EXHIBIT 2
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Stock Purchase Agreement
dated as of December 13, 1996
among
Physician Support Systems, Inc.,
PSS C-Care, Inc.,
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇ III
and
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TABLE OF CONTENTS
Introduction
ARTICLE I
Purchase and Sale of The MARS Shares......................................... 1
SECTION 1.1 The MARS Shares.................................................. 1
SECTION 1.2 Purchase Price................................................... 1
SECTION 1.3 Closing.......................................................... 2
ARTICLE II
Representations and Warranties............................................... 2
SECTION 2.1 Representations and Warranties of Sellers as a Group............. 2
(a) Organization, Standing and Power.................................... 2
(b) Capitalization...................................................... 2
(c) Conflicts; Consents................................................. 3
(d) Financial Information............................................... 3
(e) Absence of Changes.................................................. 4
(f) Assets, Property and Related Matters; Real Property................. 5
(g) Patents, Trademarks and Similar Rights.............................. 6
(h) Insurance........................................................... 6
(i) Agreements, Etc..................................................... 6
(j) Litigation, Etc... ................................................. 7
(k) Compliance, Governmental Authorizations............................. 7
(l) Labor Relations; Employees.......................................... 7
(m) Accounts Receivable................................................. 9
(n) Customers........................................................... 9
(o) Accounts Payable.................................................... 9
(p) Related Party Transactions.......................................... 9
(q) Billing and Collection Practices.................................... 9
(r) Tax Matters......................................................... 10
(s) Disclosure.......................................................... 11
(t) Bank Accounts; Power of Attorney.................................... 11
(u) Brokers............................................................. 11
SECTION 2.2 Representations and Warranties of Sellers Individually........... 11
(a) Authority; Binding Agreements....................................... 11
(b) Equity Interests.................................................... 11
(c) Conflicts; Consents................................................. 12
(d) Litigation.......................................................... 12
SECTION 2.3 Representations and Warranties by PSS and PSS Sub................ 12
(a) Organization, Standing and Power.................................... 12
(b) Authority; Binding Agreements....................................... 12
(c) Conflicts; Consents................................................. 13
(d) Capitalization...................................................... 13
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(e) SEC Documents; Financial Statements; No Undisclosed Liabilities..... 13
(f) Absence of Certain Changes or Events................................ 14
ARTICLE III
Additional Agreements........................................................ 14
SECTION 3.1 Expenses......................................................... 14
SECTION 3.2 Conduct of Business.............................................. 14
SECTION 3.3 Further Assurances............................................... 14
SECTION 3.4 No Shopping...................................................... 14
SECTION 3.5 Access and Information........................................... 15
SECTION 3.6 Confidentiality; Non-Competition................................. 15
SECTION 3.7 Releases; Prior Compensation..................................... 16
SECTION 3.8 Nasdaq........................................................... 17
SECTION 3.9 Public Announcements............................................. 17
SECTION 3.10 Tax Matters..................................................... 17
SECTION 3.11 Obligations of PSS Sub.......................................... 19
ARTICLE IV
Conditions Precedent......................................................... 19
SECTION 4.1 Conditions to Obligations of PSS and PSS Sub..................... 19
(a) Authorization....................................................... 19
(b) Representations and Warranties...................................... 19
(c) Consents, Amendments and Terminations............................... 19
(d) Customers; Customer Contracts....................................... 19
(e) Certificates........................................................ 19
(f) Opinion of Counsel.................................................. 20
(g) Financial Statements................................................ 20
(h) Due Diligence....................................................... 20
(i) Employment Agreements............................................... 20
(j) Investment Letter................................................... 20
(k) Corporate Directors and Officers.................................... 20
(l) Share Certificates and Corporation Records.......................... 20
(m) Letter Agreements................................................... 20
(n) Other Documents..................................................... 20
SECTION 4.2 Conditions of Obligations of Sellers............................. 20
(a) Authorization....................................................... 20
(b) Representations and Warranties...................................... 21
(c) Registration Rights Agreement....................................... 21
(d) Employment Agreements............................................... 21
(e) Certificate......................................................... 21
(f) Opinion of Counsel.................................................. 21
(g) MARS Purchase Price................................................. 21
(h) Other Documents..................................................... 21
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ARTICLE V
Indemnity.................................................................... 21
SECTION 5.1 Indemnification.................................................. 21
SECTION 5.2 Limitations...................................................... 23
SECTION 5.3 No Election...................................................... 23
ARTICLE VI
Miscellaneous................................................................ 23
SECTION 6.1 Entire Agreement................................................. 23
SECTION 6.2 Termination...................................................... 23
SECTION 6.3 Descriptive Headings; Certain Interpretations.................... 24
SECTION 6.4 Notices.......................................................... 24
SECTION 6.5 Counterparts..................................................... 25
SECTION 6.6 Survival......................................................... 25
SECTION 6.7 Benefits of Agreement............................................ 25
SECTION 6.8 Amendments and Waivers........................................... 25
SECTION 6.9 Assignment....................................................... 25
SECTION 6.10 Enforceability.................................................. 25
SECTION 6.11 Governing Law................................................... 25
EXHIBITS
A Form of Sellers' Certificate
B Form of Opinion of Counsel of the MARS Companies and Sellers
C-1 Form of ▇▇▇▇▇▇▇▇ Employment Agreement
C-2 Form of ▇▇▇▇▇▇▇▇▇▇ Employment Agreement
C-3 Form of Slipakoff Employment Agreement
C-4 Form of Diluca Employment Agreement
D Form of Investment Letter
E Form of Letter Agreements
F Form of Registration Rights Agreement
G Form of Opinion of Counsel of PSS and PSS Sub
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Stock Purchase Agreement, dated as of December 13,
1996 (the "Agreement"), among Physician Support
Systems, Inc., a Delaware corporation ("PSS"), PSS
C-Care, Inc., a Delaware corporation and a wholly
owned subsidiary of PSS ("PSS Sub"), ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇ III and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(each, a "Seller" and, collectively, "Sellers").
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Introduction
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Immediately prior to the date of this Agreement, there were
outstanding (i) 1,000 shares of common stock, no par value ("C-Care Common
Stock"), of C-Care, Inc., a New Jersey corporation ("C-Care"), (ii) 1,000 shares
of common stock, no par value ("HOPE Common Stock"), of H.O.P.E. Enterprises
Group, Inc. ("HOPE") and (iii) 1,000 shares of common stock, no par value ("PMRS
Common Stock"), of Professional Medical Recovery Service, Inc., a New Jersey
corporation ("PMRS"), all of which shares are owned beneficially and of record
by Sellers, representing all of the issued and outstanding capital stock of each
of C-Care, HOPE and PMRS (each, a "MARS Company" and, collectively, the "MARS
Companies").
Upon the terms and subject to the conditions set forth in this
Agreement, PSS Sub has agreed to acquire from Sellers, and Sellers have agreed
to sell to PSS Sub, (i) 1,000 shares of C-Care Common Stock (the "C-Care
Shares"), (ii) 1,000 shares of HOPE Common Stock (the "HOPE Shares") and (iii)
1,000 shares of PMRS Common Stock (the "PMRS Shares" and together with the
C-Care Shares and the HOPE Shares, the "MARS Shares").
The parties agree as follows:
ARTICLE I
Purchase and Sale of the MARS Shares
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SECTION 1.1. The MARS Shares. Upon the terms and subject to the
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conditions set forth in this Agreement, at the Closing (defined in Section 1.3),
each Seller shall sell, convey, assign, transfer and deliver to PSS Sub, and PSS
Sub shall purchase, acquire and accept from each Seller, all of the MARS Shares
owned by such Seller (which MARS Shares are listed in Section 2.2(b) of the
disclosure schedule delivered by Sellers to PSS and PSS Sub simultaneously with
the execution of this Agreement (the "Disclosure Schedule"), free and clear of
all security interests, liens, pledges, charges, escrows, options, rights of
first refusal, mortgages, indentures, security agreements or other claims,
encumbrances, agreements, arrangements or commitments of any kind or character,
whether written or oral and whether or not relating in any way to credit or the
borrowing of money (collectively, the "Claims").
SECTION 1.2. Purchase Price. (a) The purchase price (the "C-Care
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Purchase Price") for the C-Care Shares and the non-compete agreement set forth
in Section 3.6 of this Agreement shall be (i) cash in the amount of $6,833,207,
of which $6,733,207 is payable as consideration for the C-Care Shares and
$100,000 is payable as consideration for such non-compete agreement and (ii)
169,229 shares of common stock, par value $.001 per share ("PSS Common Stock"),
of PSS. The purchase price (the "HOPE Purchase Price") for the HOPE Shares
shall be cash in the amount of $100. The purchase price (the "PMRS Purchase
Price" and together with the C-Care Purchase Price and the HOPE Purchase Price,
the "MARS Purchase Price") for the PMRS Shares shall be (i) cash in the amount
of $283,266 and (ii) 6,210 shares of PSS Common Stock. PSS Sub shall pay at
Closing the $7,116,573 cash portion of the MARS Purchase Price and transfer to
the Sellers share certificates issued by PSS representing 175,439 shares of PSS
Common Stock. All such payments in respect of the MARS Purchase Price shall
be made to the Sellers at Closing in proportion to their ownership of C-Care
Shares, HOPE Shares and PMRS Shares, respectively, as set forth in Section
2.2(b) of the Disclosure Schedule and, in the case of the cash portion of the
payments, shall be made by certified or bank check or checks, or, at the option
of Sellers, by wire transfer to an account or accounts of Sellers designated to
PSS Sub. Sellers shall provide PSS Sub with notice of the exercise of such
option and the designation of such account, such notice to be delivered not less
than three business days before the Closing.
(b) No certificates or scrip representing fractional shares of PSS
Common Stock shall be issued in connection with the payment of the MARS Purchase
Price. Notwithstanding any other provision of this Agreement, each Seller who
would otherwise have been entitled to receive a fraction of a share of PSS
Common Stock shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of PSS Common Stock multiplied
by $15.875.
SECTION 1.3. Closing. The closing (the "Closing") for the
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consummation of the transactions contemplated by this Agreement shall take place
at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
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PSS shall agree, at 10:00 a.m. (Eastern standard time) on the later of (a)
December 13, 1996 and (b) the date on which all conditions set forth in Article
IV shall have been satisfied or waived, or such other date and time agreed to by
Sellers and PSS (such date of the Closing being hereinafter called the "Closing
Date").
ARTICLE II
Representations and Warranties
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SECTION 2.1. Representations and Warranties of Sellers as a Group.
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Sellers jointly and severally represent and warrant to PSS and PSS Sub as
follows:
(a) Organization, Standing and Power. Each MARS Company (i) is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each MARS Company is duly qualified to do business and
is in good standing in each jurisdiction set forth in Section 2.1(a) of the
Disclosure Schedule. Section 2.1(a) of the Disclosure Schedule also sets forth
each other jurisdiction in which such qualification is necessary because of the
property owned, leased or operated by it or because of the nature of its
business as now being conducted, except where the failure, singly or in the
aggregate, to be so qualified or in good standing could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, operations, customer contracts or other
customer arrangements, management, personnel, ▇▇▇▇▇▇▇▇, revenues, earnings or
business of the MARS Companies taken as a whole (a "MARS Adverse Effect"). Each
MARS Company has delivered to PSS complete and correct copies of its certificate
of incorporation and by-laws and all amendments thereto to the date hereof and
has made available to PSS its minute books and stock records. Section 2.1(a) of
the Disclosure Schedule contains a true and correct list of the directors and
officers of each MARS Company as of the date of this Agreement and at all times
since the last action of the board of directors and the shareholders of each
MARS Company.
(b) Capitalization. The authorized capital stock of C-Care, HOPE and
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PMRS consists of 1,000 shares of C-Care Common Stock, 1,000 shares of HOPE
Common Stock and 2,500 shares of PMRS Common Stock, respectively. At the time
of execution of this Agreement, 1,000 shares of C-Care Common Stock, 1,000
shares of HOPE Common Stock and 1,000 shares of PMRS Common Stock were issued
and outstanding. Sellers own of record and beneficially all of the outstanding
capital stock of each MARS Company. Except as set forth above, at the time of
execution of this Agreement, no shares of capital stock or other voting
securities of any MARS Company are issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of each MARS Company are duly
authorized,
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validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
or securities of any MARS Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which shareholders of any MARS Company may vote. There are no securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which any MARS Company is a party or by which any
MARS Company is bound obligating any MARS Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of any MARS Company or obligating any MARS Company to
issue, grant, extend or enter into any such security, option, warrant, call
right, commitment, agreement, arrangement or undertaking. Except as set forth
in Section 2.1(b) of the Disclosure Schedule, there are no outstanding rights,
commitments, agreements, arrangements or undertakings of any kind obligating any
MARS Company to repurchase, redeem or otherwise acquire any shares of capital
stock or other voting securities of any MARS Company or any securities of the
type described in the two immediately preceding sentences. No MARS Company has
any subsidiaries or owns or holds any equity or other security interests in any
other entity. Except as set forth in Section 2.1(b) of the Disclosure Schedule,
no MARS Company is subject to any liability for any claim that such MARS Company
violated any applicable Federal or state securities laws in connection with the
issuance of capital stock. For purposes of this Agreement, a "subsidiary" of
any person means another person, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of which
) is owned directly or indirectly by such first person; and a "person" means an
individual, corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity (governmental or private).
(c) Conflicts; Consents. Neither the execution and delivery of this
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Agreement, the Registration Rights Agreement (defined below Section 4.2(c)), the
Employment Agreements (defined below in Section 4.1(i)) or the Letter Agreements
(defined below in Section 4.1(m)), the consummation of the transactions
contemplated hereby or thereby nor compliance by any Seller with any of the
provisions hereof or thereof will (i) conflict with or result in a breach of the
articles of incorporation, by-laws or other constitutive documents of any MARS
Company, (ii) conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, or any material license, franchise,
permit, agreement or other instrument or obligation to which any MARS Company is
a party, or by which any MARS Company or any MARS Company's properties or
assets, may be bound or affected, except for such conflicts, breaches or
defaults as to which requisite waivers or consents have been obtained before the
Closing (which waivers or consents are set forth in Section 2.1(c) of the
Disclosure Schedule), (iii) violate any law, statute, rule or regulation or
order, writ, injunction or decree applicable to any MARS Company or any MARS
Company's properties or assets or (iv) result in the creation or imposition of
any Claim upon any property or assets used or held by any MARS Company. No
consent or approval by, or any notification of or filing with, any person is
required in connection with the execution, delivery and performance by any
Seller of this Agreement or any other agreement or document to which such Seller
is a party as contemplated by this Agreement or the consummation of the
transactions contemplated hereby or thereby except for such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
are set forth in Section 2.1(c) of the Disclosure Schedule.
(d) Financial Information. (i) The following financial statements are
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contained in Section 2.1(d) of the Disclosure Schedule:
(A) the unaudited combined cash basis balance sheet of the MARS
Companies at November 30, 1996 and the related statement of operations for
the 11 months then ended;
(B) the unaudited cash basis balance sheet of HOPE as of November 30,
1996 and the related statement of operations for the 11 months then ended;
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(C) the unaudited cash basis balance sheet of PMRS as of November 30,
1996 and the related statement of operations for the 9 months then ended;
(D) the unaudited cash basis statements of operations of C-CARE for
the 12 months ended December 31, 1995 and 1994;
(E) the unaudited cash basis statements of operations of Medical
Recovery Plus, Inc. for the 12 months ended September 30, 1995 and 1994;
(F) the unaudited cash basis statements of operations of Matrak, Inc.
for the 9 months ended September 30, 1995 and the 12 months ended September
30, 1994;
(G) the unaudited cash basis statements of operations of Medical
Assistance Recovery System, Inc. for the 12 months ended September 30, 1995
and 1994; and
(H) the balance sheets of PMRS as of February 28, 1996 and 1995 and
the related statements of operations for the years then ended, as shown in
the federal tax returns of PMRS.
The balance sheets listed above, as at the dates set forth, present fairly the
financial position of such entities as at the dates thereof, and the related
statements of operations for each of the respective specified periods then ended
present fairly the results of operations of such entities for each of the
respective periods then ended in accordance with cash basis accounting.
(ii) Except as set forth in Section 2.1(d)(ii) of the Disclosure
Schedule, there were no liabilities or obligations (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) in respect of any
MARS Company which were required to be, in accordance with GAAP, but were not
shown or provided for on the combined balance sheets of the MARS Companies to
which such liabilities or obligations relate.
(e) Absence of Changes. Except as set forth in Section 2.1(e) of the
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Disclosure Schedule, since December 31, 1995, the MARS Companies have been
operated in the ordinary course consistent with past practice and there has not
been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, customer contracts or other
customer arrangements, management personnel, ▇▇▇▇▇▇▇▇, revenues, earnings
or business;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by any
MARS Company, other than obligations under customer contracts, current
obligations and liabilities incurred in the ordinary course of business and
consistent with past practice;
(iii) any payment, discharge or satisfaction of any claim or
obligation of any MARS Company, except in the ordinary course of business
and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of any MARS
Company or any direct or indirect redemption, purchase or other acquisition
of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities convertible
into or exercisable for shares of capital stock of any MARS Company;
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(vi) any sale, assignment, pledge, encumbrance, transfer or other
disposition of any tangible asset of any MARS Company, except as
contemplated by this Agreement, or any sale, assignment, transfer or other
disposition of any patents, trademarks, service marks, trade names,
copyrights, licenses, franchises, know-how or any other intangible assets;
(vii) any creation of any material claim or other encumbrance on
any property of any MARS Company;
(viii) any material write-down of the value of any asset of any
MARS Company or any material write-off as uncollectible of any accounts or
notes receivable or any portion thereof;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to any MARS Company;
(x) any capital expenditure or commitment or addition to property,
plant or equipment of any MARS Company, individually or in the aggregate,
in excess of $25,000;
(xi) any general increase in the compensation of employees of any
MARS Company (including any increase pursuant to any bonus, pension,
profit-sharing or other benefit or compensation plan, policy or arrangement
or commitment), or any increase in any such compensation or bonus payable
to any officer, shareholder, director, consultant or agent of any MARS
Company having an annual salary or remuneration in excess of $40,000;
(xii) any material damage, destruction or loss (whether or not
covered by insurance) affecting any asset or property of any MARS Company;
(xiii) any change in the independent public accountants of any
MARS Company or in the accounting methods or accounting practices followed
by any MARS Company or any change in depreciation or amortization policies
or rates;
(xiv) any agreement or action not otherwise referred to in items
(i) through (xiii) above entered into or taken that is material to the MARS
Companies taken as a whole; or
(xv) any agreement, whether in writing or otherwise, to take any
of the actions specified in the foregoing items (i) through (xiv).
(f) Assets, Property and Related Matters; Real Property. (i) One of
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the MARS Companies has good title to, or a valid leasehold interest in, as
applicable, all of the assets reflected on the financial statements contained in
Section 2.1(d) of the Disclosure Schedule, free and clear of all Claims, except
Claims which would not have an adverse effect on the MARS Companies' use,
possession or ownership of such assets. Such assets (A) are in good operating
condition and repair, subject to ordinary wear and tear and (B) constitute all
of the properties, interests, assets and rights held for use or used in
connection with the business and operations of the MARS Companies and constitute
all those necessary to continue to operate the business of the MARS Companies
consistent with current and historical practice. All items of personal property
owned by any MARS Company with an original cost or book value in excess of
$5,000 are listed in Section 2.1(f)(i) of the Disclosure Schedule.
(ii) Section 2.1(f)(ii) of the Disclosure Schedule sets forth a list
of all real property and of all personal property owned or leased by any MARS
Company. No MARS Company owns any real property. With respect to property
leased by any MARS Company, (i) such MARS Company is the owner and holder of all
the leasehold interests and estates purported to be granted by such leases, (ii)
all leases to which such MARS Company is a party are in full force and effect
and constitute valid and binding obligations of such MARS Company and, to the
knowledge of Sellers, of the
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other parties thereto, enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors' rights
and to general equitable principles, and (iii) such MARS Company has made
available to PSS true and complete copies of all written leases with respect to
the property listed in Section 2.1(f)(ii) of the Disclosure Schedule. There
exists no default, or any event which upon notice or the passage of time, or
both, would give rise to any default, in the performance by any MARS Company or
by any lessor under any lease. Except as set forth in Section 2.1(f)(ii) of the
Disclosure Schedule, no MARS Company has, and to the knowledge of Sellers, no
other person has, granted any oral or written right to anyone other than one of
the MARS Companies to lease, sublease or otherwise occupy any of the properties
described in Section 2.1(f)(ii) of the Disclosure Schedule through the end of
the applicable lease periods.
(iii) The real estate listed in Section 2.1(f)(ii) of the Disclosure
Schedule and all appurtenances and improvements, as used, constructed or
maintained by the any MARS Company at any time, conform in all material respects
to applicable Federal, state, local and foreign laws and regulations. To the
knowledge of Sellers, the use of the buildings and structures located on such
real property or any appurtenances or equipment does not violate any restrictive
covenants or encroach on any property owned by others. No condemnation
proceeding is pending or, to the knowledge of Sellers, threatened which would
preclude or impair the use of any such property by any MARS Company for the uses
for which they are intended.
(g) Patents, Trademarks and Similar Rights. Each MARS Company owns or
--------------------------------------
licenses all patents, trademarks, service marks, trade names and copyrights, in
each case registered or unregistered, inventions, software (including
documentation and object and source code listings), know-how, trade secrets and
other intellectual property rights (collectively, the "Intellectual Property")
used in its business as presently conducted. Section 2.1(g) of the Disclosure
Schedule contains a list of all Intellectual Property owned and used by any MARS
Company and any Intellectual Property which is licensed for use by others. No
Intellectual Property infringes any rights owned or held by any other person.
There is no pending or, to the knowledge of Sellers, threatened claim or
litigation against any MARS Company contesting its right exclusively to use any
Intellectual Property. To the actual knowledge of Sellers, no person is
infringing the rights of any MARS Company in any Intellectual Property. No
product or service sold by any MARS Company violates or infringes any
intellectual property right owned or held by any other person. To the knowledge
of Sellers, in the case of commercially available "shrink-wrap" software
programs (such as Lotus 1-2-3), none of the MARS Companies has made or is using
any unauthorized copies of any such software programs at any MARS Company
location.
(h) Insurance. Section 2.1(h) of the Disclosure Schedule contains a
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true and complete list of all policies of casualty, liability, theft, fidelity,
life and other forms of insurance held by any MARS Company as of the date
hereof. True and complete copies of such policies have been delivered or made
available for inspection and copy by PSS. All insurance policies are in the
name of one of the MARS Companies, outstanding and in full force and effect, all
premiums with respect to such policies are currently paid and such policies will
not be affected by, or terminated or lapse by reason of, the transactions
contemplated by this Agreement. No MARS Company has received notice of
cancellation or termination of any such policy, nor has it been denied or had
revoked or rescinded any policy of insurance, nor borrowed against any such
policies. No claim under any such policy is pending.
(i) Contracts and Agreements. Section 2.1(i) of the Disclosure
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Schedule contains a true and complete list of all written or oral contracts,
agreements and other instruments to which any MARS Company is a party (i)
relating to indebtedness for money borrowed or capital leases, (ii) of duration
of six months or more from the date hereof and not cancelable without penalty on
30 days or less notice, (iii) relating to commitments in excess of $10,000, (iv)
relating to the employment or compensation of any director, officer, employee,
consultant or other agent of such MARS Company, (v) relating to the sale or
other disposition of any assets, properties or rights, (vi) relating to the
lease or
6
similar arrangement of any machinery, equipment, motor vehicles, furniture,
fixture or similar property, (vii) between such MARS Company and any Seller or
affiliate of any Seller, (viii) that restricts the operation of such MARS
Company anywhere in the world or (ix) that is otherwise material to such MARS
Company or entered into other than in the ordinary course of business. No MARS
Company is in default under any such agreement or instrument where such default
could, singly or in the aggregate with defaults under other agreements or
instruments, have a MARS Adverse Effect and, to the knowledge of Sellers, all
such agreements or instruments are in full force and effect. The MARS Companies
have furnished to, or made available for inspection and copy by, PSS true and
complete copies of all documents described in Section 2.1(i) of the Disclosure
Schedule.
(j) Litigation, Etc. Except as set forth in Section 2.1(j) of the
----------------
Disclosure Schedule, there have not been for the past five years, nor are there,
any suits, actions, claims, investigations or legal or administrative or
arbitration proceedings in respect of any MARS Company, pending or, to the
knowledge of Sellers, threatened, whether at law or in equity, or before or by
any Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Except as set forth in
Section 2.1(j) of the Disclosure Schedule, there have not been for the past five
years, nor are there any judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator
against any of the MARS Companies or any of their respective assets or
properties.
(k) Compliance; Governmental Authorizations. (i) Each MARS Company
---------------------------------------
has complied and is in compliance in all material respects with all Federal,
state, local and foreign laws, ordinances, regulations, interpretations and
orders (including those relating to disposal of materials, environmental
protection and occupational safety and health) applicable to such MARS Company.
Each MARS Company has all Federal, state, local and foreign governmental
licenses and permits necessary to conduct its business as presently being
conducted, which licenses and permits (and any exceptions thereto) are set forth
in Section 2.1(k) of the Disclosure Schedule. Such licenses and permits are in
full force and effect, no violations are or have been recorded in respect of any
thereof, no proceeding is pending or, to the knowledge of Sellers, threatened,
to revoke or limit any thereof, and Sellers do not know of any basis for any
such proceeding.
(ii) There are no conditions relating to any MARS Company or relating
to any MARS Company's ownership, use or maintenance of any real property
previously owned or operated by any MARS Company or any of their respective
affiliates, and Sellers do not know or have reason to know of any such condition
in respect of such real property not related to the ownership, use or
maintenance, that could lead to any liability for violation of any Federal,
state, county or local laws, regulations, orders or judgments relating to
pollution or protection of the environment or any other applicable
environmental, health or safety statutes, ordinances, orders, rules, regulations
or requirements. The MARS Companies have received, handled, used, stored,
treated, shipped and disposed of all hazardous or toxic materials, substances
and wastes (whether or not on its properties or properties owned or operated by
others) in compliance in all material respects with all applicable
environmental, health or safety statutes, ordinances, orders, rules, regulations
or requirements.
(l) Labor Relations; Employees. (i) Within the last five years, no
--------------------------
MARS Company has experienced any labor disputes with, or any work stoppages by,
a group of employees due to labor disagreements and, to the knowledge of Seller,
there is no such dispute or work stoppage threatened against any MARS Company.
No employee of any MARS Company is represented by any union or collective
bargaining agent and, to the knowledge of Sellers, there has been no union
organizational effort in respect of any employees of any MARS Company within the
past five years.
(ii) Section 2.1(l)(ii) of the Disclosure Schedule contains a list of
each pension, retirement, savings, deferred compensation, and profit-sharing
plan and each stock option, stock appreciation, stock purchase, performance
share, bonus or other incentive plan, severance plan, health, group insurance or
other welfare plan, or other similar plan and any "employee benefit plan" within
the
7
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), under which any MARS Company has any current or future
obligation or liability or under which any employee or former employee (or
beneficiary of any employee or former employee) of any MARS Company has or may
have any current or future right to benefits (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being hereinafter
referred to individually as a "Plan"). The MARS Companies have delivered to PSS
true and complete copies of (A) each Plan, (B) the summary plan description for
each Plan and (C) the latest annual report, if any, which has been filed with
the IRS for each Plan. Each Plan intended to be tax qualified under Sections
401(a) and 501(a) of the Internal Revenue Code of 1986 (the "Code") has been
determined by the IRS to be tax qualified under Sections 401(a) and 501(a) of
the Code and, since such determination, no amendment to or failure to amend any
such Plan adversely affects its tax qualified status. There has been no
prohibited transaction within the meaning of Section 4975 of the Code and
Section 406 of Title I of ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section 412 of the
Code or Part 3 of Subtitle B of Title I of ERISA. No Plan is subject to Title
IV of ERISA. During the past five years, no MARS Company nor any business or
entity then controlling, controlled by, or under common control with any MARS
Company contributed to or was obliged to contribute to an employee pension plan
that was subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations (other
than routine claims for benefits) pending, or, to the knowledge of Sellers,
threatened, with respect to any Plan or the assets of any Plan, and no MARS
Company has knowledge of any facts which could give rise to any such actions,
claims, lawsuits or arbitrations (other than routine claims for benefits). The
MARS Companies have satisfied all funding, compliance and reporting requirements
for all Plans. With respect to each Plan, the MARS Companies have paid all
contributions (including employee salary reduction contributions) and all
insurance premiums that have become due and any such expense accrued but not yet
due has been properly reflected in the financial information in Section 2.1(d)
of the Disclosure Schedule.
(v) No Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. No Plan covers any
individual other than employees of the MARS Companies, other than dependents of
employees under health and child care policies listed in Section 2.1(l)(ii) of
the Disclosure Schedule and delivered to PSS.
(vi) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of a MARS Company to severance pay
or termination benefits for which PSS or any of its affiliates may become
liable, (B) accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee for which PSS or any of
its affiliates may become liable or (C) obligate PSS or any of its affiliates to
pay or otherwise be liable for any compensation, vacation days, pension
contribution or other benefits to any employee, consultant or agent of any MARS
Company for periods before the Closing Date or for personnel whom PSS does not
actually employ.
(vii) No MARS Company has made any representations or warranties
(whether written or oral, express or implied) contractually or otherwise to any
client or customer of a MARS Company that a MARS Company's employees rendering
services to such client or customer are not "leased employees" (within the
meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer
relating either to (A) providing benefits to employees of a MARS Company under a
Pension Benefit Plan of a MARS Company or (B) making
8
contributions to or reimbursing such client or customer for any contributions
made to a Pension Benefit Plan of such client or customer on behalf of employees
of a MARS Company.
(m) Accounts Receivable. Section 2.1(m) of the Disclosure Schedule
-------------------
contains a true aged list of unpaid accounts and notes receivable owing to any
MARS Company as of the month end prior to the date of this Agreement, all of
which, to Sellers' knowledge, are collectible in the ordinary course of
business.
(n) Customers. Section 2.1(n) of the Disclosure Schedule contains (i)
---------
a true and complete list of the customers of each MARS Company for each of the
years ended December 31, 1993, 1994 and 1995 and the period beginning January 1,
1996 and ended the month end prior to the date of this Agreement and, as of the
date hereof, any additions or deletions of customers from such month end to the
date of this Agreement, (ii) a true and complete description of the effective
date and expiration date and history of renewals for and commission revenues
generated under contracts with each of the customers listed in Section 2.1(n) of
the Disclosure Schedule, (iii) a true and complete list of all contracts
pursuant to which any MARS Company provides goods or services to its customers
(the "Client Contracts") and (iv) a true and correct description of (A) the
terms and conditions of each oral Client Contract, (B) any and all disputes or
defaults arising under or with respect to the Client Contracts in connection
with which a client has threatened, or is expected to, terminate its contract
with any MARS Company or claim for damages, and (C) all loans or advances made
by any MARS Company to or on behalf of its customers, which description includes
the date of such loan or advance and the principal balance outstanding as of the
date of this Agreement under each such loan or advance. The Client Contracts
are valid and enforceable in accordance with their respective terms with respect
to the MARS Companies, and are valid and enforceable in accordance with their
respective terms with respect to any other party thereto. To Sellers'
knowledge, no customer of any MARS Company has threatened to terminate, fail to
renew or adversely modify any relationship with such MARS Company.
(o) Accounts Payable. Section 2.1(o) of the Disclosure Schedule
----------------
contains a true and complete list of all accounts payable of each MARS Company
as of the month end prior to the date of this Agreement.
(p) Related Party Transactions. Except as set forth in Section 2.1(p)
--------------------------
of the Disclosure Schedule, no current or former partner, director, officer,
employee or shareholder of any MARS Company or any associate or affiliate (as
defined in the rules promulgated under the Exchange Act) thereof, or any
relative with a relationship of not more remote than first cousin of any of the
foregoing, is presently, or during the 12-month period ending on the date hereof
has been, (i) a party to any transaction with any MARS Company (including any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, employee or shareholder or such
associate) or (ii) to the knowledge of Sellers, the direct or indirect owner of
an interest in any corporation, firm, association or business organization which
is a present (or potential) competitor, supplier or customer of any MARS
Company, nor does any such person receive income from any source other than the
MARS Companies which relates to the MARS Companies' businesses or should
properly accrue to any MARS Company.
(q) Billing and Collection Practices. (i) The current practices and
--------------------------------
procedures of each MARS Company with respect to (A) billing on behalf of
customers, (B) receiving and processing Medicare and Medicaid payments due to
customers, (C) holding and transfer of such payments and (D) the method of
determining and collecting the fees received by such MARS Company for services
provided by providers and physicians participating in the Medicare or Medicaid
programs are not in violation in any material respect of the restriction on
assignment as set forth in 42 U.S.C. Section 1395g(c), 42 U.S.C. Section
1395u(b)(6) and 42 U.S.C. Section 1396a(a)(32), and the regulations promulgated
thereunder or similar provisions of any state Medicaid program.
9
(ii) No MARS Company is engaged in any activity, whether alone or
in concert with one or more of its clients, which would constitute a violation
in any material respect of any Federal laws or the laws of any state (including
(A) Federal antifraud and abuse or similar laws pertaining to Medicare,
Medicaid, or any other Federal health or insurance program, (B) state laws
pertaining to Medicaid or any other state health or insurance program, (C) state
or Federal laws pertaining to ▇▇▇▇▇▇▇▇ to insurance companies, health
maintenance organizations, and other managed care plans or to insurance fraud,
and (D) Federal and state laws relating to collection agencies and the
performance of collection services) prohibiting fraudulent, abusive or unlawful
practices connected in any way with the provision of health care services, the
determination of eligibility for health care services, the billing for such
services provided to a beneficiary of any state, Federal or private health or
insurance program or credit collection services. Without limiting the generality
of the foregoing, to Sellers' knowledge, no MARS Company has, directly or
indirectly, paid, offered to pay or agreed to pay, or solicited or received, any
fee, commission, sum of money, property or other remuneration to or from any
person which was or would be illegal under 42 U.S.C. Section 1320a-7b(b) or any
similar state law.
(iii) No MARS Company currently uses, or has in the past
established or used, trust accounts in connection with its business, except for
escrow accounts used as described in Section 2.1(t) of the Disclosure Schedule.
(r) Taxes. Each of C-Care and HOPE is a "small business corporation"
-----
and has maintained a valid election to be an "S" corporation under Subchapter S
of the Code, and, except as set forth in Section 2.1(r) of the Disclosure
Schedule, the equivalent provisions of all applicable state income tax statutes
since January 1, 1995 in the case of C-Care and July 18, 1996 in the case of
HOPE. Except as set forth in Section 2.1(r) of the Disclosure Schedule, all
Federal, state, local and foreign tax returns and tax reports for periods ending
on or prior to the Closing Date by each MARS Company have been or will be filed,
or a valid request for extension has been or will be filed with respect thereto,
on a timely basis (including any extensions) with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed. All such returns and reports are and will be true, correct and
complete in all material respects. Except as set forth in Section 2.1(r) of the
Disclosure Schedule, all Federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment and other taxes
(including interest, penalties and withholdings of tax) due from and payable by
any MARS Company on or prior to the Closing Date have been fully paid on a
timely basis. Except as set forth in Section 2.1(r) of the Disclosure Schedule,
no MARS Company is currently the beneficiary of any extension of time within
which to file any tax return. To the Sellers' knowledge, no written claim has
ever been made by an authority in a jurisdiction where any MARS Company does not
file tax returns that it is or may be subject to taxation by that jurisdiction,
and no MARS Company has received any written notice, or written request for
information from any such authority. Except as set forth in Section 2.1(r) of
the Disclosure Schedule, no issues have been raised in writing with any MARS
Company by the Internal Revenue Service (the "IRS") or any other taxing
authority in connection with any tax return or report filed by such MARS Company
and there are no issues which, either individually or in the aggregate, could
result in any liability for tax obligations of any MARS Company relating to
periods ending on or before December 31, 1995 in excess of the accrued liability
for taxes shown on the combined financial statements contained in Section
2.1(d)(i) of the Disclosure Schedule. No waivers of statutes of limitations
have been given or requested with respect to any MARS Company. Except as set
forth in Section 2.1(r) of the Disclosure Schedule, no differences exist between
the amounts of the book basis and the tax basis of assets that are not accounted
for by an accrual on the books of any MARS Company for Federal income tax
purposes. Except as set forth in Section 2.1(r) of the Disclosure Schedule, no
MARS Company is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting method
initiated by such MARS Company, and the IRS has proposed no adjustment or change
in accounting method. No MARS Company is a party to any agreement, contract or
arrangement that would result, separately or in the aggregate, in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
All transactions or methods of accounting that could give rise to an
understatement of Federal income tax (within the meaning of Section 6661 of the
Code for tax returns filed on or before December
10
31, 1990, and within the meaning of Section 6662 of the Code for tax returns
filed after December 31, 1990) have been adequately disclosed on the tax returns
in accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990. No MARS Company is or has
been a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code. Except as set forth in Section 2.1(r) of the
Disclosure Schedule, each MARS Company has complied (and until the Closing will
comply) with all applicable laws relating to the payment and withholding of
taxes (including withholding and reporting requirements under Section 1441
through 1464, 3401 through 3406, 6041 and 6049 of the Code and similar
provisions under any other laws) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
(s) Disclosure. To the knowledge of the Sellers, there have been no
----------
events, transactions or information relating to any MARS Company which, singly
or in the aggregate, could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), assets, liabilities,
operations, customer contracts or other customer arrangements, management
personnel, ▇▇▇▇▇▇▇▇, revenues, earnings, business or prospects of any MARS
Company, other than general events (including statutory and regulatory changes)
prevailing throughout the medical billing and accounts receivable management
services industry which similarly affect firms that directly compete in such
industry. No representation or warranty of Sellers contained in this Agreement,
as modified by the Disclosure Schedule, and no statement contained in any
certificate, schedule, annex, list or other writing furnished to PSS, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statement contained herein or therein, in light of the
circumstances under which they were made, not misleading.
(t) Bank Accounts; Powers-of-Attorney. (i) Section 2.1(t)(i) of the
---------------------------------
Disclosure Schedule contains a true and complete list of (A) all bank accounts
and safe deposit boxes of each MARS Company and all persons who are signatories
thereunder or who have access thereto and (B) the names of all persons holding
general or special powers-of-attorney from any MARS Company and a summary of the
terms thereof.
(ii) Except as set forth in Section 2.1(t)(ii) of the Disclosure
Schedule, no MARS Company maintains or has maintained any escrow or custody
accounts with respect to customer funds.
(u) Brokers. Other than ▇. ▇▇▇▇▇▇▇ & Associates, Inc., the fees and
-------
expenses of which will be paid by Sellers, no agent, broker, investment banker,
person or firm acting on behalf of any Seller or any MARS Company or under the
authority of any Seller or any MARS Company is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly from any of the parties hereto in connection with any of the
transactions contemplated hereby.
SECTION 2.2. Representations and Warranties of Sellers Individually.
------------------------------------------------------
Each Seller severally represents and warrants to PSS and PSS Sub as follows:
(a) Authority; Binding Agreement. Such Seller has the legal power and
----------------------------
capacity to enter into this Agreement, and all other agreements and documents to
which such Seller is a party, as contemplated by this Agreement. This Agreement
and such other agreements and documents are, or upon execution and delivery
thereof by all parties hereto or thereto will be, the valid and binding
obligation of such Seller in accordance with their respective terms.
(b) Equity Interests. Section 2.2(b) of the Disclosure Schedule
----------------
contains a true and correct list of the number of shares of C-Care Common Stock,
HOPE Common Stock and PMRS Common Stock owned by such Seller. Such shares are
owned by such Seller free and clear of all Claims.
11
(c) Conflicts; Consents. Neither the execution and delivery of this
-------------------
Agreement or any other agreement or document to which such Seller is a party as
contemplated by this Agreement, the consummation of the transactions
contemplated hereby or thereby nor compliance by such Seller with any of the
provisions hereof or thereof will (i) conflict with or result in a default (or
give rise to any right of termination, cancellation or acceleration) under any
provisions of any note, bond, lease, mortgage, indenture, or any material
license, franchise, agreement or other instrument or obligation to which such
Seller is a party, or by which such Seller or any of such Seller's properties or
assets may be bound or affected, (ii) violate any law, statute, rule or
regulation or order, writ, injunction or decree applicable to such Seller or
such Seller's properties or assets or (iii) result in the creation or imposition
of any Claim upon any MARS Shares. No consent or approval by, or any
notification of or filing with, any person is required in connection with the
execution, delivery and performance by such Seller of this Agreement or any
other agreement or document to which such Seller is a party as contemplated by
this Agreement or the consummation of the transactions contemplated hereby or
thereby except for (i) the filing with the Securities and Exchange Commission
(the "SEC") of such reports under Sections 13 and 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in connection
with this Agreement and the transactions contemplated hereby and (ii) such
filings as may be required under state securities or "blue sky" laws in
connection with the issuance of the PSS Common Stock as a portion of the MARS
Purchase Price.
(d) Litigation. Except as set forth on Section 2.2(d) of the
----------
Disclosure Schedule, there have not been for the past five years, nor are there
any judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against such
Seller or any of his assets or properties.
SECTION 2.3. Representations and Warranties by PSS and PSS Sub. PSS
-------------------------------------------------
and PSS Sub jointly and severally represent and warrant to Sellers as follows:
(a) Organization, Standing and Power. Each of PSS and PSS Sub (i) is
--------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of PSS and PSS Sub is duly qualified to do
business and is in good standing in each jurisdiction in which such
qualification is necessary because of the property owned, leased or operated by
it or because of the nature of its business as now being conducted, except where
the failure, singly or in the aggregate, to be so qualified or in good standing
could not reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), assets, liabilities, operations, customer
contracts or other customer arrangements, management personnel, ▇▇▇▇▇▇▇▇,
revenues, earnings or business of PSS and its subsidiaries taken as a whole (a
"PSS Adverse Effect"). PSS has provided Sellers with complete and correct
copies of PSS's and PSS Sub's Certificate of Incorporation and by-laws, in each
case as amended through the date hereof.
(b) Authority; Binding Agreements. The execution and delivery of this
-----------------------------
Agreement and all other agreements and documents to which PSS or PSS Sub is a
party as contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of PSS and PSS Sub. Each of PSS and PSS
Sub has all requisite corporate power and authority to enter into this Agreement
and the other agreements and documents to which PSS or PSS Sub is a party as
contemplated by this Agreement and to consummate the transactions contemplated
hereby and thereby and this Agreement and such other agreements and documents
have been, or upon execution and delivery thereof will be, duly executed and
delivered by each of PSS and PSS Sub (to the extent it is a party). This
Agreement and such other agreements and documents are, or upon execution and
delivery thereof will be, the valid and binding obligations of each of PSS and
PSS Sub (to the extent it is a party), enforceable against such person in
accordance with their respective terms.
12
(c) Conflicts; Consents. The execution and delivery of this Agreement
-------------------
and the other agreements and documents to which PSS or PSS Sub is a party as
contemplated by this Agreement, the consummation of the transactions
contemplated hereby and thereby and compliance by PSS and PSS Sub with the
provisions hereof and thereof do not and will not (i) conflict with or result in
a breach of the certificate of incorporation, by-laws or other constitutive
documents of PSS or PSS Sub, (ii) conflict with or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, license, franchise,
permit, agreement or other instrument or obligation to which PSS or PSS Sub is a
party, or by which PSS or PSS Sub or any of PSS's or PSS Sub's properties or
assets, may be bound or affected, except for such conflict, breach or default as
to which requisite waivers or consents shall be obtained before the Closing, or
(iii) violate any law, statute, rule or regulation or order, writ, injunction or
decree applicable to PSS or PSS Sub or PSS's or PSS Sub's properties or assets.
No consent or approval by, or any notification of or filing with, any person is
required in connection with the execution, delivery and performance by PSS or
PSS Sub of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing with the SEC such reports under the Exchange
Act, as may be required in connection with this Agreement and the transactions
contemplated hereby, (ii) such filings as may be required under state securities
or "blue sky" laws in connection with the issuance of the PSS Common Stock in
connection with the transactions contemplated hereby, and (iii) the filing of
appropriate documents with the relevant authorities of other states in which any
MARS Company is qualified to do business.
(d) Capitalization. The authorized capital stock of PSS consists of
--------------
100,000,000 shares of PSS Common Stock and 10,000,000 shares of preferred stock.
At the close of business on December 11, 1996, (i) 8,665,614 shares of PSS
Common Stock were issued and outstanding, (ii) no shares of PSS Common Stock
were held by PSS in its treasury, (iii) 353,500 shares of PSS Common Stock were
reserved for issuance upon exercise of outstanding employee stock options to
purchase shares of PSS Common Stock and (iv) 586,250 shares of PSS Common Stock
were reserved for issuance upon exercise of employee stock options that are not
outstanding but may be issued in the future under PSS's 1996 Stock Option Plan.
Except as set forth above, at the time of execution of this Agreement, no shares
of capital stock or other voting securities of PSS are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Parent are,
and all shares issued to Sellers pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness or securities of PSS having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of PSS may vote. Except as set forth above, as of the date
of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which PSS or any of its subsidiaries is a party or by which any of them is
bound obligating PSS or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of PSS or of any of its subsidiaries or obligating PSS
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding commitments, agreements, arrangements or
undertakings of any kind obligating PSS or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock or other
voting securities of PSS or any of its subsidiaries.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.
---------------------------------------------------------------
PSS has filed all required reports, forms and other documents with the SEC since
the filing of PSS's Registration Statement on Form S-1 for the initial public
offering of Parent Common Stock on December 21, 1995 (the "PSS SEC Documents").
As of their respective dates, the PSS SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933 (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such PSS SEC Documents, and none of
the PSS SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be state therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of PSS
included in the PSS SEC Documents comply
13
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved and fairly present the
consolidated financial position of PSS and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal and recurring year-end audit adjustments not material in scope or
amount). Except as set forth in the PSS Filed SEC Documents (defined in Section
2.2(f)), neither PSS nor any of its subsidiaries has any material liabilities or
obligations required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of PSS and its
consolidated subsidiaries or in the notes thereto and which, singly or in the
aggregate, could reasonably be expected to have a PSS Adverse Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
PSS SEC Documents filed and publicly available prior to the date of this
Agreement (the "PSS Filed SEC Documents"), since the date of the most recent
financial statements contained in the PSS Filed SEC Documents, there has not
been any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, customer contracts or other customer
arrangements, management personnel, ▇▇▇▇▇▇▇▇, revenues, earnings or business of
PSS and its subsidiaries taken as a whole.
ARTICLE III
Additional Agreements
---------------------
SECTION 3.1. Expenses. Except as provided in this Section 3.1, each
--------
party hereto shall bear its own costs and expenses incurred in connection with
the transactions contemplated hereby. Sellers shall pay any fees or expenses due
to ▇. ▇▇▇▇▇▇▇ & Associates, Inc. in connection with the transactions
contemplated by this Agreement.
SECTION 3.2. Conduct of Business. (a) From the date hereof until the
-------------------
Closing Date, except as otherwise consented to by PSS in writing, Sellers shall
cause each MARS Company to operate its business only in the ordinary course of
business consistent with past practice.
(b) Without limiting the generality of the foregoing, Sellers shall
prohibit the MARS Companies, without the prior written consent of PSS, directly
or indirectly, to cause or permit any state of affairs, action or omission
described in clauses (i) through (xv) of Section 2.1(f).
SECTION 3.3. Further Assurances. 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 as expeditiously as
practicable and to ensure that the conditions set forth in Article IV hereof are
satisfied, insofar as such matters are within the control of any of them. In
case at any time after the Closing Date, any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties to
this Agreement shall take or cause to be taken all such necessary action,
including the execution and delivery of such further instruments and documents,
as may be reasonably requested by any party for such purposes or otherwise to
complete or perfect the transactions contemplated hereby.
SECTION 3.4. No Shopping. From the date hereof until the earlier of
-----------
(i) the Closing Date and (ii) the date this Agreement is terminated in
accordance with Section 6.2, no Seller shall, and no Seller shall permit any
MARS Company or any partner, director, officer or agent of any MARS Company to,
directly or indirectly, solicit or initiate, enter into or conduct, discussions
concerning, or exchange information (including by way of furnishing information
concerning any MARS Company or its business) or enter into any negotiations
concerning, or respond to any
14
inquiries or solicit, receive, entertain or agree to any proposals for, the
acquisition of the assets of, or any substantial part thereof, or a merger
involving, any MARS Company or the transfer of all or a substantial part of the
capital stock of any MARS Company to any person other than PSS or one of its
affiliates. In addition, during such time period, no Seller shall authorize,
direct or knowingly permit any employee or agent of any MARS Company to do any
of the foregoing and Sellers shall notify PSS of the identity of any person who
approaches any Seller or any MARS Company with respect to any of the foregoing.
SECTION 3.5. Access and Information. From the date hereof until the
----------------------
first to occur of the Closing Date and the termination of this Agreement,
Sellers shall cause the MARS Companies to permit PSS and its representatives to
make such investigation of the business, operations and properties of the MARS
Companies as PSS deems necessary or desirable in connection with the
transactions contemplated hereby. Such investigation shall include access to the
respective directors, officers, employees, agents and representatives (including
legal counsel and independent accountants) of each MARS Company and the
properties, books, records and commitments of each MARS Company. Sellers shall
furnish PSS and its representatives with such financial, operating and other
data and information, and copies of documents with respect to the MARS Companies
or any of the transactions contemplated hereby, as PSS shall from time to time
request. Such access and investigation shall be made upon reasonable notice and
at reasonable places and times. Such access and information shall not in any way
affect or diminish any of the representations or warranties hereunder. Without
limiting the foregoing, during such period, Sellers shall keep PSS informed as
to the business and operations of each MARS Company and shall consult with PSS
with respect thereto as appropriate.
SECTION 3.6. Confidentiality; Non-Competition. (a) Until Closing, PSS,
--------------------------------
PSS Sub and Sellers each agree that all financial or other information about
PSS, the MARS Companies or any Seller, or other information of a confidential or
proprietary nature, disclosed to the other at any time in connection with the
proposed transaction shall be kept confidential by the party receiving such
information and shall not be disclosed to any person or used by the receiving
party (other than to its agents or employees or in connection with the
transactions contemplated by this Agreement) except: (i) with the prior written
consent of the disclosing party; (ii) as may be required by applicable law,
court process or by obligations pursuant to any listing agreement with any
national securities exchange (including the Nasdaq National Market); (iii) such
information which may have been acquired or obtained by such party (other than
through disclosure by the other party in connection with the transaction
contemplated by this Agreement); or (iv) such information which is or becomes
generally available to the public other than as a result of a violation of this
provision. Sellers shall be bound by the terms of this paragraph (a) for a
period of five years after Closing.
(b) Each Seller hereby acknowledges and recognizes such party's
possession of confidential or proprietary information and the highly competitive
nature of the business of the MARS Companies and accordingly agrees that, in
consideration of PSS and PSS Sub entering into this Agreement and the other
transactions contemplated hereby and the premises contained herein, such Seller
will not, from and after the date of the Closing for a period of (x) in the case
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the later of (1) two years after the date of the Closing and
(2) one year after the date of termination, if any, of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇
employment with the MARS Companies or one of its affiliates and (y) in the case
of the other Sellers, five years after the date of the Closing, for any reason
whatsoever, either individually or as an officer, director, stockholder,
partner, agent or principal of another business firm, (i) directly or indirectly
engage in the United States in any business which is competitive with the
businesses conducted by the MARS Companies (including seeking or accepting
employment with a client of any MARS Company or any of its affiliates) (a
"Competitive Business"), (ii) assist others in engaging in any Competitive
Business in the manner described in the foregoing clause (i), (iii) solicit,
professionally contact or provide medical billing, accounts receivable,
accounting, collection agency, financial or consulting services to any Client
Account or (iv) induce employees of the MARS Companies, PSS or any affiliate of
PSS to terminate their employment with the MARS Companies, PSS
15
or such affiliate, as the case may be, or hire any employees of the MARS
Companies, PSS or any other affiliate of PSS to work with any Seller or any
company or business affiliated with any Seller. Notwithstanding clauses (i),
(ii) and (iii) of the immediately preceding sentence, (x) any Seller may
participate in, operate or expand, any business in which such Seller has an
interest, including a software development business, provided that such business
does not directly or indirectly compete with the businesses of any MARS Company,
PSS or any of their respective affiliates, in each case as conducted as of the
time of the Closing or as of the time that such Seller proposes to enter into
such business, (y) any Seller engaged in the provision of legal services may
provide legal services to a Client Account not involving collection or accounts
receivable legal representation and (z) if (i) the Employment Period (defined in
the Diluca Employment Agreement (defined below in Section 4.1(i)) is terminated
by C-Care without Cause (defined in the Diluca Employment Agreement), (ii) the
Employment Period is terminated by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ for Good Reason (defined in
the Diluca Employment Agreement) or (iii) the Employment Period expires pursuant
to Section 1 of the Diluca Employment Agreement, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ may be employed
by a Client Account that has not generated revenue to the MARS Companies of more
than $100,000 in the aggregate during the twelve calendar months immediately
preceding the date of determination.
For purposes of this Agreement, "Client Account" means (i) all medical
clients and/or medical accounts serviced by the any MARS Company, any of its
affiliates, any Seller (if employed by any MARS Company) or any MARS Company's
or its affiliates' other employees during the period of time Sellers have any
obligations under this Section 3.6(b), including all medical clients and/or
medical accounts (if any) acquired by any Seller due to such Seller's efforts
during the term of such Seller's employment (if any) with any MARS Company or
any of its affiliates and (ii) all medical-related businesses or individuals who
have been contacted by any Seller or any MARS Company or any of its affiliates
with a view toward having such business or entity retain any MARS Company or any
of its affiliates to provide medical billing, accounts receivable, accounting,
collection agency, financial or consulting services or are known to any Seller
as a result of his employment (if any) with any MARS Company.
(c) Promptly after the Closing, those Sellers who are attorneys with,
or who have any pecuniary interest in, the law firm of Mattleman, Greenberg,
Shmerelson, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ ("MGSW&M") shall use their best efforts, in
compliance with the applicable rules of professional conduct with respect to the
practice of law, to cause MGSW&M to cease providing, or offering to provide,
medical billing, accounts receivable management, accounting or collection
services and shall use their reasonable best efforts to cause any and all Client
Accounts that had previously been receiving any such services from MGSW&M to
thereafter receive such services from the MARS Companies.
(d) In the event of a breach or threatened breach by any party of the
provisions of this Section 3.6, the non-breaching party shall be entitled to an
injunction restraining the breaching party from such breach. Nothing contained
in this Section 3.6(d) or elsewhere in this Agreement shall be construed as
prohibiting the non-breaching party from pursuing any other remedies available
at law or equity for such breach or threatened breach of this Agreement nor
limiting the amount of damages recoverable from the breaching party in the event
of a breach or threatened breach by any party of the provisions of this Section.
Without limiting the generality of the foregoing, each Seller acknowledges that,
in the event of a breach or threatened breach by such Seller of any of the
provisions of Section 3.6(b), PSS's and PSS Sub's damages may exceed the amount
paid to such Seller in consideration of his covenants set forth in such Section
3.6(b). Nothing contained in this Section 3.6 shall entitle PSS or PSS Sub to
seek an injunction or otherwise pursue other remedies available at law or in
equity from any Seller in connection with a breach or threatened breach of the
provisions of Section 3.6(b) other than such Seller or Sellers alleged to have
breached or threatened to breach such provisions.
SECTION 3.7. Releases; Prior Compensation. Each Seller agrees and
----------------------------
acknowledges that he has been paid in full for all services rendered to the MARS
Companies prior to the date hereof and has no outstanding claims against any
MARS Company for any amounts arising because
16
of such employment or otherwise. Sellers hereby release each MARS Company and
all of such MARS Company's affiliates from all rights any Seller may have to
acquire any securities of any MARS Company and all actions, suits, debts,
promises, agreements, damages, demands or claims of any kind whatsoever arising
from any event or action prior to the date hereof that any Seller had, has or
may in the future have against any MARS Company, except for the matters arising
under this Agreement or related to the transactions contemplated hereby.
SECTION 3.8. Nasdaq. PSS shall use its reasonable best efforts to
------
have the PSS Common Stock to be issued to Sellers pursuant to this Agreement
approved for listing on the National Association of Securities Dealers, Inc.
Automated Quotations System (the "Nasdaq National Market"), subject to official
notice of issuance.
SECTION 3.9. Public Announcements. PSS, on the one hand, and Sellers,
--------------------
on the other hand, will consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange or the Nasdaq National Market.
SECTION 3.10. Tax Matters. (a) (i) PSS (to the extent necessary),
-----------
PSS Sub and each Seller shall join in making timely and irrevocable elections
under Section 338(h)(10) of the Code and, if permissible, similar elections
under any applicable state or local income tax laws, with respect to each of C-
Care and HOPE. In such event, each Seller, PSS and PSS Sub shall report the
transaction consistent with such elections under Section 338(h)(10) of the Code
or any similar state or local tax provision (the "Elections") and shall take no
position contrary thereto unless and to the extent required to do so pursuant to
a determination (as defined in Section 1313(a) of the Code or any similar state
or local tax provision). Each Seller agrees that he shall pay, and indemnify,
each of C-Care and HOPE for any federal income taxes resulting from the
Elections (net of the present value of any future tax benefits, as determined
using an assumed discount rate equal to the "Federal mid-term rate" (as defined
in Section 1274(d) of the Code) in effect on the Closing Date); but only to the
extent such federal income taxes directly result from a breach of the
representation and warranty made by such Seller under the first sentence of
Section 2.1(r) of this Agreement. Except as provided in the immediately
preceding sentence of this subparagraph (a)(i) of Section 3.10, no Seller shall
have any liability for any federal, state, or local income taxes of C-Care or
HOPE attributable to the Elections.
(ii) Each Seller, PSS and PSS Sub shall execute at the Closing any and
all forms necessary to effectuate the Elections (including IRS Form 8023-A and
any similar forms under state and local income tax laws that permit an Election
similar to that of Section 338(h)(10) of the Code (the "Section 338 Forms")).
Each Seller, PSS and PSS Sub shall cause the Section 338 Forms to be duly
executed by an authorized person and shall duly and timely file the Section 338
Forms in accordance with applicable tax laws and the terms of this Agreement.
(iii) Each Seller, PSS and PSS Sub agrees to allocate the Aggregate
Deemed Sale Price (as defined under applicable Treasury Regulations) of the
assets of each of C-Care and HOPE as set forth in a schedule that will be
generated with the assistance of Deloitte & Touche, PSS' accountants, within 60
days after the Closing Date, in accordance with the guidelines of the IRS, which
shall reflect an allocation agreed to by the parties. Each Seller, PSS and PSS
Sub will reflect such allocation in all applicable tax returns filed by any of
them, including but not limited to the Section 338 Forms. Each Seller, PSS and
PSS Sub will not take a position before any taxing authority or otherwise
(including in any tax return) inconsistent with such allocation unless and to
the extent required to do so pursuant to a determination (as defined in Section
1313(a) of the Code or any similar state or local law).
17
(b) Sellers shall be responsible for all transfer, excise, stamp,
sales, use, recording or similar taxes or fees arising out of the sale,
transfer, conveyance or assignment of the MARS Shares by Sellers and the
transactions contemplated hereby. Seller shall make any required filing under
applicable law.
(c) (i) Sellers shall be liable for and shall indemnify PSS and the
MARS Companies for taxes of any MARS Company for any taxable years or periods
that ends on or before the Closing Date and, with respect to any taxable years
or periods beginning before and ending after the Closing, the portion of such
taxable years ending on and including the Closing Date.
(ii) PSS and each MARS Company shall be liable for and shall indemnify
Sellers for taxes of the MARS Companies for any taxable years or periods that
begins after the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of the taxable years
beginning on the day after the Closing Date.
(iii) For purposes of subparagraphs (c)(i) and (ii) above, whenever
it is necessary to determine the liability for taxes of any MARS Company for a
portion of a taxable year or period that begins before and ends after the
Closing Date, the determination of such taxes for the portion of the year or
period ending on, and the portion of the year or period beginning after, the
Closing Date, shall be determined by assuming that such MARS Company had a
taxable year or period which ended at the close of business on the Closing Date,
except that exemptions, allowances or deductions that are calculated on an
annual basis, such as the deduction for depreciation, shall be apportioned based
on the number of days in the year elapsed to and including the Closing Date.
(d) Any payment by Sellers or PSS under this Section 3.10 will be
treated for tax purposes as an adjustment to the MARS Purchase Price.
(e) Sellers shall cause the MARS Companies to file when due all tax
returns that are required to be filed by the MARS Companies for taxable years or
periods ending on or before the Closing Date, and PSS shall file or cause to be
filed when due all other tax returns that are required to be filed by or with
respect to the MARS Companies.
(f) After the Closing Date, each Seller and PSS shall:
(i) assist in all reasonable respects (and cause their respective
affiliates to assist) the other party in preparing any tax returns or reports
which such other party is responsible for preparing and filing in accordance
with this Section 3.10;
(ii) cooperate (and cause their respective affiliates to cooperate) in
all reasonable respects in preparing for any audits of, or disputes with taxing
authorities regarding, and tax returns of the MARS Companies;
(iii) make available to the other (and cause their respective
affiliates to make available) as reasonably requested all information, records
and documents relating to taxes of the MARS Companies;
(iv) provide (and cause their respective affiliates to provide) timely
notice to the other in writing of any pending or threatened tax audit or
assessments of any of the MARS Companies for taxable periods for which the other
may have a liability under this Section 3.10; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any tax audit or information request
with respect to any such taxable period.
18
(g) (i) PSS shall notify Sellers in writing upon receipt by PSS or any
of the MARS Companies of notice of any pending or threatened Federal, state,
local or foreign tax audits or assessments which may materially affect the tax
liabilities of the MARS Companies for which Sellers would be required to
indemnify PSS and the MARS Companies.
(ii) Sellers shall notify PSS in writing upon receipt by Sellers of
notice of any pending or threatened federal, state, local or foreign tax audits
or assessments which may materially affect the tax liabilities of the MARS
Companies for which PSS and the MARS Companies would be required to indemnify
Sellers.
SECTION 3.11. Obligations of PSS Sub. PSS will take all action
----------------------
necessary to cause PSS Sub to perform its obligations under this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
SECTION 4.1. Conditions to Obligations of PSS and PSS Sub. The
--------------------------------------------
obligations of PSS and PSS Sub to perform this Agreement are subject to the
satisfaction or waiver of the following conditions unless waived by PSS or PSS
Sub:
(a) Authorization. All actions necessary to authorize the execution,
-------------
delivery and performance of this Agreement and the other agreements and
documents to which any Seller is a party as contemplated by this Agreement and
the consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken by Sellers and Sellers shall have full power and
authority to enter into and deliver such agreements and to consummate the
transactions contemplated hereby and thereby.
(b) Representations and Warranties. The representations and warranties
------------------------------
of Sellers contained herein shall be true and correct in all material respects
as of the date hereof and as of the Closing Date as if made on and as of the
Closing Date, and Sellers shall have performed and complied with all covenants
and agreements required to be performed or complied with on or prior to the
Closing Date. As of the Closing Date, there shall have been no material adverse
change in the condition (financial or otherwise), assets, liabilities,
operations, customer contracts or other customer arrangements, management
personnel, ▇▇▇▇▇▇▇▇, revenues, earnings, business or prospects of any MARS
Company.
(c) Consents, Amendments and Terminations. PSS shall have received
-------------------------------------
duly executed and delivered copies of all waivers, consents, terminations and
approvals contemplated by Sections 2.1(c) and 2.1(i) and Section 2.1(c) of the
Disclosure Schedule, all in form and substance reasonably satisfactory to PSS.
(d) Customers; Customer Contracts. At closing, PSS shall have received
-----------------------------
a certificate of the chief operating officer of each MARS Company, identifying
(i) any customers listed on Section 2.1(n) of the Disclosure Schedule as
customers of such MARS Company as of the month end prior to the date of this
Agreement (the "Month End") who are not customers of such MARS Company as of the
Closing Date and (ii) any customers of such MARS Company as of the Closing Date
not listed on Section 2.1(n) of the Disclosure Schedule as customers of such
MARS Company as of the Month End. The list of customers as of the Month End as
set forth in Section 2.1(n) of the Disclosure Schedule, as modified by the
certificate delivered pursuant to this Section, shall be referred to herein as
the "Closing Date Customer List".
(e) Certificates. PSS shall have received a certificate of each
------------
Seller, in substantially the form of Exhibit A.
19
(f) Opinion of Counsel. PSS shall have received the opinion dated the
------------------
Closing Date of ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, counsel to Sellers and the
MARS Companies, in substantially the form of Exhibit B.
(g) Financial Statements. PSS shall have received a combined balance
--------------------
sheet of the MARS Companies as of the Closing Date and a related statement of
operations for the 11-month period ending at the most recent month end prior to
the Closing Date (the "Closing Date Financial Statement") certified by the chief
operating officer of each MARS Company. At the Closing Date, the net current
assets of the MARS Companies shall not be less than (i) the net current assets
of the MARS Companies set forth in the December 31, 1995 combined balance sheet
included in Schedule 2.1(e) or (ii) the amount necessary to operate the business
of the MARS Companies consistent with past practice, and the MARS Company shall
have no outstanding indebtedness.
(h) Due Diligence. PSS and its representatives shall have completed a
-------------
due diligence review of the condition (financial or otherwise), assets,
liabilities, operations, customer contracts or other customer arrangements,
▇▇▇▇▇▇▇▇, revenues, earnings, business and prospects of, and any other matters
relating to, the MARS Companies and the Sellers, and the results of such due
diligence shall be satisfactory to PSS in its sole discretion.
(i) Employment Agreements. Each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
---------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have duly executed and
delivered to PSS an Employment Agreement, in substantially the form of Exhibits
C-1 (the "▇▇▇▇▇▇▇▇ Employment Agreement"), C-2 (the "▇▇▇▇▇▇▇▇▇▇ Employment
Agreement"), C-3 (the "Slipakoff Employment Agreement" and C-4 (the "Diluca
Employment Agreement" and, together with the ▇▇▇▇▇▇▇▇ Employment Agreement, the
▇▇▇▇▇▇▇▇▇▇ Employment Agreement and the Slipakoff Employment Agreement, the
"Employment Agreements"), respectively.
(j) Investment Letter. Each Seller shall have duly executed and
-----------------
delivered to PSS the Investment Letter, in substantially the form of Exhibit D.
(k) Corporate Directors and Officers. The composition of the
--------------------------------
directors and officers of each MARS Company shall be as requested by PSS,
effective as of the Closing Date.
(l) Share Certificates and Corporation Records. PSS shall have
------------------------------------------
received certificates representing all of the MARS Shares, together with stock
powers duly endorsed for transfer to PSS Sub, and PSS shall have received the
complete stock ledgers, minute books and similar corporate records of each MARS
Company.
(m) Letter Agreements. Each Seller that is a party thereto shall have
-----------------
duly executed and delivered to PSS and PSS Sub the Letter Agreements, in
substantially the form of Exhibit E (the "Letter Agreements").
(n) Other Documents. PSS and PSS Sub shall have received such other
---------------
documents, certificates or instruments as they may reasonably request.
SECTION 4.2. Conditions of Obligations of Sellers. The obligations of
------------------------------------
Sellers to perform this Agreement are subject to the satisfaction of the
following conditions unless waived by Sellers:
(a) Authorization. All actions necessary to authorize the execution,
-------------
delivery and performance of this Agreement and the other agreements and
documents to which PSS or PSS Sub is a party as contemplated by this Agreement
and the consummation of the transactions contemplated hereby and thereby shall
have been duly and validly taken by PSS and PSS
20
Sub, as the case may be, and PSS and PSS Sub shall have full power and authority
to enter into and deliver such agreements and to consummate transactions
contemplated hereby and thereby, as applicable.
(b) Representations and Warranties. The representations and warranties
------------------------------
of PSS and PSS Sub contained herein shall be true and correct in all material
respects as of the date hereof and as of the Closing Date as if made on and as
of the Closing Date, and PSS and PSS Sub shall have performed and complied with
all covenants and agreements required to be performed or complied with on or
prior to the Closing Date.
(c) Registration Rights Agreement. PSS shall PSS shall have duly
-----------------------------
executed and delivered to Sellers the Registration Rights Agreement, in
substantially the form of Exhibit F (the "Registration Rights Agreement").
(d) Employment Agreements. C-Care have duly executed and delivered the
---------------------
▇▇▇▇▇▇▇▇ Employment Agreement, the ▇▇▇▇▇▇▇▇▇▇ Employment Agreement, the
Slipakoff Employment Agreement and the Diluca Employment Agreement, in
substantially the form of Exhibits C-1, C-2, C-3 and C-4, respectively.
(e) Certificate. Sellers shall have received certificate of the
-----------
President or a Vice President of PSS and PSS Sub confirming the matters set
forth in Section 4.2(b) in form and substance reasonably satisfactory to
Sellers.
(f) Opinion of Counsel. Sellers shall have received the opinion dated
------------------
the Closing Date of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, counsel to PSS and PSS Sub, in
substantially the form of Exhibit G.
(g) MARS Purchase Price. Sellers shall have received, pursuant to
-------------------
Section 1.2, the MARS Purchase Price.
(h) Other Documents. Sellers shall have received such other documents,
---------------
certificates or instruments as it may reasonably request.
ARTICLE V{tc "500"}
INDEMNITY
---------
SECTION 5.1. Indemnification. (a) Sellers severally, but not jointly,
---------------
in proportion to the portion of the MARS Purchase Price paid or to be paid to
them, indemnify and hold harmless PSS, PSS Sub and their respective affiliates,
directors, officers, employees and other agents and representatives from and
against any and all liabilities, judgments, claims, settlements, losses,
damages, fees, liens, taxes, penalties, obligations and expenses (collectively,
"Losses") incurred or suffered by any such person arising from, by reason of or
in connection with:
(i) any misrepresentation or breach of any representation,
warranty or agreement of Sellers as a group contained in this Agreement or
in any certificate or other document delivered on behalf of any MARS
Company by any Seller hereunder;
(ii) the conduct of the business or other operations of any MARS
Company before or on the Closing Date or any condition existing relating to
product or environmental liability prior to the Closing Date;
(iii) the failure of Sellers as a group to comply with any
federal, state or local tax laws applicable to the transactions
contemplated by this Agreement; and
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(iv) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters referred
to in clauses (i) through (iii) of this Section 5.1(a).
(b) Each Seller individually indemnifies and holds harmless PSS, PSS
Sub and their respective affiliates, directors, officers, employees and other
agents and representatives from and against Losses incurred or suffered by any
such person arising from, by reason of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty or agreement of such Seller contained in this Agreement or in any
certificate or other document delivered by such Seller hereunder;
(ii) the non-fulfillment by such Seller of any agreement made by
such Seller in this Agreement;
(iii) the failure of such Seller to comply with any federal,
state or local tax laws applicable to the transactions contemplated by this
Agreement; and
(iv) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters referred
to in clauses (i) through (iii) of this Section 5.1(b).
(c) PSS and PSS Sub jointly and severally indemnify and hold harmless
Sellers, and their respective agents and representatives, from and against any
and all Losses incurred or suffered by any such person arising from, by reason
of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty or agreement of PSS or PSS Sub contained in this Agreement or in
any certificate or other document delivered by PSS or PSS Sub hereunder;
(ii) to the extent that any such Loss is incurred or suffered by
such Seller solely in such Seller's capacity as a former stockholder of one
of the MARS Companies, the conduct of the business or other operations of
any MARS Company after the Closing Date or any condition arising after the
Closing Date relating to product or environmental liability;
(iii) the non-fulfillment by PSS or PSS Sub of any agreement
made by it in this Agreement; and
(iv) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters referred
to in clauses (i) and (iii) of this Section 5.1(c).
(d) In case any claim or litigation which might give rise to any
obligation of a party under the indemnity and reimbursement provisions of this
Agreement (each an "Indemnifying Party") shall come to the attention of the
party seeking indemnification hereunder (the "Indemnified Party"), the
Indemnified Party shall notify in writing promptly the Indemnifying Party of the
existence and amount thereof. Failure to give such notice shall not prejudice
the rights of the Indemnified Party, except to the extent that the Indemnifying
Party shall have been materially prejudiced by such failure. The Indemnifying
Party shall be entitled to participate in and, if (i) in the judgment of the
Indemnified Party such claim can properly be resolved by money damages alone and
the Indemnifying Party has the financial resources to pay such damages and (ii)
the Indemnifying Party admits that this indemnity fully covers the claim or
litigation, the Indemnifying Party shall be entitled to direct the defense of
any claim at its expense, but such defense shall be conducted by legal counsel
reasonably satisfactory to the Indemnified Party.
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(e) PSS and PSS Sub may, and may direct the MARS Companies to, set off
against any amounts due to any Seller (including amounts due such Seller under
any employment agreement with such Seller), the amount of any indemnity to which
PSS or PSS Sub becomes entitled under this Agreement; provided that PSS or PSS
Sub may exercise this right of setoff only following an adjudication as to the
liability of Sellers. The obligations of a Seller under this Section 5.1 for
any claim to indemnity shall be reduced by the amount (if any) that PSS or PSS
Sub so sets off for such claim.
(f) No indemnity shall be payable under subparagraph (a)(iii) or
(b)(iii) of this Section 5.1 with respect to Losses that are indemnifiable under
Section 3.10.
SECTION 5.2. Limitations. (a) The indemnification and reimbursement
-----------
obligations (other than for claims relating to or arising out of Section 2.1(b),
2.1(r), 2.1(u), 2.2(b), 3.1, 3.6, 3.7, 3.10, 3.11, 5.1(a)(iii) or 5.1(b)(iii))
hereunder shall expire on the third anniversary of the Closing Date (the
"Expiration Date"), except as to any claims for, or any claims that may result
in, any liability, judgment, claim, settlement, loss, damage, fee, lien, tax,
penalty, obligation or expense for which indemnity may be sought hereunder of
which the Indemnifying Party has received written notice from the Indemnified
Party on or before the Expiration Date. The total indemnification and
reimbursement obligations (other than for claims relating to or arising out of
Section 2.1(b), 2.1(r), 2.1(u), 2.2(b), 3.1, 3.6, 3.7, 3.10, 5.1(a)(iii) or
5.1(b)(iii)) of the Sellers to PSS and PSS Sub pursuant to this Article V shall
not exceed, in the aggregate, $7,000,000. The total indemnification and
reimbursement obligations (other than for claims relating to or arising out of
Section 3.1, 3.6, 3.10 or 3.11) of PSS and PSS Sub to Sellers pursuant to this
Article V shall not exceed, in the aggregate, $7,000,000.
(b) Sellers shall only be liable for Losses pursuant to Section
5.1(a) or (b) if such Losses exceed, in the aggregate, $150,000 in which case
Sellers shall be liable, subject to paragraph (a) of this Section 5.2, for any
and all Losses pursuant to Section 5.1(a) or (b). PSS and PSS Sub shall only be
liable for Losses pursuant to Section 5.1(c) if such Losses exceed, in the
aggregate, $150,000 in which case PSS and PSS Sub shall be liable, subject to
paragraph (a) of this Section 5.2, for any and all Losses pursuant to Section
5.1(b).
SECTION 5.3. Exclusive Remedies. After the Closing, the remedies
------------------
contained in this Article V shall be the exclusive remedies available to any
party under this Agreement, except in connection with allegations of fraud;
provided that the foregoing shall not limit the parties' respective rights to
seek specific performance or other injunctive relief pursuant to the express
provisions of this Agreement.
ARTICLE VI
Miscellaneous
-------------
SECTION 6.1. Entire Agreement. This Agreement and the schedules and
----------------
exhibits hereto contain the entire agreement among the parties with respect to
the transactions contemplated by this Agreement and supersede all prior
agreements or understandings among the parties.
SECTION 6.2. Termination. (a) This Agreement shall terminate on the
-----------
earlier to occur of any of the following events:
(i) the mutual written agreement of PSS and Sellers;
(ii) by written notice of PSS or a designated representative of
Sellers to the other parties hereto, if the Closing shall not have occurred
prior to the close of business on December 31, 1996;
23
(iii) by written notice of PSS to Sellers, if any Seller shall have
materially breached any of its representations, warranties or agreements
contained herein; or
(iv) by written notice of any Seller to PSS, if either PSS or PSS Sub
shall have materially breached any of its representations, warranties or
agreements contained herein.
(b) Nothing in this Section shall relieve any party of any liability
for a breach of this Agreement prior to the termination hereof. Except as
aforesaid, upon the termination of this Agreement, all rights and obligations of
the parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.6(a) and 3.9 and Article V.
SECTION 6.3. Descriptive Headings; Certain Interpretations. (a)
---------------------------------------------
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party will be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement. Whenever a representation, warranty or other statement is made to
the knowledge of the Sellers, it shall mean the knowledge (as defined in the
immediately preceding sentence) of any Seller.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Exhibit or Schedule is to the Article, Section, Exhibit or
Schedule of this Agreement.
SECTION 6.4. Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by telecopy (with confirmation of receipt) or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to PSS or PSS Sub, to:
Physician Support Systems, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇-▇▇▇▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇. ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: 717-653-0567
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
24
If to Sellers to the address or telecopy number of Sellers set forth on the
signature pages of this Agreement, with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section or on
the fifth business day following the date on which such communication is posted,
whichever occurs first.
SECTION 6.5. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 6.6. Survival. Except as set forth in 5.2, all
--------
representations and warranties, agreements and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith (unless
otherwise expressly provided herein or therein) shall survive the Closing and
shall remain in full force and effect until the Expiration Date; provided that
the representations and warranties in Section 2.1(b), (r), and (u) and Section
2.2(b) and the agreements in Sections 3.1, 3.3, 3.6, 3.7, 3.10 and 3.11 and
Article V shall not expire on the Expiration Date and shall survive, as set
forth therein, or, if not set forth therein, shall survive forever or until the
expiration of the applicable statute of limitations, if earlier.
SECTION 6.7. Benefits of Agreement. All of the terms and provisions
---------------------
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is for the
sole benefit of the parties hereto and not for the benefit of any third party.
SECTION 6.8. Amendments and Waivers. No modification, amendment or
----------------------
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
SECTION 6.9. Assignment. This Agreement and the rights and
----------
obligations hereunder shall not be assignable or transferable by any party
hereto without the prior written consent of the other parties hereto. Any
instrument purporting to make such assignment shall be void.
SECTION 6.10. Enforceability. It is the desire and intent of the
--------------
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
25
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
PHYSICIAN SUPPORT SYSTEMS, INC. PSS C-CARE, INC.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
By:________________________________ By:_____________________________
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Title: Executive Vice President Title: Treasurer and Assistant Secretary
SELLERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
__________________________________ _______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ - ▇▇▇ ▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
__________________________________ _______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇ Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇ Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
__________________________________ _______________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇ Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
__________________________________ _______________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Address: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇ Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
26
