such Parent Plan or otherwise) on
or prior to the date hereof have been timely made; and no event
described in Section 401(a)(29) of the Code has occurred or can
reasonably be expected to occur with respect to Parent or any Parent
ERISA Affiliate and no "reportable event" (as that term is defined in
Section 4043 of ERISA and for which the 30-day notice requirement has
not been waived) has occurred with respect to any Parent Plan within
the last six years prior to the Closing Date.
(d) No Parent Plan is a "multi-employer pension plan," as
defined in Section 3(37) of ERISA or a foreign plan as defined in
Section 4(b)(4) of ERISA nor is any Parent Plan a plan described in
Section 4063(a) of ERISA or is maintained as, or in connection with, an
organization that is intended to meet the requirements for exemption
from federal income taxes under Section 501(c)(9) of the Code.
16
(e) Each Parent Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service as to its
qualification and no amendment has been made to any such Parent Plan
since the date of the letter that is likely to result in
disqualification of such Parent Plan, and the Parent Disclosure
Schedule identifies which of the Parent Plans is an "employee benefit
plan", as that term is defined in Section 3(3) of ERISA (such plans
being hereinafter referred to collectively as the "Parent ERISA
Plans").
(f) Each of the Parent Plans has been operated and
administered in all respects in accordance with applicable laws,
including, but not limited to, ERISA and the Code and no issue is
pending and no issue has been adversely resolved with respect to any of
the Parent Plans that may subject Parent, and Parent Subsidiary or
Parent ERISA Affiliate to any penalty, interest, tax or other
obligation, nor is there any basis for imposition of any such
liability.
(g) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any current or former employee or
officer of Parent or any Parent Subsidiary to severance pay,
unemployment compensation or any other payment, or (B) accelerate the
time of payment or vesting, or increase the amount of compensation due
any such employee or officer, or (C) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not available.
(h) With respect to each Parent Plan that is funded wholly or
partially through an insurance policy, Parent and the Parent
Subsidiaries do not have any current liability under any such insurance
policy in the nature of a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or
partially out of events occurring prior to the Closing.
(i) There are no pending or, to Parent's knowledge, threatened
claims by or on behalf of any of the Parent Plans, by any employee or
beneficiary covered under any such Parent Plan involving any such
Parent Plan (other than routine claims for benefits).
(j) Neither Parent nor any Parent Subsidiary or, to Parent's
knowledge, any Parent ERISA Affiliate, any of the Parent ERISA Plans,
any trust created thereunder, or any trustee or administrator thereof
has engaged in a transaction in connection with which Parent, any
Parent Subsidiary or, to Parent's knowledge, any Parent ERISA
Affiliate, any of the Parent Plans, any such trust, or any trustee or
administrator thereof, or any party dealing with the Parent Plans or
any such trust is or will be subject to either a civil liability under
Section 409 of ERISA or Section 502(i) of ERISA, or a tax imposed
pursuant to Section 4975 or 4976 of the Code.
(k) Except as may be required to maintain the favorable tax
qualification of any Parent Plan described in Section 4.15(e) of this
Agreement, Parent has no formal plan or commitment, whether legally
binding or not, to create any additional Parent Plan or modify or
change any existing Parent Plan that would affect any employee or
terminated employee of Parent or any Parent Subsidiary.
17
(l) The Pension Benefit Guaranty Corporation has not
instituted proceedings under Section 4042 of ERISA to terminate any
Parent ERISA Plan and no condition exists that presents a material risk
that such proceedings will be instituted.
(m) Except as disclosed in Schedule 4.15(m), no amounts
payable under any Parent Plan or under any other agreement or
arrangement will fail to be deductible for federal income tax purposes
by virtue of Section 280G of the Code.
(n) No "leased employees", as that term is defined in Section
414(n) of the Code, perform services for Parent or any Parent
Subsidiary.
(o) No Parent Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with
respect to current or former employees of Parent or any Parent
Subsidiary beyond their retirement or other termination of service,
other than (i) coverage mandated solely by applicable law, (ii) death
benefits or retirement benefits under any "employee pension benefit
plan," as defined in Section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of Parent or (iv) benefits
the costs of which are borne by the current or former employee or his
beneficiary.
(p) With respect to each of the Plans, the provisions of
Section 4980B(f) of the Code have been complied with in all respects.
(q) Each Parent Plan may be amended or terminated without
liability (other than for benefits due in the ordinary course) to
Parent or any Parent ERISA Affiliate (or any successor thereto) on or
at any time after the consummation of the transactions contemplated by
this Agreement without contravening the terms of such plan or any law
or agreement that pertains to Parent or any Parent ERISA Affiliate.
Section 4.16 Contracts; Agreements and Commitments. Neither Parent nor
any Parent Subsidiaries is a party to or bound by any written or oral contracts,
agreements, instruments, commitments or arrangements, covering the following:
(a) employment agreements, consulting agreements or other arrangements with any
employee or other person, or any non-compete or non-solicitation agreements,
arrangements or understandings with any person or entity that may not be
terminated by Parent or any Parent Subsidiary without liability for a severance,
cancellation or penalty payment; (b) indentures, mortgages, notes, installment
obligations, capital leases, interest rate swap agreements, agreements or other
instruments relating to the borrowing of money by Parent or any Parent
Subsidiary or the guarantee of any obligation for the borrowing of money; (c)
leases, licenses or other agreements for the purchase, lease, license, use or
maintenance of hardware, software, data processing services or systems, or
telecommunications equipment, lines or services; (d) joint venture and
management agreements; and (e) agreements which involve the receipt or payment
by Parent or any Parent Subsidiary of more than $10,000; provided, however, that
as to managed care agreements the Parent Disclosure Schedule lists only the top
five provider contracts by percent of total revenue for each facility. There is
not, under any of the aforesaid obligations, any existing default, event of
default or other event which, with or without due notice or lapse of time or
both, would constitute a default
18
or event of default on the part of Parent or any Parent Subsidiary, except such
defaults, events of default and other events as to which requisite waivers or
consents have been obtained or which individually or in the aggregate would not
have a Parent Material Adverse Effect.
Section 4.17 Insurance. The Parent Disclosure Schedule sets forth a
list (which is accurate and complete in all material respects) of all insurance
arrangements (including self insurance and trust accounts) and current primary,
excess and umbrella policies of insurance owned or held by or on behalf of or
providing insurance coverage to Parent or the Parent Subsidiaries, and all such
policies and arrangements are in full force and effect. With respect to all
policies providing insurance coverage to Parent or the Parent Subsidiaries, no
premiums are in arrears, no notice of cancellation or termination has been
received with respect to any such policy, other than notices of cancellation or
termination routinely sent at the end of a policy term, and all such insurance
policies are valid, outstanding, collectible and enforceable policies. Neither
Parent nor any Parent Subsidiary has been refused any insurance with respect to
its assets or operations by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
Section 4.18 Environmental Matters.
(a) The following definitions apply to this Section and to
Section 5.18: (i) "Environmental Claim" means any written notice by a
person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (A) the presence, or release into the environment, of
any Materials of Environmental Concern at any location, whether or not
owned by Parent, or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; (ii)
"Environmental Laws" means all federal, state, local and foreign laws
and regulations (including common law) relating to pollution or
protection of human health or the environment (including, ground water,
land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or
threatened releases of materials of Environmental Concern, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, recycling, reporting or handling of
Materials of Environmental Concern; (iii) "Materials of Environmental
Concern" means chemicals, pollutants, contaminants, wastes (including
medical waste), toxic substances, petroleum, petroleum products,
hazardous substances or wastes, and similar waste materials as defined
by Environmental Laws, as they may be amended from time to time.
(b) Parent and the Parent Subsidiaries are in compliance in
all material respects with all applicable Environmental Laws. To
Parent's knowledge, there are no circumstances that may prevent or
interfere with compliance in all material respects in the future.
Parent and the Parent Subsidiaries have not received any written
communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that Parent or the Parent
Subsidiaries are not in compliance in all material respects with
Environmental Laws or that is issued
19
pursuant to any information gathering authority conferred under
Environmental Laws. There is no Environmental Claim pending or, to
Parent's knowledge, threatened against Parent or any of the Parent
Subsidiaries or against any person or entity whose liability for any
Environmental Claims Parent has or may have retained or assumed either
contractually or by operation of law. To Parent's knowledge, there have
been no actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission,
discharge or disposal of any Material of Environmental Concern, that
could form the basis of any valid Environmental Claim against Parent or
any Parent Subsidiary or against any person or entity whose liability
for any valid Environmental Claim Parent or any Parent Subsidiary has
or may have retained or assumed either contractually or by operation of
law.
Section 4.19 Intellectual Properties, Computer Software, Etc. Except
for customary licensing fees payable under contracts with regard to the
Intellectual Properties (as defined below) of the Parent and the Parent
Subsidiaries, Parent and the Parent Subsidiaries have the right to use, free and
clear of any royalty or other payment obligations, claims of infringement or
other liens, (i) all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos, copyrights, trade secrets and similar intangibles
(including variants thereof and applications therefor) (collectively
"Intellectual Properties") used or needed by Parent and the Parent Subsidiaries
in the conduct of their business, and (ii) all software, hardware application
programs and similar systems owned by or licensed under contracts to Parent and
the Parent Subsidiaries and used in the conduct of their business; and, to
Parent's knowledge, neither Parent nor any Parent Subsidiary is in conflict with
or in violation or infringement of, and has received a notice in writing
alleging any conflict with or violation or infringement of, any rights of any
other person with respect to any such Intellectual Properties or software,
hardware, application programs or similar systems. To Parent's knowledge, no
other person is in conflict with or in violation or infringement of any of
Parent's and the Parent Subsidiaries' rights in such Intellectual Properties or
software, hardware, application programs or similar systems. Except for
customary licensing fees payable under contracts with regard to the Intellectual
Properties of the Parent or the Parent Subsidiaries, after the Merger and
without further action or the payment of additional fees, royalties or other
compensation to any person, Parent and the Parent Subsidiaries will be entitled
to use of all Intellectual Properties, software, hardware, application programs
and similar systems currently used in their business.
Section 4.20 Medicare Participation/Accreditation.
(a) All hospitals or significant health care facilities owned
or operated as continuing operations by Parent or any Parent Subsidiary
(each, a "Parent Facility") are certified for participation or
enrollment in the Medicare and Medicaid programs, have a current and
valid provider contract with the Medicare and Medicaid programs, are in
substantial compliance with the conditions of participation of such
programs and have received all approvals or qualifications necessary
for capital reimbursement of Parent's assets except where the failure
to be so certified, to have such contracts, to be in such compliance or
to have such approvals or qualifications would not individually or in
the aggregate have a Parent Material Adverse Effect. Neither Parent nor
any of the Parent Subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in
20
respect of either the Medicare or the Medicaid program of any pending
or threatened investigations, and neither Parent or any of the Parent
Subsidiaries has any reason to believe that any such investigations or
surveys are pending, threatened or imminent which may individually or
in the aggregate have a Parent Material Adverse Effect. Each Parent
Facility eligible for such accreditation is accredited by the Joint
Commission on Accreditation of Healthcare Organizations, the Commission
on Accreditation of Rehabilitation or other appropriate accreditation
agency.
(b) Each Parent Facility is licensed by the proper state
department of health to conduct its business in substantially the
manner conducted by such Parent Facility and is authorized to operate
the number of beds utilized therein. The Parent Facilities are
presently in substantial compliance with all of the terms, conditions
and provisions of such licenses. Parent has heretofore made available
to Company correct and complete copies of all such licenses. The
facilities, equipment, staffing and operations of the Parent Facilities
satisfy the applicable state hospital licensing requirements in all
material respects.
Section 4.21 Disclosure. No representation, warranty or statement of
Parent set forth in this Agreement (including the Parent Disclosure Schedule)
contains or will contain any untrue statement of material fact or information,
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading.
Section 4.22 Approval of Merger. The Merger has been approved by the
Boards of Directors of Parent and Sub and the sole shareholder of Sub as
required by Section 00-00-000 of the Tennessee Business Corporation Act and
Section 251 of the Delaware General Corporation Law. Approval of the Merger will
require the affirmative vote of the holders of a majority of the outstanding
Parent Common Shares at the shareholders' meeting referred to in Section 7.4(b).
Section 4.23 Opinion of Financial Advisor. Parent has received the oral
opinion of Xxxxxxx Xxxxx to the effect that, as of the date of this Agreement,
the Merger Consideration is fair to the holders of Parent Shares from a
financial point of view, a written copy of which opinion will be delivered by
Parent to Company prior to the date on which the Private Offering Memorandum (as
defined in Section 7.10) is mailed to the holders of Parent Shares.
Section 4.24 No Excess Parachute Payments. No amount that could be
received (whether in cash or property or the vesting of property) as a result of
any of the transactions contemplated by this Agreement by any employee, officer
or director of Parent or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury regulations Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Parent Plan currently in effect would be an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
Section 4.25 Minute Books. Parent's minute books contain complete and
accurate records of all meetings and other corporate actions of its shareholders
and Board of Directors and committees thereof.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as otherwise disclosed to Parent in a Disclosure Schedule
delivered to it prior to the execution hereof (the "Company Disclosure
Schedule"), Company represents and warrants to Parent and Sub as follows:
Section 5.1 Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of Company and the Company Subsidiaries (as
defined in Section 5.3), taken as a whole (a "Company Material Adverse Effect").
Section 5.2 Capitalization. The authorized capital stock of Company
consists of 50,000,000 shares of Common Stock, par value $.001 per share (the
"Company Common Stock"), and 40,296,838 shares of Preferred Stock, par value
$.001 per share, of which 10,148,149 shares are designated as Series A
Convertible Preferred Stock, 10,148,149 shares are designated as Redeemable
Preferred Stock, 8,165,678 shares are designated as Series B Convertible
Preferred Stock and 8,165,678 shares are designated as Series B Redeemable
Preferred Stock (the "Company Preferred Stock"). As of the date hereof, (i)
6,283,646 shares of Company Common Stock are issued and outstanding and owned by
the persons whose names, addresses and share ownership are set forth in the
Company Disclosure Schedule, (ii) 10,148,419 shares of Series A Convertible
Preferred Stock and 6,088,008 shares of Series B Convertible Preferred Stock are
issued and outstanding and owned by the persons whose names, addresses and share
ownership are set forth in the Company Disclosure Schedule, (iii) no shares of
Redeemable Preferred Stock or Series B Redeemable Preferred Stock are issued and
outstanding, (iv) employee and non-employee director stock options to acquire
801,230 shares of Company Common Stock (the "Company Employee Stock Options")
are outstanding under all stock option plans and agreements of Company and owned
by the persons whose names, addresses and option ownership are set forth in the
Company Disclosure Schedule, (v) warrants (the "Company Warrants") to purchase
596,000 shares of Company Common Stock are issued and outstanding and owned by
the persons whose names, addresses and warrant ownership are set forth in the
Company Disclosure Schedule, (vi) 18,313,827 shares of Company Common Stock are
reserved for issuance upon conversion of the Series A Convertible Preferred
Stock and the Series B Convertible Preferred Stock, (vii) 1,803,593 shares of
Company Common Stock are reserved for issuance upon exercise of the Company
Employee Stock Options and (viii) 596,000 shares of Company Common Stock are
reserved for issuance upon exercise of outstanding Company Warrants. All of the
issued and outstanding Company Shares are, and immediately prior to the
Effective Time will be, validly issued, fully paid and nonassessable and free of
preemptive rights. Except as set forth above, except for the exercise of any
outstanding options or warrants and except as otherwise provided for in this
Agreement including, without limitation, the Roll-Up Warrants, as of the date
hereof, there are, and immediately prior to the Effective Time there will be, no
shares of capital stock of
22
Company issued or outstanding or any options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating
Company to issue, transfer, sell, redeem, repurchase or otherwise acquire any
shares of its capital stock or securities.
Section 5.3 Company Subsidiaries. The Company Disclosure Schedule
contains a list of all corporations, partnerships, limited liability companies,
joint ventures or other business associations or entities, foreign or domestic,
in which Company, directly or indirectly, owns an interest (such corporations,
partnerships, limited liability companies, joint ventures or other business
entities, the financial statements of which are included in the consolidated
financial statements of Company prepared in accordance with GAAP, being
hereinafter referred to as the "Company Subsidiaries"). Each Company Subsidiary
that is a corporation is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each Company
Subsidiary that is a partnership or limited liability company is duly formed and
validly existing under the laws of its jurisdiction of formation. Each Company
Subsidiary has the corporate power or the partnership power or the limited
liability company power, as the case may be, to carry on its business as it is
now being conducted or presently proposed to be conducted. Each Company
Subsidiary that is a corporation is duly qualified as a foreign corporation
authorized to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where a failure to be so
qualified would not individually or in the aggregate have a Company Material
Adverse Effect. Each Company Subsidiary that is a partnership or limited
liability company is duly qualified as a foreign partnership or limited
liability company authorized to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where a
failure to be so qualified would not individually or in the aggregate have a
Company Material Adverse Effect. All of the outstanding shares of capital stock
of the Company Subsidiaries that are corporations are validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company Subsidiaries are owned, directly or
indirectly, by Company, free and clear of any liens, claims, charges or
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Company or any Company
Subsidiary to issue, transfer or sell any securities of any Company Subsidiary.
Section 5.4 Authority Relative to this Agreement. Company has the
corporate power and authority to enter into this Agreement to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Company and the consummation by
Company of the transactions contemplated hereby have been duly authorized by
Company's Board of Directors, and, except for approval of Company's stockholders
to be sought at Company's stockholders' meeting contemplated by Section 7.4(a),
no other corporate action or proceedings on the part of Company are necessary to
authorize this Agreement or the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Company and constitutes a
valid and binding agreement of Company, enforceable against Company in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally
23
or to general principles of equity. Company has received the Company Stockholder
Agreements from the holders of a majority of its capital stock entitled to vote
on the Merger and the transactions contemplated hereby indicating such holders'
vote in favor of the Merger and such transactions.
Section 5.5 Consents and Approvals; No Violations. Except for
applicable requirements of the Securities Act, state securities or blue sky
laws, certain state and regulatory filings relating to health care licensing and
similar matters, and the filing of a Certificate of Merger as required by the
Delaware General Corporation Law, no filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Company of the transactions contemplated by this Agreement,
except for such filings, permits, authorizations, consents or approvals, the
failure of which to be made or obtained would not individually or in the
aggregate have a Company Material Adverse Effect. Neither the execution and
delivery of this Agreement by Company, nor the consummation by Company of the
transactions contemplated hereby, nor compliance by Company with any of the
provisions hereof, will (a) conflict with or result in any breach of any
provisions of the Certificate of Incorporation or Bylaws of Company or any
similar documents of the Company Subsidiaries, (b) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Company or any of the Company Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound or (c) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Company, any
of the Company Subsidiaries or any of their properties or assets, except in the
case of clauses (b) and (c) for violations, breaches or defaults which would not
individually or in the aggregate have a Company Material Adverse Effect. X.X.
Xxxxxxx III, L.P., a Delaware limited partnership, X.X. Xxxxxxx XX, L.P., a
Delaware limited partnership, and Whitney Strategic Partners, III, L.P., a
Delaware limited partnership, who in the aggregate on a fully converted basis
hold approximately 67.4% of the Company Shares, have represented to Company that
for purposes of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, each entity is its own ultimate parent within the meaning of 16 C.F.R.
ss.801.10(a)(3) and each entity has determined in good faith that the value of
the voting securities of Parent to be held by such entity as a result of this
Agreement will have a fair market value of less than $50,000,000 within the
meaning of the 16 C.F.R. ss.801.10. Based on such representations and the
accuracy of the representations made by Parent in Section 4.5 of this Agreement,
no filing by Company is required under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, in connection with the acquisition of the
Parent Shares pursuant to this Agreement.
Section 5.6 Financial Statements. Company has furnished Parent with
true and complete copies of the audited balance sheets and related statements of
operations, shareholders' equity and cash flows, together with all schedules and
notes thereto, of Company and its consolidated subsidiaries for the years ended
December 31, 1999 and 2000 (the "Company Audited Financial Statements"), and the
unaudited balance sheet and related statements of operations and cash flows of
Company and its consolidated subsidiaries for the year ended December 31, 2001
(the "Company Unaudited Financial Statements" and, together with the Company
Audited Financial Statements, the "Company Financial Statements"). The Company
Financial Statements fairly present, in all material
24
respects, the financial position of Company and its consolidated subsidiaries as
of the respective dates thereof, and the results of operations and the changes
in cash flows of Company and its consolidated subsidiaries for the respective
periods or as of the respective dates set forth therein, all in conformity with
GAAP consistently applied during the periods involved, except that the Company
Unaudited Financial Statements do not include footnotes as required by GAAP and
are subject to normal, recurring year-end audit adjustments.
Section 5.7 Absence of Certain Changes or Events. Since July 31, 2001
and except as set forth in the Company Financial Statements, neither Company nor
any of the Company Subsidiaries has: (a) taken any of the actions set forth in
Sections 6.2(b), 6.2(c) or 6.2(e); or (b) suffered any material adverse change
in the business, financial condition, results of operations, properties, assets
or liabilities of Company and the Company Subsidiaries taken as a whole (other
than any change relating to the United States economy in general).
Section 5.8 Litigation. There is no suit, action or proceeding pending
or, to Company's knowledge, threatened against or affecting Company or any of
the Company Subsidiaries, nor, to Company's knowledge, is there any judgment,
decree, injunction, citation, settlement agreement, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Company or any of the physician practices or Company
Subsidiaries; provided, however, that the representation and warranty contained
in this Section 5.8 shall not apply to any professional liability suit, action
or proceeding against any of the physician practices or individual physicians
affiliated with the Company or any of the Company Subsidiaries.
Section 5.9 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which (i) are accrued or reserved against in the Company
Financial Statements (or reflected in the notes thereto), or (ii) were incurred
after December 31, 2001 in the ordinary course of business and consistent with
past practices, neither Company nor any of the Company Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of a nature required by GAAP to be reflected in a balance sheet of Company and
its consolidated subsidiaries or the notes thereto.
Section 5.10 No Default. Neither Company nor any of the Company
Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (a) its charter documents or Bylaws, or (b)
any note, bond, mortgage, indenture, license, agreement, contract, lease,
commitment or other obligation to which Company or any of the Company
Subsidiaries is a party or by which they or any of their properties or assets
may be bound, except in the case of clause (b) above for defaults or violations
which would not individually or in the aggregate have a Company Material Adverse
Effect.
Section 5.11 Taxes. Company and the Company Subsidiaries have duly
filed all Tax Returns and any amended Tax Returns required to be filed by
Company or the Company Subsidiaries and have paid all Taxes shown to be due
thereon. To Company's knowledge, all such Tax Returns are true, correct and
complete in all material respects. The most recent Company Financial Statements
provide an adequate accrual for Taxes for the periods covered by such Company
Financial Statements. No deficiencies for Taxes have
25
been assessed or asserted by a "30-Day Letter" or a notice of deficiency as
defined in section 6212 of the Code (or similar notice under state, local or
foreign law) for which adequate reserves have not been established in the most
recent Company Financial Statements as of the date hereof. The Company
Disclosure Schedule sets forth a description of all audits or investigations by
Federal, state, local or foreign tax authorities currently pending or, to
Company's knowledge, threatened. There is not currently in effect any waiver of
a statute of limitations in respect of any Taxes by Company or any agreement to
extend the time with respect to a tax assessment of deficiency. Company is not a
party to any tax allocation or sharing agreement. Except for the group of which
Company is currently the parent, Company neither is nor has been a member of an
affiliated group filing a consolidated Federal income tax return.
Section 5.12 Title to Properties; Encumbrances. Neither Company nor any
of the Company Subsidiaries is subject to a contractual obligation to acquire
title to any real property. Company and the Company Subsidiaries have good and
marketable title to, or a valid leasehold interest in, as applicable, all of
their properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
Company Financial Statements, other than those which have been disposed of in
the ordinary course of business since the date of the latest Company Financial
Statements. To Company's knowledge, all leases under which such leasehold
interests are held are in full force and effect, are valid and enforceable in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or state of facts which with
notice or lapse of time, or both, would constitute a default or event of
default) that would either permit termination of such lease or give rise to a
claim against Company or any of the Company Subsidiaries. Except as reflected in
the Company Financial Statements, the fee simple title, or leasehold interest,
as applicable, for such properties or assets is not subject to any liability,
obligation, claim, lien (other than contractual and statutory liens which arise
in favor of the landlords under the leases which are the subject of the
leasehold interests), mortgage, pledge, security interest, conditional sale
agreement, charge, or taxes other than taxes for the current year or taxes which
are a lien but not yet due and payable. To Company's knowledge, none of such
properties or assets are subject to any Encumbrances which have a material
adverse effect on the use, occupancy, operation, value, or merchantability of
such properties or assets.
Section 5.13 Compliance with Applicable Law. Each of Company and the
Company Subsidiaries is in compliance with all applicable Laws, except where the
failure to be in such compliance would not individually or in the aggregate have
a Company Material Adverse Effect.
Section 5.14 Labor Matters. (a) Neither Company nor any of the Company
Subsidiaries is a party to, or bound by, any collective bargaining agreement
with a labor union or labor organization; (b) there is no unfair labor practice
or labor arbitration proceeding pending, or to the knowledge of Company,
threatened against Company or the Company Subsidiaries relating to their
businesses; and (c) to the knowledge of Company, there are no organizational
efforts with respect to the formation of a collective bargaining unit currently
being made or threatened involving any employees of Company or the Company
Subsidiaries.
26
Section 5.15 Employee Benefit Plans; ERISA.
(a) The Company Disclosure Schedule contains a true and
complete list of each bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, severance or termination pay, disability
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit
plan, program, agreement (including but not limited to employment
agreements and whether or not covered under Section 3(3) of ERISA) or
arrangement (collectively, "Company Plans") currently maintained in
whole or in part or contributed to, or required to be contributed to,
by (i) Company, or (ii) any Company Subsidiary, or (iii) any trade or
business, whether or not incorporated (a "Company ERISA Affiliate"),
that together with Company would be deemed a "single employer" within
the meaning of Section 4001 of ERISA for the benefit of any employee or
former employee of Company, any Company Subsidiary or any Company ERISA
Affiliate. With respect to each of the Company Plans, Company has
delivered to Parent complete and genuine copies of each of the
following documents:
(i) a copy of each Company Plan (including all
amendments thereto and participating employer agreement);
(ii) a copy of the annual report and actuarial
report, if required under ERISA, with respect to each such
Company Plan for the last two plan years ending prior to the
date hereof;
(iii) a copy of the most recent Summary Plan
Description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such
Company Plan;
(iv) if the Company Plan is funded through a trust or
any third party funding vehicle, a copy of the trust or other
funding agreement (including all amendments thereto) and the
latest financial statements and any actuarial reports required
by ERISA with respect to the last reporting period ended
immediately prior to the date thereof;
(v) all pending applications, including all
attachments, submitted to the Internal Revenue Service for
Internal Revenue Service determination letters or rulings with
respect to Company Plans, the latest determination letters or
rulings issued by the Internal Revenue Service regarding the
Company Plans and all other material correspondence for the
last six years ending on the Closing Date with the Internal
Revenue Service or U.S. Department of Labor relating to plan
qualification, filing of required forms or pending,
contemplated or announced plan audits with respect to the
Company Plans; and
(vi) each written employment agreement, change in
control agreement, severance agreement or similar agreement
and all handbooks, memoranda or other statements of employment
policies.
27
(b) No liability under Title IV of ERISA has been incurred by
Company, any Company Subsidiary or any Company ERISA Affiliate that has
not been satisfied in full when due, and no condition exists that
presents a material risk to Company or any Company Subsidiary or any
Company ERISA Affiliate of incurring a liability under such Title. To
the extent this representation applies to Sections 4064, 4069 or 4204
of Title IV of ERISA, it is made not only with respect to the Company
ERISA Plans but also with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which
Company, any Company Subsidiary or any Company ERISA Affiliate made, or
was required to make, contributions during the five-year period ending
on the Effective Time.
(c) No Company Plan subject to the minimum funding
requirements of Section 412 of the Code or Section 302 of ERISA or any
trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, any "unfunded benefit liability" (as
defined in Section 4001(a)(18) of ERISA) or any "liquidity shortfall"
(as defined in Section 412(m)(5) of the Code), as of the last day of
the most recent fiscal year of such Company Plan ended prior to the
date hereof; and all contributions required to be made with respect
thereto (whether pursuant to the terms of any such Company Plan or
otherwise) on or prior to the date hereof have been timely made; and no
event described in Section 401(a)(29) of the Code has occurred or can
reasonably be expected to occur with respect to Company or any Company
ERISA Affiliate and no "reportable event" (as that term is defined in
Section 4043 of ERISA and for which the 30-day notice requirement has
not been waived) has occurred with respect to any Company Plan within
the last six years prior to the Closing Date.
(d) No Company Plan is a "multi-employer pension plan," as
defined in Section 3(37) of ERISA or a foreign plan as defined in
Section 4(b)(4) of ERISA nor is any Company Plan a plan described in
Section 4063(a) of ERISA or is maintained as, or in connection with, an
organization that is intended to meet the requirements for exemption
from federal income taxes under Section 501(c)(9) of the Code.
(e) Each Company Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code is maintained under the form of a
prototype plan that has received a favorable opinion letter from the
Internal Revenue Service and can or will be timely submitted by Company
(or any successor thereto that assumes any such plan) within the
remedial amendment period described in Section 401(b) of the Code to
the Internal Revenue Service in an application for a favorable
determination letter as to its qualification, and no amendment has been
made to any such Company Plan since the date of the letter that is
likely to result in disqualification of such Company Plan, and the
Company Disclosure Schedule identifies which of the Company Plans is an
"employee benefit plan", as that term is defined in Section 3(3) of
ERISA (such plans being hereinafter referred to collectively as the
"Company ERISA Plans").
(f) Each of the Company Plans has been operated and
administered in all respects in accordance with applicable laws,
including, but not limited to, ERISA and the Code and no issue is
pending and no issue has been adversely resolved with respect to any of
the Company Plans that may subject Company, any Company
28
Subsidiary or Company ERISA Affiliate to any penalty, interest, tax or
other obligation, nor is there any basis for imposition of any such
liability. All annual reports and actuarial reports required under
ERISA or the Code have been accurately and timely filed.
(g) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any current or former employee or
officer of Company or any Company Subsidiary to severance pay,
unemployment compensation or any other payment, or (B) accelerate the
time of payment or vesting, or increase the amount of compensation due
any such employee or officer, or (C) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not available.
(h) With respect to each Company Plan that is funded wholly or
partially through an insurance policy, including, but not limited to, a
"stop loss" policy issued in connection with a self-funded Company
Plan, all policies are in force, premiums are paid up to date, and
Company and the Company Subsidiaries do not have any current liability
under any such insurance policy in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to
the Closing. For any Company Plan that is a welfare benefit plan (as
defined in section 3(1) of ERISA) and is not wholly funded through an
insurance policy, all liabilities for benefits that exceed $30,000
individually and $2,106,798 in the aggregate (based on employee census
figures available at December 31, 2001) are reimbursed to Company
through an insurance policy; provided, however, that such aggregate
amount is subject to adjustment monthly based on employee census
figures.
(i) There are no pending or, to Company's knowledge,
threatened claims by or on behalf of any of the Company Plans, by any
employee or beneficiary covered under any such Company Plan involving
any such Company Plan (other than routine claims for benefits).
(j) Neither Company nor any Company Subsidiary or, to
Company's knowledge, any Company ERISA Affiliate, any of the Company
ERISA Plans, any trust created thereunder, or any trustee or
administrator thereof has engaged in a transaction in connection with
which Company, any Company Subsidiary or, to Company's knowledge, any
Company ERISA Affiliate, any of the Company Plans, any such trust, or
any trustee or administrator thereof, or any party dealing with the
Company Plans or any such trust is or will be subject to either a civil
liability under Section 409 of ERISA or Section 502(i) of ERISA, or a
tax imposed pursuant to Section 4975 or 4976 of the Code.
(k) Except as may be required to maintain the favorable tax
qualification of any Company Plan described in Section 5.15(e) of this
Agreement, Company has no formal plan or commitment, whether legally
binding or not, to create any additional Company Plan or modify or
change any existing Company Plan that would affect any employee or
terminated employee of Company or any Company Subsidiary.
29
(l) The Pension Benefit Guaranty Corporation has not
instituted proceedings under Section 4042 of ERISA to terminate any
Company ERISA Plan and no condition exists that presents a material
risk that such proceedings will be instituted.
(m) With respect to severance payments, stock options, stock
or any other change in control payments that are made under any Company
Plan or under any other agreement or arrangement, no such payments will
fail to be deductible for federal income tax purposes by virtue of
Section 280G of the Code. The Company has no agreement, practice or
other obligation to reimburse any person for tax liabilities arising
under Section 4999 of the Code.
(n) No "leased employees", as that term is defined in Section
414(n) of the Code, perform services for Company or any Company
Subsidiary.
(o) No Company Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with
respect to current or former employees of Company or any Company
Subsidiary beyond their retirement or other termination of service,
other than (i) coverage mandated solely by applicable law, (ii) death
benefits or retirement benefits under any "employee pension benefit
plan", as defined in Section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of Company or (iii)
benefits the costs of which are borne by the current or former employee
or his beneficiary.
(p) With respect to each of the Plans, the provisions of
Section 4980B(f) of the Code have been complied with in all respects.
(q) Each Company Plan may be amended or terminated without
liability (other than for benefits due in the ordinary course) to
Company or any Company ERISA Affiliate (or any successor thereto) on or
at any time after the consummation of the transactions contemplated by
this Agreement without contravening the terms of such plan or any law
or agreement that pertains to Company or any Company ERISA Affiliate.
Section 5.16 Contracts; Agreements and Commitments. Neither Company nor
any Company Subsidiary is a party to or bound by any written or oral contracts,
agreements, instruments, commitments or arrangements, covering the following:
(a) employment agreements, consulting agreements or other arrangements with any
employee or other person, or any non-compete or non-solicitation agreements,
arrangements or understandings with any person that may not be terminated by
Company or any Company Subsidiary without liability for a severance,
cancellation or penalty payment; (b) indentures, mortgages, notes, installment
obligations, capital leases, interest rate swap agreements, agreements or other
instruments relating to the borrowing of money by Company or any Company
Subsidiary or the guarantee of any obligation for the borrowing of money; (c)
leases, licenses or other agreements for the purchase, lease, license, use or
maintenance of hardware, software, data processing services or systems, or
telecommunications equipment, lines or services; (d) joint venture and
management agreements; and (e) agreements which involve the receipt or payment
by Company or any Company Subsidiary of more than $10,000. There is not, under
any of the aforesaid
30
obligations, any existing default, event of default or other event which, with
or without due notice or lapse of time or both, would constitute a default or
event of default on the part of Company or any Company Subsidiary, except such
defaults, events of default and other events as to which requisite waivers or
consents have been obtained or which individually or in the aggregate would not
have a Company Material Adverse Effect.
Section 5.17 Insurance. The Company Disclosure Schedule sets forth a
list (which is accurate and complete in all material respects) of all insurance
arrangements (including self insurance and trust accounts) and current primary,
excess and umbrella policies of insurance owned or held by or on behalf of or
providing insurance coverage to Company or the Company Subsidiaries, and all
such policies and arrangements are in full force and effect. With respect to all
policies providing insurance coverage to Company or the Company Subsidiaries, no
premiums are in arrears, no notice of cancellation or termination has been
received with respect to any such policy, other than notices of cancellation or
termination routinely sent at the end of a policy term, and all such insurance
policies are valid, outstanding, collectible and enforceable policies. Neither
Company nor any Company Subsidiary has been refused any insurance with respect
to its assets or operations by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
Section 5.18 Environmental Matters. Company and the Company
Subsidiaries are in compliance in all material respects with all applicable
Environmental Laws. To Company's knowledge, there are no circumstances that may
prevent or interfere with compliance in all material respects in the future.
Company and the Company Subsidiaries have not received any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that Company or the Company Subsidiaries are not in
compliance in all material respects with Environmental Laws or that is issued
pursuant to any information gathering authority conferred. There is no
Environmental Claim pending or threatened against Company or any of the Company
Subsidiaries or against any person or entity whose liability for any
Environmental Claims Company has or may have retained or assumed either
contractually or by operation of law. To Company's knowledge, there have been no
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any Material
of Environmental Concern, that could form the basis of any valid Environmental
Claim against Company or any Company Subsidiary or against any person or entity
whose liability for any valid Environmental Claim Company or any Company
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
Section 5.19 Intellectual Properties, Computer Software, etc. Except
for customary licensing fees payable under contracts with regard to the
Intellectual Properties of Company and the Company Subsidiaries, Company and the
Company Subsidiaries have the right to use, free and clear of any royalty or
other payment obligations, claims of infringement or other liens, (i) all
Intellectual Properties used or needed by Company and the Company Subsidiaries
in the conduct of their business, and (ii) all software, hardware application
programs and similar systems owned by or licensed under contracts to Company and
the Company Subsidiaries and used in the conduct of their business; and, to
Company's knowledge, neither Company nor any Company Subsidiary is in conflict
with or in violation or infringement of, and has received a notice in writing
alleging any conflict
31
with or violation or infringement of, any rights of any other person with
respect to any such Intellectual Properties or software, hardware, application
programs or similar systems. To Company's knowledge, no other person is in
conflict with or in violation or infringement of any of Company's and the
Company Subsidiaries' rights in such Intellectual Properties or software,
hardware, application programs or similar systems. Except for customary
licensing fees payable under contracts with regard to the Intellectual
Properties of Company or the Company Subsidiaries, after the Merger and without
further action or the payment of additional fees, royalties or other
compensation to any person, Company and the Company Subsidiaries will be
entitled to use of all Intellectual Properties, software, hardware, application
programs and similar systems currently used in their business.
Section 5.20 Medicare Participation/Accreditation.
(a) All hospitals or significant health care facilities owned
or operated as continuing operations by Company or any Company
Subsidiary (each, a "Company Facility") are certified for participation
or enrollment in the Medicare and Medicaid programs, have a current and
valid provider contract with the Medicare and Medicaid programs, are in
substantial compliance with the conditions of participation of such
programs and have received all approvals or qualifications necessary
for capital reimbursement of Company's assets except where the failure
to be so certified, to have such contracts, to be in such compliance or
to have such approvals or qualifications would not individually or in
the aggregate have a Company Material Adverse Effect. Neither Company
nor any of the Company Subsidiaries has received notice from the
regulatory authorities which enforce the statutory or regulatory
provisions in respect of either the Medicare or the Medicaid program of
any pending or threatened investigations, and neither Company or any of
the Company Subsidiaries has any reason to believe that any such
investigations or surveys are pending, threatened or imminent which may
individually or in the aggregate have a Company Material Adverse
Effect. Each Company Facility eligible for such accreditation is
accredited by the Joint Commission on Accreditation of Healthcare
Organizations, the Commission on Accreditation of Rehabilitation or
other appropriate accreditation agency.
(b) Each Company Facility is licensed by the proper state
department of health to conduct its business in substantially the
manner conducted by such Company Facility and is authorized to operate
the number of beds utilized therein. The Company Facilities are
presently in substantial compliance with all of the terms, conditions
and provisions of such licenses. Company has heretofore made available
to Parent correct and complete copies of all such licenses. The
facilities, equipment, staffing and operations of the Company
Facilities satisfy the applicable state hospital licensing requirements
in all material respects.
Section 5.21 Disclosure. No representation, warranty or statement of
Company set forth in this Agreement (including the Company Disclosure Schedule)
contains or will contain any untrue statement of material fact or information,
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading.
32
Section 5.22 Approval of Merger. The Merger has been approved by the
Board of Directors of Company pursuant to Section 251 of the Delaware General
Corporation Law. Approval of the Merger by the stockholders of Company will
require the affirmative vote of the holders of a majority of the outstanding
Company Shares at the stockholders' meeting referred to in Section 7.4(a).
Section 5.23 Retirement or Re-Acquisition of Parent Shares. Company is
not a party to any agreement the effect of which would be to require Parent
directly or indirectly to retire or re-acquire all or part of the Parent Shares
issued pursuant to Section 3 hereof.
Section 5.24 No Excess Parachute Payments. No amount that could be
received (whether in cash or property or the vesting of property) as a result of
any of the transactions contemplated by this Agreement by any employee, officer
or director of Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Company Plan currently in effect would be an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
Section 5.25 Minute Books. Company's minute books contain complete and
accurate records of all meetings and other corporate actions of its stockholders
and Board of Directors and committees thereof.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by Parent Pending the Merger. From the
date of this Agreement to the Effective Time, unless Company shall otherwise
agree in writing, or as otherwise contemplated by this Agreement:
(a) the respective businesses of Parent and the Parent
Subsidiaries shall be conducted only in the ordinary and usual course
of business and consistent with past practices, and there shall be no
material changes in the conduct of the operations of Parent or any
Parent Subsidiary;
(b) Parent shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of the Parent Subsidiaries (except
the pledge of stock of the Parent Subsidiaries in connection with
funding the acquisition or development of surgery centers in the
ordinary course of business), (ii) amend its Charter or Bylaws (other
than as attached hereto as Exhibit 6.1(b)(1) (the "Parent Amended and
Restated Charter") and Exhibit 6.1(b)(2) (the "Parent Amended and
Restated Bylaws"), in connection with the amendment and restatement of
its Charter to be voted on by its shareholders at the meeting of its
shareholders contemplated in Section 7.4 and the amendment and
restatement of its Bylaws), or (iii) split, combine or reclassify any
shares of its outstanding capital stock or declare, set aside or pay
any dividend or other distribution payable in cash, stock or property,
or redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of the Parent Subsidiaries (other
than a reverse stock split to be voted on by its shareholders at the
meeting of its shareholders contemplated in Section 7.4);
33
(c) except (i) in the ordinary course of business and (ii) in
connection with Parent's credit facility or bridge facility, so long as
indebtedness thereunder does not exceed $60,000,000, neither Parent nor
any of the Parent Subsidiaries shall (A) authorize for issuance, issue
or sell any additional shares of, or rights of any kind to acquire any
shares of, its capital stock of any class (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), except for unissued Parent Shares reserved for
issuance upon the exercise of Parent Employee Stock Options outstanding
as of the date hereof; (B) acquire, dispose of, transfer, lease,
license, mortgage, pledge or encumber any of its properties or assets
other than in the ordinary course of business and consistent with past
practices; (C) incur, assume or prepay any indebtedness or any other
material liabilities other than in the ordinary course of business and
consistent with past practices; (D) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any other person other than the
Parent or a Parent Subsidiary in the ordinary course of business and
consistent with past practices; (E) make any loans, advances or capital
contributions to, or investments in, any other person (other than the
Parent Subsidiaries); (F) authorize any capital expenditures; (G) make
any distribution to equity holders of any Parent Subsidiary other than
in the ordinary course of business and consistent with past practices,
(H) amend the charter, bylaws, operating agreement, partnership
agreement or other organizational documents, as the case may be, of any
of the Parent Subsidiaries, other than in the ordinary course of
business, (I) enter into, amend, terminate or cancel, or permit the
termination or cancellation of, any insurance policy except in the
ordinary course of business and consistent with past practices; or (J)
enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(d) Parent shall use commercially reasonable efforts to
preserve intact the business organization of Parent and the Parent
Subsidiaries, to keep available the services of its and their present
officers and key employees, and to preserve the goodwill of those
having business relationships with it and them; and
(e) except in the ordinary course of business, neither Parent
nor any Parent Subsidiary will make any change in the compensation
payable or to become payable to any of its officers, directors or
employees, enter into or amend any employment, severance, termination
or other similar agreement, or adopt any new Parent Plan or amend in
any material respect any existing Parent Plan (other than as disclosed
in the Parent Disclosure Schedule and to be voted on by its
shareholders at the meeting of its shareholders contemplated in Section
7.4), or make any loans to any of its officers, directors or employees,
other than as may be required by applicable law or the terms of any
existing Parent Plan.
Section 6.2 Conduct of Business by Company Pending the Merger. From
the date of this Agreement to the Effective Time, unless Parent shall otherwise
agree in writing, or as otherwise contemplated by this Agreement:
(a) the respective businesses of Company and the Company
Subsidiaries shall be conducted only in the ordinary and usual course
of business and consistent
34
with past practices, and there shall be no material changes in the
conduct of operations of Company or any Company Subsidiary;
(b) Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of the Company Subsidiaries (except
the pledge of stock of the Company Subsidiaries in connection with
funding the acquisition or development of surgery centers in the
ordinary course of business), (ii) amend its Certificate of
Incorporation or Bylaws; or (iii) split, combine or reclassify any
shares of its outstanding capital stock or declare, set aside or pay
any dividend or other distribution payable in cash, stock or property,
or redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of the Company Subsidiaries except
in connection with the conversion of ownership interests held by third
parties in Company Subsidiaries;
(c) except (i) in the ordinary course of business, (ii) in
connection with the exercise of warrants and options to purchase
Company Shares outstanding as of the date hereof and (iii) in
connection with the conversion of ownership interests held by third
parties in Company Subsidiaries or the elimination of such third
parties' conversion rights, neither Company nor any of the Company
Subsidiaries shall (A) authorize for issuance, issue or sell any
additional shares of, or rights of any kind to acquire any shares of,
its capital stock of any class (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), except for unissued Company Shares reserved for
issuance upon the exercise of Company Employee Stock Options
outstanding as of the date hereof; (B) acquire, dispose of, transfer,
lease, license, mortgage, pledge or encumber any fixed or other assets
other than in the ordinary course of business and consistent with past
practices; (C) incur, assume or prepay any indebtedness or any other
material liabilities other than in the ordinary course of business and
consistent with past practices; (D) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any other person, other than a
Company Subsidiary in the ordinary course of business and consistent
with past practices; (E) make any loans, advances or capital
contributions to, or investments in, any other person (other than the
Company Subsidiaries); (F) authorize capital expenditures; (G) make any
distribution to equity holders of any Company Subsidiary other than in
the ordinary course of business and consistent with past practices, (H)
amend the charter, bylaws, operating agreement, partnership agreement
or other organizational documents, as the case may be, or any of the
Company Subsidiaries, other than in the ordinary course of business,
(I) enter into, amend, terminate or cancel, or permit the termination
or cancellation of, any insurance policy except in the ordinary course
of business and consistent with past practices; or (J) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(d) Company shall use commercially reasonable efforts to
preserve intact the business organization of Company and the Company
Subsidiaries, to keep available the services of its and their present
officers and key employees, and to preserve the goodwill of those
having business relationships with it and them; and
35
(e) except in the ordinary course of business, neither Company
nor any Company Subsidiary will make any change in the compensation
payable or to become payable to any of its officers, directors or
employees, enter into or amend any employment, severance, termination
or other similar agreement, or adopt any new Company Plan or amend in
any material respect any existing Company Plan, or make any loans to
any of its officers, directors or employees, other than as may be
required by applicable law or the terms of any existing Company Plan or
agreement.
Section 6.3 Conduct of Business of Sub. During the period from the
date of this Agreement to the Effective Time, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. Parent and Company shall afford to
each other and to the other's financial advisors, legal counsel, accountants,
consultants and other representatives full access at all reasonable times
throughout the period prior to the Effective Time to all of its and its
respective subsidiaries books, records, properties, plants and personnel and,
during such period, each shall furnish promptly to the other all such
information as the other party may reasonably request, provided that no
investigation pursuant to this Section shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Each party and their respective affiliates,
representatives and agents shall hold in confidence all nonpublic information in
accordance with the terms of the September 11, 2001 Confidentiality Agreement
between Parent and Company until such time as such information is otherwise
publicly available and, if this Agreement is terminated, each party will deliver
to the other all documents, work papers and other material (including copies)
obtained by such party or on its behalf from the other party as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof. Nothing contained in this Section 7.1 will be deemed to create
any duty or responsibility on the part of either party to investigate or
evaluate the value, validity or enforceability of any contract, lease or other
asset included in the assets of the other party.
Section 7.2 Acquisition Proposals.
(a) From the date hereof until the termination hereof, Company
and the Company Subsidiaries will not, and will cause their respective
officers, directors, employees and other agents (including, without
limitation, investment bankers, attorneys and accountants) not to,
directly or indirectly, (i) take any action to solicit, initiate,
encourage, enter into any agreement or otherwise facilitate any offer
or proposal for, or any indication of interest in, a merger or other
business combination involving Company, other than the transactions
contemplated by this Agreement (an "Acquisition Proposal"), (ii) give
any approval of the type referred to in Section 5.22 with respect to
any Acquisition Proposal, (iii) engage in or continue discussions or
negotiations with, or disclose any nonpublic information relating to
Company or the Company Subsidiaries, respectively, or afford access to
their respective properties, books or records to, any person that may
be considering making, or has made, an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make
36
or implement an Acquisition Proposal. Notwithstanding the foregoing,
nothing contained in this Section shall prohibit Company from
furnishing information to, or entering into negotiations with, any
person or entity with respect to the Acquisition Proposals described in
the Company Disclosure Schedule or with respect to negotiations with
third-party equity holders in Company Subsidiaries involving the
conversion of their interests therein.
(b) From the date hereof until the termination hereof, Parent
shall not take any action to solicit, initiate, encourage, enter into
any agreement or otherwise facilitate an Acquisition Proposal
contemplating the acquisition of Parent (through merger or otherwise)
unless such Acquisition Proposal includes, as part of the proposed
transaction, the transactions contemplated herein.
Section 7.3 Cooperation. Company and Parent shall together, or
pursuant to an allocation of responsibility agreed to between them, (a)
cooperate with one another in determining whether any filings required to be
made or consents required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby and cooperate in making any such filings promptly and in
seeking to obtain timely any such consents, (b) use their respective
commercially reasonable efforts to cause to be lifted any injunction prohibiting
the Merger, or any part thereof, or the other transactions contemplated hereby
and (c) furnish to one another and to one another's counsel all such information
as may be required to effect the foregoing actions.
Section 7.4 Stockholder Approvals.
(a) Company, acting through its Board of Directors, shall, in
accordance with applicable law and its Certificate of Incorporation and
Bylaws, (i) promptly and duly call, give notice of, convene and hold as
soon as practicable following the date of this Agreement a meeting of
its stockholders for the purpose of voting to approve and adopt this
Agreement, and shall use its commercially reasonable efforts to obtain
such stockholder approval, provided that such approval may be solicited
by an action taken by written consent of the stockholders of Company if
and to the extent permitted by Delaware law and Company's Certificate
of Incorporation and Bylaws, and (ii) recommend approval and adoption
by the stockholders of Company of this Agreement and take all lawful
action to solicit such approval.
(b) Parent, acting through its Board of Directors, shall, in
accordance with applicable law and its Charter and Bylaws, (i) promptly
and duly call, give notice of, convene and hold as soon as practicable
following the date of this Agreement a meeting of its shareholders for
the purpose of voting to approve (A) the Merger; (B) the Parent Amended
and Restated Charter; (C) a reverse stock split of Parent's outstanding
common stock (to be effected by filing of an amendment to Parent's
Amended and Restated Charter in the form attached hereto as Exhibit
7.4(b)(i)(C)) at a ratio to be determined in the discretion of the
Board of Directors of Parent, provided that such ratio shall not be
less than one-for-two and shall not exceed one-for-four, to be
effective at a time following the Effective Time in the discretion of
the Board of Directors of Parent (the "Reverse Stock Split"); and (D)
the reincorporation of Parent as a Delaware corporation (by means of a
merger of Parent
37
with and into a wholly owned Delaware subsidiary in accordance with the
Agreement and Plan of Merger in the form attached hereto as Exhibit
7.4(b)(i)(D)(1) and pursuant to which the surviving corporation will be
governed following the merger by the governing documents of the
Delaware subsidiary the forms of which are attached hereto as Exhibit
7.4(b)(i)(D)(2)), to be effective at a time following the Effective
Time (the "Reincorporation") in the discretion of the Board of
Directors of Parent, and shall use its commercially reasonable efforts
to obtain such shareholder approval, provided that such approval may be
solicited by an action taken by written consent of the shareholders of
Parent if and to the extent permitted by Tennessee law and Parent's
Charter and Bylaws, and (ii) recommend authorization by the
shareholders of Parent of the Merger, the Amended and Restated Charter,
the Reverse Stock Split and the Reincorporation and take all lawful
action to solicit such approval. The Parent Amended and Restated
Charter is attached hereto as Exhibit 6.1(b)(1) and the Parent Amended
and Restated Bylaws are attached hereto as Exhibit 6.1(b)(2).
Section 7.5 Employee Stock Options. Except as provided in this
Agreement or pursuant to the provisions of any Parent Plan, Company Plan or
employee or director stock option agreement as in effect on the date hereof,
from the date hereof (i) Parent will not accelerate the vesting or
exercisability of or otherwise modify the terms and conditions applicable to the
Parent Employee Stock Options, and (ii) Company will not accelerate the vesting
or exercisability of or otherwise modify the terms and conditions applicable to
the Company Employee Stock Options.
Section 7.6 Public Announcements. Parent and Sub, on the one hand, and
Company, on the other hand, agree that they will not issue any press release or
otherwise make any public statement or respond to any press inquiry with respect
to this Agreement or the transactions contemplated hereby without the prior
approval of the other party, except as may be required by law.
Section 7.7 Expenses.
(a) Subject to Section 7.7(b) below, whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
(b) Company covenants that the total amount of fees, costs and
expenses relating to the shut-down of Company's corporate office, such
as employee severance salaries, wages and benefits, lease payments in
respect of the premises located at 0000 Xxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx, and other associated costs and expenses (collectively,
the "Shut-Down Costs"), shall not exceed $1,250,000 (the "Shut-Down
Amount"). The Shut-Down Amount shall be allocated among the fees, costs
and expenses set forth on Exhibit 7.7 attached hereto. To the extent
that Parent pays amounts in excess of those set forth on Exhibit 7.7
(on a per-employee basis, in the case of severance), such amounts shall
not be included as Shut-Down Costs. Parent covenants that it will use
commercially reasonable efforts to cause these costs and expenses to be
no greater than the Shut-Down Amount, it being understood that the shut
down will occur after the Closing Date and be controlled by
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and subject to, the overall management of Parent. Parent further
covenants that it shall maintain financial records or other documents
reasonably necessary to support and document the calculation of the
costs and expenses which are the subject of this Section 7.7.
Section 7.8 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all commercially reasonable efforts to obtain
all necessary waivers, consents and approvals, and to effect all necessary
registrations and filings. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of Parent, Sub and Company shall
take all such necessary action.
Section 7.9 Directors of Parent. Parent agrees that, after the
Effective Time, Whitney & Co. and its affiliated funds ("Whitney") shall have
the right to designate two directors to the Board of Directors of Parent until
the conversion of the Parent Series A Preferred Shares and the Parent Series B
Preferred Shares and the payment of the redemption amount in respect of such
shares and to appoint one director to the Board of Directors of Parent
thereafter, with such right to terminate upon the later of (i) the second
anniversary of the Closing or (ii) the first anniversary of the closing of an
initial public offering by Parent ("Parent IPO"); provided, however, that if, at
the first anniversary of the closing of a Parent IPO, Whitney owns ten percent
(10%) or more of the outstanding equity securities of Parent, Whitney shall have
the right to designate such director for one (1) additional year following the
first anniversary of the closing of the Parent IPO; and provided further,
however, that any Director designee who is not employed by Whitney shall be
subject to Parent's approval; and provided further, that, if requested by
Parent, such designees will resign from the Board of Directors of Parent if
Parent is no longer required to provide a Board seat for such designees pursuant
to this Section 7.9.
Section 7.10 Private Offering Memorandum.
(a) Parent shall prepare a Private Offering Memorandum with
respect to the Parent Shares ("Private Offering Memorandum"). Such
Private Offering Memorandum shall contain a joint proxy statement of
Parent and Company.
(b) The information supplied by Company for inclusion in the
Private Offering Memorandum shall not, at the time the Private Offering
Memorandum is first mailed to holders of Company Shares and holders of
Parent Common Stock, at the time of the shareholder meetings and at the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstances relating to
Company Shares, or its officers or directors, should be discovered by
Company which should be set forth in a supplement, Company shall
promptly inform Parent.
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(c) The information supplied by Parent for inclusion in the
Private Offering Memorandum shall not, at the time the Private Offering
Memorandum is first mailed to holders of Company Shares and holders of
Parent Shares, at the time of the shareholder meetings and at the
Effective Time contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance relating to
Parent or its officers or directors, should be discovered by Parent
which should be set forth in a supplement to the Private Offering
Memorandum, Parent shall promptly inform Company and shall promptly
prepare such supplement.
(d) Company shall furnish all information to Parent with
respect to Company and the Company Subsidiaries as Parent may
reasonably request for inclusion in the Private Offering Memorandum,
and shall otherwise cooperate with Parent in the preparation and filing
of such document.
Section 7.11 Notice of Subsequent Events. Each party hereto shall
notify the other parties of any changes, additions or events which would cause
any material change in or material addition to the Disclosure Schedule delivered
by the notifying party under this Agreement, promptly after the occurrence of
same. If the effect of such change or addition would, individually or in the
aggregate with the effect of changes or additions previously disclosed pursuant
to this Section 7.11, constitute a Material Adverse Effect on the notifying
party, the non-notifying party may, within ten days after receipt of such
notice, elect to terminate this Agreement. If the non-notifying party does not
give written notice of such termination within such ten (10)-day period, the
non-notifying party shall be deemed to have consented to such change or addition
and shall not be entitled to terminate this Agreement by reason thereof and such
change or addition shall be deemed to be incorporated into such party's
representations and warranties for all purposes.
Section 7.12 Other Actions. Subject to the terms and conditions herein
provided, and unless this Agreement shall have been validly terminated as
provided herein, each of Parent and Company shall use all commercially
reasonable efforts (i) to take, or cause to be taken, all actions necessary to
comply promptly with all legal requirements which may be imposed on such party
(or any subsidiaries or affiliates of such party) with respect to the Agreement
and to consummate the transactions contemplated hereby, subject to the votes of
its stockholders described above, and (ii) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any governmental entity and/or any other public or private third
party which is required to be obtained or made by such party or any of its
subsidiaries or affiliates in connection with this Agreement and the
transactions contemplated hereby. Each of Parent and Company will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing.
Section 7.13 Preparation of Tax Returns.
(a) Company shall file (or cause to be filed) at its own
expense, on or prior to the due date, all Tax returns, including all
Employee Benefit Plan returns and reports, for all Tax periods ending
on or before the Closing Date where the due date
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for such returns or reports (taking into account valid extensions of
the respective due dates) falls on or before the Closing Date;
provided, however, that Company shall not file any such Tax returns, or
other returns, elections, claims for refund or information statements
with respect to any liabilities for Taxes (other than federal, state or
local sales, use, withholding or employment tax returns or statements)
for any Tax period on or after the Closing Date. Company shall provide
Parent with a copy of appropriate workpapers, schedules, drafts and
final copies of each federal and state income Tax return or election of
Company (including returns of all Employee Benefit Plans) at least ten
days before filing such return or election and shall reasonably
cooperate with any request by Parent in connection therewith.
(b) Parent, in its sole and absolute discretion, will file (or
cause to be filed) all Tax returns of Company due after the Closing
Date. After the Closing Date, Parent, in its sole and absolute
discretion and to the extent permitted by law, shall have the right to
amend, modify or otherwise change all Tax returns of Company for all
Tax Periods.
Section 7.14 Continuance of Existing Indemnification Rights.
(a) The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall contain provisions with respect to
elimination of personal liability and indemnification substantially to
the same effect as those set forth in the Certificate of Incorporation
and Bylaws of Company on the date hereof, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from
and after the Closing, or in the case of matters occurring at or prior
to the Effective Time that have not been resolved during the six-year
period, until such matters are finally resolved, in any manner that
would adversely affect the rights thereunder of any person who is now,
or has been at any time prior to the date hereof, a director, officer,
employee or agent (or any individual who served at Company's request as
an officer, director, employee or agent) of Company or any Company
Subsidiary (or any other corporation, partnership, joint venture, trust
or other enterprise) (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), Parent will cause Company to
and will itself indemnify each Indemnified Party to the fullest extent
required or permitted by law, the Certificate of Incorporation and
Bylaws of Company with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost
or expense, including reasonable fees and expenses of legal counsel,
based in whole or in part on, or arising in whole or in part out of,
any matter, state of affairs or occurrence existing or occurring at or
prior to the Closing.
(b) Parent shall or shall cause the Surviving Corporation to
maintain and provide in full director's and officer's liability
insurance ("D&O Insurance") for a period of not less than six years
from and after the Effective Time for the individuals described in
Section 7.14(a) for which D&O Insurance is provided by Company as of
the date hereof pursuant to, and in amounts and on terms consistent
with, Parent's existing D&O Insurance as of the date hereof; provided
that, the Surviving Corporation may substitute therefor policies of
substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers; provided, further,
that if the existing D&O Insurance expires or is canceled during
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such period, Parent or the Surviving Corporation shall use its best
efforts to obtain substantially similar D&O Insurance; and provided,
further, that neither Parent nor the Surviving Corporation shall be
required to expend, in order to maintain or procure an annual D&O
Insurance policy an amount in excess of 200% of the last annual premium
paid prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount.
(c) The rights under this Section 7.14 are contingent upon the
occurrence of, and will survive consummation of, the Closing. The
provisions of this Section 7.14 are expressly intended to be for the
benefit of, and shall be enforceable by, each Indemnified Person, his
or her heirs and his or her personal representatives and shall be
binding on all successors and assigns of Parent, Company and the
Surviving Corporation.
Section 7.15 Use of Name. The parties hereto agree the Parent shall
have the right to use the name "Physicians Surgical Care" and any derivative
thereof in any way whatsoever at any time after the Closing.
Section 7.16 Investor Questionnaires. Company shall use all
commercially reasonable efforts to obtain an Investor Questionnaire (as defined
in Section 8.3(c) herein) from each of its stockholders prior to the Closing.
Section 7.17 Title Policy for Owned Real Property. Company, at the
expense of Company, shall deliver to Parent, as soon as reasonably possible, an
endorsement to owner's title policy Number FA-33-58976 issued by First American
Title Insurance Company (the "Title Policy") changing the Date of Policy to the
date and time of the recording of the Certificate of Merger. The Title Policy
shall be subject only to those special exceptions approved by Parent with the
exception for mechanic's and materialmen's liens deleted, the exception for
matters reflected by an accurate survey deleted, and the exception for ad
valorem taxes reflecting only taxes for the current and subsequent years not yet
delinquent. The Title Policy shall be delivered to Parent along with copies of
all recorded documents affecting or relating to such real property. Company or
the Company Subsidiaries, as applicable, shall deliver to Parent such curative
title documents as Parent shall reasonably request.
Section 7.18 Surveys for Owned Real Property. Company, at the expense
of Company, shall deliver to Parent as soon as reasonably possible a current "as
built" survey (the "Survey") with respect to each parcel of real property owned
by either Company or the Company Subsidiaries. The Survey shall be prepared by
surveyors approved by Parent who are licensed in the state in which the real
property is located and shall be prepared in accordance with ALTA-ASCM standards
for Class A urban-commercial surveys showing, inter alia, the perimeter
boundaries of the real property, all improvements thereon, and all title
exceptions noted on the Title Policy.
Section 7.19 Title Searches for Real Property Leasehold Interests.
Company, at the expense of Company, shall deliver to Parent current title
searches (the "Title Searches") issued through Fidelity National Title Insurance
Company for the real property leasehold interests held by either Company or the
Company Subsidiaries in Erie, Pennsylvania; Xxxxxxx, Xxxxx
00
xxx Xxxxxxxxx, Xxxxx. The Title Searches shall be delivered to Parent along with
copies of all recorded documents affecting or relating to the leasehold
interests.
Section 7.20 Insurance Matters.
(a) Company represents and warrants that Company and each of
the Company Subsidiaries have reported to Company's insurance carriers
consistent with Company's past practice any incidents which could lead
or develop into a claim, including, without limitation, any employment
incidents and any event or activity which could lead or develop into a
director and officer liability claim.
(b) Consistent with its past practices, Company and each of
the Company Subsidiaries shall continue to review all incident reports
at each center and report any incidents which management of Company
reasonably believes based on its past experience could lead or develop
into a potential claim to Company's insurance carrier prior to Closing.
These events would include, but are not limited to, brain damage,
spinal cord injury, third degree xxxxx, death, AIDS or HIV conversion,
as a result of treatment, sexual molestation and/or rape, blindness,
loss of limb, permanent nerve dysfunction, and any request or demand
for medical records. In addition, consistent with its past practices,
Company and each of the Company Subsidiaries shall continue to identify
any employment incidents or events that management of Company
reasonably believes based on its past experience could lead to a
potential claim including, but not limited to, possible claims of
wrongful termination, sexual harassment or discrimination, and shall
report any such incidents or events to Company's insurance carrier
prior to Closing. A copy of each report shall be provided to Parent and
Company or a Company Subsidiary, as applicable, shall provide a written
acknowledgement if it does not have any incidents or events to report.
(c) Company and each of the Company Subsidiaries shall report
any event or activity that management of Company reasonably believes
based on its past experience could eventually develop into a director
and officer liability claim to Company's insurance carrier.
Section 7.21 Consolidation of NorthStar Surgical Center, L.P. In the
event that the Securities and Exchange Commission ("SEC") advises Parent that
Parent cannot include the results of operations for NorthStar Surgical Center,
L.P., a Texas limited partnership ("Lubbock"), in Parent's financial statements
on the consolidation method of accounting (the "SEC Determination"), Parent, as
its sole remedy, shall be compensated from the Escrow Fund in the amount set
forth on Exhibit 7.21 (the "Consolidation Loss") hereto for the month in which
the SEC Determination is made.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) This Agreement and the transactions contemplated hereby
and any other matters submitted to them shall have been approved and
adopted by the requisite vote of the shareholders of Parent and the
stockholders of Company and the issuance of the Parent Shares in
connection with the Merger shall have been authorized by the requisite
vote of the shareholders of Parent, in each case in accordance with
applicable law.
(b) No preliminary or permanent injunction or other order by
any Federal or state court in the United States which prohibits the
consummation of the Merger shall have been issued and remain in effect.
(c) Each of Company and Parent shall have obtained such
consents, approvals, authorizations, licenses and certificates of need
from the third parties and governmental instrumentalities, as are set
forth on Exhibit 8.1(c) attached hereto.
(d) No statute, rule or regulation shall have been enacted by
the government (or any government agency) of the United States or any
state, municipality or other political subdivision thereof that makes
the consummation of the Merger and any other transaction contemplated
hereby illegal.
Section 8.2 Conditions to Obligation of Company to Effect the Merger.
The obligation of Company to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) Each of Parent and Sub shall have performed in all
material respects its obligations under this Agreement required to be
performed by it at or prior to the Effective Time. The representations
and warranties of Parent set forth in this Agreement that are qualified
as to materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing as though made at and as
of such time, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations
and warranties that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct
in all material respects, as of such earlier date). Company shall have
received a certificate of the President or a Vice President of Parent
as to the satisfaction of this condition.
(b) The stockholders of Company shall have received an opinion
from counsel to Parent, dated the Effective Time in substantially the
form attached hereto as Exhibit 8.2(b), to the effect that:
(i) Each of Parent and Sub is a corporation validly
existing under the laws of the state of its incorporation.
(ii) Each of Parent and Sub has the corporate power
to enter into this Agreement and to consummate the
transactions contemplated hereby; and the execution of this
Agreement and the consummation of the
44
transactions contemplated hereby have been duly authorized by
requisite corporate action taken on the part of Parent and
Sub.
(iii) This Agreement has been executed and delivered
by each of Parent and Sub and is a valid and binding
obligation of each of them, enforceable against Parent and Sub
in accordance with its terms, except (A) as may be limited by
or subject to any bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights, and
(B) that the remedies of specific performance, injunction and
other forms of equitable relief are subject to certain tests
of equity jurisdiction, equitable defenses and the discretion
of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery of this
Agreement by Parent and Sub nor the consummation by Parent and
Sub of the transactions contemplated hereby will violate the
charter documents or Bylaws of Parent or Sub or, to the best
knowledge of such counsel, and except as set forth in the
Parent Disclosure Schedule without having made any independent
investigation, will constitute a violation of or a default
under (except for any such violation or default as to which
requisite waivers or consents either shall have been obtained
by Parent or Sub, as the case may be, prior to the Effective
Time or shall have been waived by Company in writing) any
material contract, agreement or instrument set forth in
Section 4.16 of the Parent Disclosure Schedule.
(v) The Parent Shares to be issued in connection with
the transactions contemplated by this Agreement are duly
authorized and reserved for issuance and, when issued as
contemplated by this Agreement, will be validly issued, fully
paid and nonassessable.
As to any matter in such opinion which involves matters of
fact or matters relating to laws other than federal securities or
Tennessee corporate law, such counsel may rely upon the certificates of
officers and directors of Parent and Sub and of public officials and
may assume that applicable state laws do not differ in any material
respect from those of Tennessee.
(c) There shall not have occurred any event or occurrence with
respect to Parent that, in the reasonable judgment of Company, has
resulted or would result in a material adverse effect on the business,
assets, liabilities, results of operations, financial condition or
prospects of Parent and the Parent Subsidiaries taken as a whole.
(d) Each of X.X. Xxxxxxx III, L.P., X.X. Xxxxxxx XX, L.P. and
Whitney Strategic Partners III, L.P. shall have been added as a party
to the Amended and Restated Investors' Rights Agreement of Parent, as
amended (the "Parent Investors' Rights Agreement") pursuant to an
amendment to the Parent Investors' Rights Agreement in the form
attached hereto as Exhibit 8.2(d) (the "Amendment to Parent Investors'
Rights Agreement"), to provide Whitney with investment rights on a pro
rata basis with Parent's other shareholders that have such rights and
registration
45
rights in respect of the Parent Common Stock received by Whitney that
are pari passu with the existing registration rights of Parent's
shareholders (which include the right of such shareholders to demand
the registration of their securities on two (2) occasions and the right
of such shareholders to unlimited Form S-3 registrations of their
securities). Certain of the shareholders of Parent shall have executed
and delivered the Amendment to Parent Investors' Rights Agreement.
(e) The stockholders of Company holding five percent or more
of the outstanding capital stock of Company prior to the Closing and
listed on Exhibit 8.2(e) shall have been added as a party to the Parent
Investors' Rights Agreement pursuant to the Amendment to Parent
Investors' Rights Agreement, to provide such stockholders with
piggyback registration rights in respect of the Parent Common Stock
received by such stockholders that are pari passu with the existing
piggyback registration rights of Parent's shareholders.
(f) Parent and Whitney shall have executed and delivered an
agreement in the form attached hereto as Exhibit 8.2(f), whereby
Whitney shall receive the right to designate directors to the Board of
Directors of Parent as provided in Section 7.9 hereof.
(g) Certain of the shareholders of Parent shall have executed
and delivered Amendment No. 2 to the Voting Agreement in the form
attached hereto as Exhibit 8.2(g), whereby such shareholders agree to
vote for the designees of Whitney to the Board of Directors as provided
in Section 7.9 hereof.
(h) Upon the consummation of the Merger and subject to the
provisions of Section 3.1(f), warrants to purchase shares of Company
Common Stock issued to certain physicians affiliated with Physicians
Surgical Specialty Hospital, LLC and Northstar Surgical Center, L.P. in
connection with the elimination of certain conversion rights contained
in the respective governing documents (the "Roll-up Warrants") shall be
exchanged for warrants to purchase shares of Parent Common Stock in
accordance with the terms of the Roll-up Warrants.
(i) Company shall have received Parent's audited balance sheet
and related statements of operations, shareholders' equity and cash
flows, together with all schedules and notes thereto, of Parent and its
consolidated subsidiaries for the year ended December 31, 2001, and
such financial statements shall not differ in any material respect from
the Parent Unaudited Financial Statements.
Section 8.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions:
(a) Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or
prior to the Effective Time. The representations and warranties of
Company set forth in this Agreement that are qualified as to
materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing as though made at and as
of such time, except to
46
the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties that
are qualified as to materiality shall be true and correct, and those
that are not so qualified shall be true and correct in all material
respects, as of such earlier date). Parent and Sub shall have received
a certificate of the President or a Vice President of Company as to the
satisfaction of this condition.
(b) Parent and Sub shall have received an opinion of counsel
to Company, dated the Effective Time in substantially the form attached
hereto as Exhibit 8.3(b), to the effect that:
(i) Company is a corporation validly existing under
the laws of the state of Delaware.
(ii) Company has the corporate power to enter into
this Agreement and to consummate the transactions contemplated
hereby; and the execution of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by requisite corporate action taken on the
part of Company.
(iii) This Agreement has been executed and delivered
by Company and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms,
except (A) as may be limited by or subject to any bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' rights, and (B) that the remedies of specific
performance, injunction and other forms of equitable relief
are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any
proceeding therefor may be brought.
(iv) Neither the execution and delivery of this
Agreement by Company, nor the consummation by Company of the
transactions contemplated hereby, will violate the Certificate
of Incorporation or Bylaws of Company or, to the best
knowledge of such counsel, and except as set forth in the
Company Disclosure Schedule without having made any
independent investigation, will constitute a violation of or a
default under (except for any such violation or default as to
which requisite waivers or consents either shall have been
obtained by Company prior to the Effective Time or shall have
been waived by Parent in writing) any material contract,
agreement or instrument set forth in Section 5.16 of the
Company Disclosure Schedule.
(v) All outstanding Company Shares have been duly
authorized and validly issued and are fully paid and
nonassessable.
As to any matter in such opinion which involves matters of fact or
matters relating to laws other than federal securities or Delaware
corporate law, such counsel may rely upon the certificates of officers
and directors of Company and of public officials and may assume that
applicable state laws do not differ in any material respect from those
of Texas.
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(c) In order to comply with Regulation D under the Securities
Act, Parent shall have received from a sufficient number of
stockholders of Company an investor questionnaire (each an "Investor
Questionnaire") representing and warranting to Parent that:
(i) Stockholder Bears Economic Risk. The stockholder
has substantial experience in evaluating and investing in
private placement transactions of securities in companies
similar to Parent so that it is capable of evaluating the
merits and risks of its investment in Parent and has the
capacity to protect its own interests. The stockholder must
bear the economic risk of this investment indefinitely unless
the Parent Shares are registered pursuant to the Securities
Act, or an exemption from registration is available. The
stockholder understands that Parent has no present intention
of registering the Parent Shares or any shares of its Common
Stock. The stockholder also understands that there is no
assurance that any exemption from registration under the
Securities Act will be available and that, even if available,
such exemption may not allow the stockholder to transfer all
or any portion of the Parent Shares under the circumstances,
in the amounts or at the times Stockholder might propose;
(ii) Acquisition for Own Account. The stockholder is
acquiring the Parent Shares for Stockholder's own account for
investment only, and not with a view towards their
distribution;
(iii) Stockholder Can Protect Its Interest. By reason
of its, or of its management's, business or financial
experience, the stockholder has the capacity to protect its
own interests in connection with the transactions contemplated
in this Agreement;
(iv) Parent and Company Information. The stockholder
has had opportunity to ask questions of and receive answers
from Parent and its management regarding the terms and
conditions of this investment and any additional information
reasonably requested by the stockholder. The stockholder has
received and reviewed a copy of the Private Offering
Memorandum;
(v) No Registration. The stockholder acknowledges and
agrees that the Parent Shares may not be sold unless they are
subsequently registered under the Securities Act or an
exemption from such registration is available;
(vi) Residence. If the stockholder is an individual,
then the stockholder resides in the state or province
identified in the address of the stockholder set forth on the
certificate, and if the stockholder is a partnership,
corporation, limited liability company or other business
entity, then the office or offices of the stockholder in which
its investment decision was made is located at the address or
addresses of the stockholder set forth on the Investor
Questionnaire; and
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(vii) Transfer Restrictions. The stockholder
acknowledges and agrees that it has been made aware of the
fact that the Parent Shares are subject to restrictions on
transfer under applicable state and federal securities laws
and pursuant to the Escrow Agreement.
A sufficient number of Investor Questionnaires shall be that
number that allows the parties to determine that no more than
thirty-five (35) unaccredited investors under Regulation D of the
Securities Act will receive Parent Shares as Merger Consideration.
(d) The holders of no more than 10 percent of the outstanding
shares of Company Common Stock on an as-converted basis shall have
given notice pursuant to Section 262 of the Delaware General
Corporation Law of his or her intent to demand payment for his or her
shares pursuant to Section 262 of the Delaware General Corporation Law.
(e) There shall not have occurred any event or occurrence with
respect to Company that, in the reasonable judgment of Parent, has
resulted or would result in a material adverse effect on the business,
assets, liabilities, results of operations, financial condition or
prospects of Company and the Company Subsidiaries taken as a whole.
(f) As of the Effective Time, Company shall have Net Working
Capital of at least $8,400,000.
(g) Xxxxxx X. Xxxxxxx, Xx., Xxxxxx Xxxxxxx, Xxxx X. Xxxxxxxxx
and Xxxxx X. Xxxxx shall have executed and delivered to Parent
noncompetition agreements with Parent in the form attached hereto as
Exhibit 8.3(g). In connection with the execution and delivery of these
agreements and as a condition to Closing, Parent acknowledges that the
existing employment agreements between Company and each of Xx. Xxxxxx
Xxxxxxx, Xx. Xxxxxxxxx and Xx. Xxxxx will be terminated and severance
payments (except to Xx. Xxxxxx Xxxxxxx) made at Closing as follows: (i)
Xx. Xxxxxxxxx - $220,300 and (ii) Xx. Xxxxx - $231,800 plus accrued
paid time off as of the date of termination. Parent and Company agree
that such payments shall be included as Shut-Down Costs. Parent
acknowledges further that to the extent the services of Xxxxxx Xxxxxxx,
Xx. Xxxxxxxxx or Xx. Xxxxx are requested by Parent going forward, they
may be retained as consultants at the following rates per day plus
expenses: (i) Xxxxxx Xxxxxxx - $1,200; (ii) Xx. Xxxxxxxxx - $900; and
(iii) Xx. Xxxxx - $900.
(h) Parent shall have received and approved the endorsement to
the Title Policy.
(i) Parent shall have received and approved the Survey.
(j) Parent shall have received and approved the Title
Searches.
(k) The Registration Rights Agreement, as amended, among
Company and certain of its stockholders and the Stockholders'
Agreement, as amended, among
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Company and certain of its stockholders shall have been terminated
effective as of the Effective Time.
(l) Parent shall have received a satisfactory UCC lien search
on Company and each of the Company Subsidiaries from the office of the
Secretary of State of the state of incorporation of Company and each of
the Company Subsidiaries, and from the appropriate office in each
county in which Company and the Company Subsidiaries have business
operations.
(m) Each of the members of South Shore Ambulatory Surgery
Center, L.L.C. shall have executed and delivered to Parent an agreement
in the form attached hereto as Exhibit 8.3(m).
(n) Any agreements between Xxxx Xxxxxx and Company or any of
the Company Subsidiaries shall have been restructured in a manner
reasonably satisfactory to Parent.
(o) Parent shall have received Company's audited balance sheet
and related statement of operations, shareholders' equity and cash
flows, together with all schedules and notes thereto, of Company and
its consolidated subsidiaries for the year ended December 31, 2001, and
such financial statements shall not differ in any material respect from
the Company Unaudited Financial Statements.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
Section 9.1 Survival of Representations and Warranties; Sole Remedy.
All representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing and continue
until the Escrow Distribution Date. Parent's and Company's rights under this
Article IX shall be the only remedy available to Parent or Company or any of
their stockholders for breaches of representations, warranties, covenants or
agreements contained in this Agreement and any federal or state securities law
claims in connection with the Merger, this Agreement, the Private Offering
Memorandum or any transactions related thereto; provided, however, that nothing
herein shall relieve or limit the liability of Company or Parent for any breach
of any of the representations, warranties, covenants or agreements contained in
this Agreement if this Agreement is terminated or if the Merger does not close;
and provided, further, that this Section 9.1 shall not be construed as a waiver
of any substantive rights of Company's stockholders under federal or state
securities laws but is rather a waiver of the right to pursue such claims in
federal or state courts or other forums or proceedings.
Section 9.2 Company Indemnification. Parent and its affiliates shall
be compensated from the Escrow Fund as provided herein for any claim, loss,
expense, liability or other damage, including reasonable attorneys' fees
(collectively, "Losses") that Parent or any of its affiliates has incurred by
reason of any of the following:
(a) the breach by Company of any representation, warranty,
covenant or agreement of Company contained herein,
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(b) Any fees or penalties resulting from the failure to timely
and completely file an annual report or actuarial report with respect
to any Company Plan with the appropriate governmental agency; provided
that such fees and penalties shall not include reasonable fees paid
that would ordinarily be paid to an accounting firm for preparation of
such reports;
(c) Any expenses for benefit claims paid in connection with
any Company Plan referenced in Section 5.15(h) hereof that are in
excess of the limits specified in Section 5.15(h), unless such expenses
are reimbursed by an insurance policy;
(d) Any expenses related to licensure problems with desktop or
laptop software, hardware application programs and similar systems used
by Company or the Company Subsidiaries;
(e) Any expenses for benefits paid for severance in excess of
the severance amounts included in the Shut-Down Amount by Company or as
a result of Company's actions on or before the Effective Time, unless
such actions are expressly requested by Parent; or
(f) Any liability for taxes under Section 280G of the Code, or
any obligation to indemnify an individual for tax liability under
Section 4999 of the Code.
Notwithstanding anything contained herein to the contrary, Parent and
its affiliates shall not be compensated under this Section 9.2 until the
aggregate of the Consolidation Loss and all Losses exceeds $550,000 (the
"Threshold Amount") in which case Parent or its affiliates shall be compensated
for the amount of the Consolidation Loss plus all Losses including the Threshold
Amount; provided, however, that (i) the compensation of Parent or its affiliates
for Shut-Down Costs in excess of the Shut-Down Amount and (ii) any Losses
resulting from Sections 9.2(e) and 9.2(f) above shall not be subject to the
Threshold Amount; and provided, further, that Parent's right to be compensated
with respect to any Losses pursuant to this Section 9.2 shall not in the
aggregate exceed the Escrow Fund. Parent and Company each acknowledge that such
Losses, if any, would, if known at the Effective Time, have led to a reduction
in the valuation of Company and the amount of the Merger Consideration issued in
connection with the Merger. Nothing herein shall limit the liability of Company
for any breach of any representation, warranty or covenant if the Merger does
not close.
Section 9.3 Parent Indemnification.
(a) Parent shall indemnify and hold the former stockholders of
Company harmless from and after the Effective Time for any claim, loss,
expense, liability or other damage, including reasonable attorneys'
fees that Company or the former stockholders of Company by reason of
the breach by Parent or Sub of any representation, warranty, covenant
or agreement of Parent or Sub contained herein; provided, however,
that, notwithstanding anything contained herein to the contrary, Parent
shall not be liable to Company or the former stockholders of Company
under this Section 9.3 until the aggregate of all liabilities of Parent
exceeds the Threshold Amount in which case Parent shall be required to
indemnify Company for the total
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amount of such liabilities including the Threshold Amount; and
provided, further, that Parent's obligations with respect to any
liabilities pursuant to this Section 9.3 shall not in the aggregate
exceed an amount equal to the product of the number of Parent Shares
held in the Escrow Fund and $3.13. In the event the Merger is
consummated, any recovery made pursuant to this Section 9.3 shall be
paid to the former stockholders of Company in cash or, at Parent's
option, in Parent Common Stock (valued at the time of such payment)
which has not been registered under federal or state securities laws in
accordance with their respective original contributions of Parent
Shares to the Escrow Fund; provided, however, that to the extent fees
and expenses are recovered pursuant to this Section 9.3 such amounts
must be paid in cash. Nothing herein shall limit the liability of
Parent for any breach of any representation, warranty or covenant if
the Merger does not close.
(b) To make a claim pursuant to this Section 9.3, the
Stockholder Representative must deliver to Parent a certificate signed
by the Stockholder Representative (a "Stockholder Representative's
Certificate"):
(i) stating that the former stockholders of Company
have sustained losses by reason of the breach of Parent or Sub
of a representation, warranty, covenant or agreement of Parent
or Sub contained herein;
(ii) stating the amount of the losses; and
(iii) specifying in reasonable detail the individual
items of losses included in the amount so stated, the date
each such item was paid or properly accrued, or the basis for
such anticipated liability, and the nature of the
misrepresentation, breach of warranty or claim to which such
item is related.
(c) In the event the Stockholder Representative becomes aware
of a third-party claim which the Stockholder Representative believes
may result in a claim hereunder, the Stockholder Representative shall
notify Parent of such claim, and Parent shall be entitled, at its
expense, to participate in any defense of such claim. The Stockholder
Representative shall have the right in its sole discretion to settle
any such claim; provided, however, that except with the consent of
Parent, no settlement of any such claim with third-party claimants
shall alone be determinative of the validity of any claim against
Parent pursuant to this Section 9.3. In the event that Parent has
consented to any such settlement, Parent shall have no power or
authority to object under any provision of this Section 9.3 to the
amount of any claim by the Stockholder Representative with respect to
such settlement.
(d) Parent shall have thirty (30) days to object, in writing
to the Stockholder Representative, to the claim made in any the
Stockholder Representative's Certificate, which statement must also be
delivered to the Stockholder Representative prior to the expiration of
the thirty (30) day period ("Parent Objection"). If no Parent Objection
is made within such thirty (30) day period Parent shall deliver to the
Stockholder Representative the amount requested by the Stockholders'
Agent in the Stockholder Representative's Certificate. All
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disputes regarding any the Stockholder Representative's Certificate or
Parent Objection shall be resolved in the manner set forth in Section
9.4 hereof.
Section 9.4 Resolution of Conflicts; Arbitration.
(a) In case of a claim made against Company pursuant to
Section 9.2 hereof or a claim made against Parent pursuant to Section
9.3 hereof, Stockholder Representative and Parent shall attempt in good
faith to agree upon the rights of the respective parties with respect
to each such claim within sixty (60) days of the request. If the
Stockholder Representative and Parent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both
parties.
(b) If no such agreement can be reached after good faith
negotiation lasting not longer than sixty (60) days after the
submission of such claim, either Parent or the Stockholder
Representative may demand binding arbitration of the matter unless the
amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until
such amount is ascertained or both parties agree to arbitration.
Arbitration shall be administered by the American Arbitration
Association (the "AAA") and shall be conducted by three (3) neutral
arbitrators, two (2) of whom shall be practicing attorneys and the
third of whom shall be a certified public accountant, each having
experience in the area of healthcare mergers and acquisitions. Within
fifteen (15) days of commencement of arbitration, Parent and the
Stockholder Representative shall each select one neutral qualified
arbitrator. Within ten (10) days of their appointment, the two neutral
arbitrators so selected shall select the third neutral qualified
arbitrator from a list of arbitrators provided by the AAA having
experience in the area of healthcare mergers and acquisitions. The
third arbitrator shall act as chair of the arbitration panel. If the
arbitrators selected by the parties are unable or fail to agree upon
the third arbitrator, the third arbitrator shall be selected by the
AAA. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of
the arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. Any dispute regarding
discovery, or the relevance or scope thereof, shall be determined by
the chair of the arbitration panel and shall be governed by the Federal
Rules of Civil Procedure. The decision of a majority of the three
arbitrators as to the validity and amount of any claim shall be binding
and conclusive upon the parties to this Agreement. The award by the
arbitrators shall be in writing, shall be signed by a majority of the
arbitrators and shall include a statement of written findings of fact
and conclusions regarding the reasons for the disposition of any claim.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be
held in Nashville, Tennessee under the Commercial Arbitration Rules
then in effect of the AAA. The arbitrators shall designate which party
is the prevailing party in the dispute, taking into account, among
other factors, the amount in dispute and the amount of the award. The
non-prevailing party shall pay all costs and fees associated with the
arbitration. "Costs and fees" for purposes of this subsection mean all
reasonable
53
pre-award expenses of the arbitration, including the arbitrators' fees,
administrative fees, travel expenses, out of pocket expenses such as
copying and telephone, witness fees and reasonable attorney's fees.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, either before or after the approval of the
stockholders of Parent and Company shall have been obtained, in each case as
authorized by the respective Board of Directors of Parent or Company:
(a) by mutual written consent of the parties;
(b) by either Parent or Company if the Merger shall not have
been consummated on or before July 31, 2002 (the "Termination Date"),
provided that the right to terminate this Agreement under this Section
shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination
Date;
(c) by either Parent or Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any
other action (which order, decree or ruling the parties shall use their
commercially reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable;
(d) (i) by Parent if there shall have been a material adverse
change in the business, assets, liabilities, results of operations,
financial condition or prospects of Company and the Company
Subsidiaries taken as a whole since the date hereof which is not cured
within thirty (30) days after notice thereof to Company, or if Company
shall be in material breach of Section 7.2 or Section 7.4 and, in the
case of Section 7.4 only, such breach has not been cured within thirty
(30) days after notice thereof to Company, or (ii) by Company if there
shall have been a material adverse change in the business, assets,
liabilities, results of operations, financial condition or prospects of
Parent and the Parent Subsidiaries taken as a whole since the date
hereof which is not cured within thirty (30) days after notice thereof
to Parent, or if Parent shall be in material breach of Section 7.2 or
Section 7.4 and, in the case of Section 7.4 only, such breach has not
been cured within thirty (30) days after notice thereof to Parent;
(e) By either Parent or Company if any of the required
approvals of the stockholders of Parent or of Company shall fail to
have been obtained at a duly held stockholders meeting of either such
company, including any adjournments thereof; or
54
(f) By either Parent or Company in the event of a breach by
the other party of any representation, warranty, covenant or other
agreement contained in this Agreement which (A) would give rise to the
failure of a condition set forth in Section 8.2(a) or Section 8.3(a),
as applicable, and (B) cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching party of
such breach (a "Material Breach") (provided that the terminating party
is not then in Material Breach of any representation, warranty,
covenant or other agreement contained in this Agreement); or
(g) By either Company or Parent if either Parent or Company
gives notice of termination pursuant to Section 7.12.
Section 10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1 and subject to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any of the parties, except (i) as set forth in Sections 7.1 and
7.7(a), and (ii) nothing herein shall relieve any party from liability for any
breach of any of the representations, warranties, covenants or other agreements
contained in this Agreement.
Section 10.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective boards of directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of Company or Parent, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 10.4 Waiver. At any time before the Effective Time, any party
may (a) extend the time for performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only as against such party and only if set forth in an instrument in writing
signed by the party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Brokers. Company represents and warrants that no broker,
finder or financial advisor is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Company. In
addition, Company represents and warrants that it has not relied, and will not
rely, upon Xxxxxxx Xxxxx in evaluating the Merger and that Company has relied
solely upon its own independent investigation and counsel before deciding to
enter into the Merger Agreement. Each of Parent and Sub represents and warrants
that no broker, finder or financial advisor (other than Xxxxxxx Xxxxx) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
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Section 11.2 Notices. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given or made
as follows: (a) if delivered personally, upon receipt, (b) if sent by registered
or certified mail (postage prepaid, return receipt requested), upon receipt, (c)
if sent by reputable overnight air courier (such as Federal Express or UPS), two
business days after mailing or (d) if sent by facsimile transmission, with a
copy mailed as provided in clause (b) or (c) above, when transmitted and receipt
is confirmed by telephone. Such notices, claims, demands and other
communications shall be sent to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent or Sub, to: Symbion, Inc.
0000 Xxxx Xxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Executive Officer
(b) if to Company, to: Physicians Surgical Care, Inc.
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Chief Executive Officer
(c) if to the Stockholders'
Representative, to: X. X. Xxxxxxx Equity Partners III, L.L.C.
c/o Whitney & Co.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxx, M.D.
Section 11.3 Descriptive Headings; Drafting. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. No provision of this Agreement
shall be interpreted for or against either party hereto on the basis that such
party was the draftsman of such provision, all parties having had the
opportunity to participate in the drafting. Words importing a gender, such as
"his," "her" or "it," shall include every gender.
Section 11.4 Entire Agreement; Assignment. This Agreement (including
the Exhibits, schedules and other documents and instruments referred to herein)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them, with
respect to the subject matter hereof, is not intended to confer upon any other
person any rights or remedies hereunder, and shall not be assigned by operation
of law or otherwise; provided, however, that (a) the provisions in Section 3
concerning issuance of the Parent Shares are intended for the benefit of the
stockholders of Company, (b) the provisions in Section 7.14 concerning
indemnification are intended for the benefit of the individuals specified
therein and their successors and assigns and (c) the provisions in Section 9.5
concerning Parent indemnification are intended for the benefit of the
stockholders of Company. Notwithstanding the foregoing, following the Effective
Time, the Stockholder Representative or the Stockholders' Agent, as the case may
be, shall be empowered to enforce the provisions of this Agreement relating to
Company and its stockholders.
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Section 11.5 Severability. If any provision of this Agreement or the
application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof. In lieu of any such invalid, illegal or unenforceable provision, the
parties intend that there shall be added as part of this Agreement a provision
as similar in terms to such invalid, illegal or unenforceable provision as may
be possible and be valid, legal and enforceable.
Section 11.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 11.7 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 11.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
Section 11.9 Interpretation. In this Agreement, unless the context
otherwise requires:
(a) references to this Agreement are references to this
Agreement and to the Schedules and Exhibits attached hereto;
(b) references to Articles and Sections are references to
articles and sections of this Agreement;
(c) references to any party to this Agreement shall include
references to its respective successors and permitted assigns;
(d) references to a judgment shall include references to any
order, writ, injunction, decree, determination or award of any court or
tribunal;
(e) references to a person shall include references to any
individual, company, body corporate, association, limited liability
company, firm, joint venture, trust or governmental entity or agency;
(f) the terms "hereof," "herein," "hereby" and derivative or
similar words will refer to this entire Agreement;
(g) references to any document (including this Agreement)
are references to that document as amended, consolidated, supplemented,
novated or replaced by the Parties from time to time;
(h) the word "including" shall mean including without
limitation;
57
(i) each representation, warranty and covenant contained
herein shall have independent significance and, if any party hereto has
breached any representation, warranty or covenant contained herein in
any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of
the relative levels of specificity) which such party has not breached
shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant;
(j) references to time are references to local Nashville,
Tennessee time; and
(k) in respect of a party, the term "affiliate" shall mean any
entity controlling, controlled by or under common control with such
party.
Section 11.10 Waiver of Jury Trial. Each party hereto hereby
irrevocably waives any and all rights it may have to demand that any action,
proceeding or counterclaim arising out of or in any way related to this
agreement or the relationships of the parties hereto be tried by jury. This
waiver extends to any and all rights to demand a trial by jury arising from any
source including, but not limited to, the Constitution of the United States or
any State therein, common law or any applicable statute or regulations. Each
party hereto acknowledges that it is knowingly and voluntarily waiving its
rights to demand trial by jury.
Section 11.11 Tax Advice and Reliance. Except as expressly provided in
this Agreement, none of the parties (nor any of the parties' respective counsel,
accountants or other representatives) has made or is making any representations
to any other party (or to any other party's counsel, accountants or other
representatives) concerning the consequences of the transactions contemplated
hereby under applicable tax laws. Each party has relied solely upon the tax
advice of its own employees or of representatives engaged by such Party and not
on any such advice provided by any other party hereto.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
SYMBION, INC.
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
--------------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
--------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
SYMBION ACQUISITION SUB, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
--------------------------------------
Title: Vice President
--------------------------------------
PHYSICIANS SURGICAL CARE, INC.
By: Xxxxxx X. Xxxxxxx, Xx.
--------------------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
--------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
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