PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as of
the 15th day of June, 2001, by and among HealthStar Corp., a Delaware
corporation ("HealthStar"), BS Acquisition Corp., a New York corporation which
is a wholly owned subsidiary of HealthStar ("Merger Sub") (HealthStar and Merger
Sub collectively, the "HealthStar Parties"), BlueStone Capital Corp., a New York
corporation ("BlueStone"), which is the successor in interest to Whale
Securities Co., L.P. (the "Predecessor"), and Xxxxxxx X. Xxxxxxx ("Xxxxxxx") and
Xxxxxxx X. Xxxx ("Xxxx") (each of Xxxxxxx and Gohd are sometimes referred to
individually as a "Principal Shareholder" and collectively as the "Principal
Shareholders"). Capitalized terms used in this Agreement have the meanings
ascribed to them in Annex 1 hereto.
RECITALS
WHEREAS, BlueStone is a full service broker dealer which is a member of the
National Association of Securities Dealers, Inc.; and
WHEREAS, a majority of the BlueStone Shares are owned by the Principal
Shareholders; and
WHEREAS, the HealthStar Parties, BlueStone and the Principal Shareholders
are desirous of effecting a merger, all upon the terms and conditions set forth
herein.
NOW, THEREFORE, the HealthStar Parties, BlueStone and the Principal
Shareholders, intending to be legally bound, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby represent, warrant, covenant, and agree as follows:
SECTION 1:
THE MERGER
1.1. Merger. Subject to the terms and conditions of this Agreement, Merger
Sub shall be merged with and into BlueStone in a transaction intended to qualify
as a tax free reorganization in accordance with Section 368(a)(2)(E) of the
Code.
SECTION 2:
TERMS OF MERGER
2.1. Terms of Merger; Effective Time. The terms of merger (the "Merger")
are:
(a) Merger Sub shall be merged with and into BlueStone in accordance
with the statutory provisions of New York law.
(b) BlueStone shall be the surviving corporation, and the corporate
identity, existence, purposes, powers, franchises, rights, and immunities
of BlueStone shall continue unaffected and unimpaired by the Merger. The
Certificate of Incorporation and By-Laws, each as heretofore amended, of
BlueStone shall remain in effect and unaltered as the Certificate of
Incorporation and By-Laws of the surviving corporation, and the duly
qualified and acting
directors and officers of BlueStone immediately prior to the time the
Merger becomes effective, shall be the directors and officers of the
surviving corporation. The corporate identity, existence, purposes, powers,
franchises, rights, liabilities, obligations and immunities of Merger Sub
shall be merged into BlueStone, and BlueStone shall be fully vested
therewith.
(c) Simultaneously with the Closing, the Merger shall be effected by
filing with the New York Secretary of State's Office ("NY SOS") the
Certificate of Merger and the time at which the Certificate of Merger is
accepted by NY SOS shall be the "Effective Time" of the Merger. HealthStar
shall cause the Certificate of Merger to be so filed and recorded on the
Closing Date.
(d) The separate existence of Merger Sub, except insofar as
specifically otherwise provided by law, shall cease at the Effective Time,
whereupon BlueStone and Merger Sub shall become a single corporation.
(e) At the Effective Time, without any action by the holder thereof,
(i) all of the issued and outstanding shares of any designation of Merger
Sub shall be deemed cancelled and void, and shall be converted into and
shall represent the right to receive one share of the surviving
corporation, and (ii) as consideration for the Merger, the shares of
capital stock of BlueStone issued and outstanding immediately prior to the
Effective Time shall by virtue of the Merger be deemed cancelled and void
and converted into and, when added to the shares to be issued pursuant to
Section 3.20(b), shall represent the right to receive 215,000 shares of
Class A Convertible Preferred Stock of HealthStar (the "Preferred Stock"),
the rights and designation of which are attached hereto as Exhibit 2.1
(which rights shall include (x) that each share of the Preferred Stock
shall be convertible automatically, upon the amendment of the Certificate
of Incorporation of HealthStar to provide sufficient authorized shares of
Common Stock therefor, into One Hundred (100) shares of Common Stock and
(y) the right to vote with Common Stock on an as converted basis) (the
shares of Preferred Stock to be so issued and the shares of Common Stock
into which they are converted to be collectively referred to as the
"Consideration Shares"). Based on the representations and warranties of the
Principal Shareholders, the number of Consideration Shares to be issued to
each shareholder of BlueStone is as set forth in Schedule 3.19 hereto. The
numbers of shares set forth herein shall be adjusted for stock dividends,
stock splits, reverse stock splits or similar events. HealthStar shall not
be obligated to register for resale any Consideration Shares.
Notwithstanding anything contained in this Section 2.1(e), if the private
placement of shares of Common Stock of BlueStone described in Schedule 3.19
hereto is consummated, the Consideration Shares shall be increased by
.06458192 shares of Preferred Stock for each share of Common Stock of
BlueStone issued in such private placement.
2.2. Resignations. At the Closing, HealthStar will receive the
resignations, effective as of the Effective Time, of each director of HealthStar
other than Zirk Xxxxxxxxxxx and Xxxxxx Xxxxx. As of the Effective Time, Zirk
Xxxxxxxxxxx and Xxxxxx Xxxxx, as the remaining directors, shall elect the
following Persons as directors of HealthStar to fill the vacancies created by
the foregoing resignations, each to serve in the class set forth opposite their
respective names below and to hold office until the next election of the class
for which such directors shall have been chosen and until their successors shall
be elected and qualified:
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Class whose term expires at the
Name annual meeting of stockholders in:
---- ----------------------------------
Xxxxxxx X. Xxxxxxx 2003
Xxxxxxx X. Xxxx 2003
Xxxxxx XxXxxxxx 2002
(Nominee to be designated by
Messrs. Xxxxxxx, Xxxx and XxXxxxxx) 2001
(Nominee to be designated by
Messrs. Xxxxxxxxxxx and Xxxxx) 2001
provided, however, that the to-be-designated nominees mentioned above shall not
be disqualified from serving on the Board of Directors under the rules of the
NASD or render HealthStar ineligible for listing on the Nasdaq Stock Market or
any National Securities Exchange.
2.3. Closing. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place within one (1) business day after the receipt
of such approvals by the NASD of the Merger as is required, provided that the
parties will proceed with the Closing after the date hereof if they reasonably
believe that no impediment to such Closing exists. The Closing shall take place
at the offices of Blank Rome Xxxxxx Xxxxxxxxxx LLP, The Chrysler Building, 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The day on which the Closing shall
take place shall be sometimes referred to herein as the "Closing Date."
SECTION 3:
REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL SHAREHOLDERS
The Principal Shareholders, severally and not jointly, represent and
warrant the following to the HealthStar Parties as of the date hereof and as of
the Closing Date (except for representations and warranties that speak as of a
specific date or time, in which case, such representations and warranties shall
be true and complete as of such date or time) it being understood that
representations with respect to the Principal Shareholders are being made by
each Principal Shareholder only with respect to himself:
3.1. Organization of BlueStone. BlueStone is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of New York. BlueStone has the requisite corporate power and authority to own,
lease, and operate its properties, to carry on its business where such
properties are now owned, leased, or operated and such business is now
conducted. BlueStone is qualified to do business as a foreign corporation in
each jurisdiction where the failure to so qualify would have a BlueStone
Material Adverse Effect. Schedule 3.1 is a list of all jurisdictions in which
BlueStone currently is registered and is doing business. Except as set forth on
Schedule 3.1, BlueStone is not a participant in any joint venture or partnership
with any other Person with respect to any part of the operation of its business.
3.2. Books and Records. The books of account, minute books, stock record
books, and other records of BlueStone, all of which have been made available to
HealthStar, are complete and correct in all material respects and have been
maintained in accordance with sound
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business practices. The minute books of BlueStone contain accurate and
substantially complete records of all meetings held of, and corporate action
taken by, the stockholders, the Board of Directors, and committees of the Board
of Directors of BlueStone. At the Closing, all of those books and records will
be in the possession of BlueStone.
3.3. Absence of Conflicting Agreements. As to BlueStone and the Principal
Shareholders, subject to obtaining the necessary NASD approvals, the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement (with or without the giving of notice, the lapse
of time, or both): (a) do not require the Consent of any third party the failure
of which to obtain would have a BlueStone Material Adverse Effect; (b) will not
conflict with any provision of the Certificate of Incorporation, By-Laws, or
other organizational documents of BlueStone or any Principal Shareholder which
conflict would have a BlueStone Material Adverse Effect; (c) will not conflict
with, result in a material breach of, or constitute a material default under any
applicable Order, Legal Requirement, or ruling of any court or Governmental Body
to which BlueStone or any Principal Shareholder is subject which conflict,
breach or default would have a BlueStone Material Adverse Effect; (d) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of, any material agreement, instrument,
license, or permit to which BlueStone or any Principal Shareholder is a party or
by which BlueStone or its assets or any Principal Shareholder or any Principal
Shareholder's assets may be bound, which conflict, breach, termination, default
or acceleration would have a BlueStone Material Adverse Effect; and (e) will not
create any claim, liability, mortgage, lien, pledge, condition, charge, or
encumbrance of any nature whatsoever upon any of the assets of BlueStone, which
would have a BlueStone Material Adverse Effect, or upon any of the BlueStone
Shares. To the Knowledge of the Principal Shareholders, except for filings in
connection with obtaining NASD approvals as set forth above, and the filing of
the Certificate of Merger, no filing with any Governmental Body or any other
third party is required to consummate this Agreement or the transactions
contemplated hereby.
3.4. Governmental Authorizations. BlueStone possesses and is in substantial
compliance with all SEC, NASD and applicable state Governmental Authorizations
that are required to conduct the broker-dealer business of BlueStone including,
without limitation, the Employee Licenses, except where the failure to obtain or
comply with such Governmental Authorization would not have a BlueStone Material
Adverse Effect. Each of such Governmental Authorizations is listed on Schedule
3.4. Each of such Governmental Authorizations is valid and in full force and
effect and neither BlueStone nor any of its Employees received in writing, at
any time since January 1, 1998, other than as set forth on BlueStone's Form BD,
any notice or other communication from any Governmental Body regarding (i) any
actual or alleged violation of or failure to comply with any material term or
requirement of any Governmental Authorization, or (ii) any actual or proposed
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization, except as may be required to
consummate the transaction contemplated hereby.
3.5. Real Property. Schedule 3.5 contains a complete description of all
Real Property owned or leased by BlueStone (including street address, owner, and
BlueStone's use thereof). The Real Property listed on Schedule 3.5 comprise all
interests in real property necessary to conduct BlueStone's business and
operations as now conducted, and each leasehold or
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subleasehold interest on Schedule 3.5 is legal, valid, binding, enforceable, and
in full force and effect except where the failure to have such valid leasehold
interest would not have a BlueStone Material Adverse Effect. To the Knowledge of
the Principal Shareholders, no other party thereto is in material default,
violation, or breach under any lease or sublease, and no event has occurred and
is continuing that constitutes (with notice or passage of time or both) a
material default, violation, or breach thereunder. To the Knowledge of the
Principal Shareholders, (i) BlueStone has not received any notice of a default,
offset, or counterclaim under any lease or sublease with respect to any of the
Real Property; (ii) as of the date hereof, BlueStone enjoys peaceful and
undisturbed possession of the leased Real Property; and so long as BlueStone
fulfills its obligations under the lease(s) therefor, BlueStone has enforceable
rights to non-disturbance and quiet enjoyment against its lessor or sub-lessor;
and (iii) no third party holds any interest in the leased premises with the
right to foreclose upon BlueStone's leasehold or subleasehold interest.
BlueStone has legal and practical access to all of the Leased Real Property.
3.6. Tangible Personal Property. Schedule 3.6 lists the Tangible Personal
Property comprising all material items of tangible personal property (which, for
purposes of this Section 3.6, shall mean such items which have an individual
value greater than $25,000) necessary to conduct BlueStone's business and
operations as now conducted. To the Knowledge of the Principal Shareholders,
BlueStone owns and has good title to each item of Tangible Personal Property
described in Schedule 3.6 and none of such Tangible Personal Property owned by
BlueStone is subject to any security interest, mortgage, pledge, conditional
sales agreement, or other lien or encumbrance, except for Permitted
Encumbrances. To the Knowledge of the Principal Shareholders, with allowance for
normal repairs, maintenance, wear, and obsolescence, each material item of
Tangible Personal Property described in Schedule 3.6 is in good operating
condition and repair and is available for immediate use in BlueStone's business
and operations.
3.7. Contracts. Schedule 3.7 lists all material written BlueStone Contracts
and true and complete descriptions of all material oral BlueStone Contracts
(including any amendments and other modifications to such Contracts) ("BlueStone
Material Contracts") (which, for purposes of this Section, shall mean such
Contracts that provide for annual payments or receipts in excess of $50,000). To
the Knowledge of the Principal Shareholders, all of the BlueStone Material
Contracts are in full force and effect and are valid, binding, and enforceable
in accordance with their terms except as the enforceability of such Contracts
may be affected by bankruptcy, insolvency, or similar laws affecting creditors'
rights generally and by judicial discretion in the enforcement of equitable
remedies. BlueStone is not and to the Knowledge of Principal Shareholders, no
other party thereto is in default, violation, or breach under any BlueStone
Material Contract, and no event has occurred and is continuing that constitutes
(with notice or passage of time or both) a default, violation, or breach
thereunder other than defaults, violations or breaches which would not have a
BlueStone Material Adverse Effect. To the Knowledge of the Principal
Shareholders, other than in the Ordinary Course of Business, no party to any
BlueStone Material Contract has given notice to BlueStone of its intention (a)
to terminate such Contract or amend the terms thereof; (b) to refuse to renew
such Contract upon expiration of its term; or (c) to renew such Contract upon
expiration only on terms and conditions that are more onerous than those now
existing. The Principal Shareholders are not, and, to the Knowledge of the
Principal Shareholders, no officer, director, agent or Employee is, in breach of
any enforceable Contract with any third party that limits the ability of such
officer, director, agent or Employee to act as such on behalf of BlueStone.
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3.8. Intangibles. Schedule 3.8 is a true and complete list of all
Intangibles (exclusive of Governmental Authorizations) that are required to
conduct BlueStone's business and operations as now conducted, the absence of
which would have a BlueStone Material Adverse Effect, all of which are to the
Knowledge of the Principal Shareholders valid and uncontested. BlueStone has
provided or made available to HealthStar copies of all documents establishing or
evidencing the Intangibles listed on Schedule 3.8. To the Knowledge of the
Principal Shareholders BlueStone owns or has a valid license to use all of the
Intangibles listed on Schedule 3.8. Except as set forth on Schedule 3.8, to the
Knowledge of the Principal Shareholders BlueStone has not received any notice or
demand alleging that BlueStone is infringing upon or otherwise acting adversely
to any trademarks, service marks, trade names, service names, copyrights,
patents, patent applications, know-how, methods, processes or other intellectual
property of any other Person, and to the Knowledge of the Principal Shareholders
there is no claim, proceeding or action pending or threatened with respect
thereto.
3.9. Title to Properties. Except as disclosed in Schedule 3.5 or 3.6, to
the Knowledge of the Principal Shareholders, BlueStone has good and marketable
title to its assets and properties, except where the failure to obtain such
marketable title would not have a BlueStone Material Adverse Effect and its
assets and properties are not subject to any mortgages, pledges, liens, security
interests, encumbrances, or other charges or rights of others of any kind or
nature except for Permitted Encumbrances.
3.10. Financial Statements. BlueStone has delivered to HealthStar the
following with respect to BlueStone or the Predecessor, as the case may be
(collectively, the "Financial Statements"): (a) the audited financial statements
for the period ended December 31, 2000, and (b) the Focus report for the period
ended March 31, 2001. Each of the Financial Statements (including, in the case
of the audited Financial Statements, the notes thereto): (i) is accurate and
complete in all material respects, (ii) is consistent in all material respects
with the books and records of BlueStone, (iii) fairly presents in all material
respects the financial condition and results of operations of BlueStone,
consistently applied, as of the dates and for the periods set forth therein,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount, and (iv) except as set forth in Schedule 3.10, have been
prepared in accordance with GAAP. Each of the Additional BlueStone Financial
Statements (as defined in Section 5.5): (i) will be accurate and complete in all
material respects, (ii) will be consistent in all material respects with the
books and records of BlueStone and (iii) will fairly present in all material
respects the financial condition and results of operations of BlueStone,
consistently applied, as of the dates and for the periods set forth therein. No
financial statements of any Person other than BlueStone are required by GAAP to
be included in the financial statements of BlueStone. Except as set forth in
Schedule 3.10, BlueStone has no liabilities or obligations of any nature except
for liabilities or obligations reflected or reserved against in the Financial
Statements and current liabilities incurred in the Ordinary Course of Business
since the dates thereof.
3.11. Tax Matters.
(a) Since January 1, 1998, to the Knowledge of the Principal
Shareholders, except as set forth on Schedule 3.11(a) hereto and except as
would not have a BlueStone Material Adverse Effect:
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(i) All Tax Returns required to be filed by BlueStone have been
filed when due in a timely fashion and all such Tax Returns are true,
correct and complete.
(ii) BlueStone has paid in full on a timely basis all Taxes owed
by it that were payable on or prior to the date hereof, whether or not
shown on any Tax Return.
(iii) The amount of BlueStone's liability for unpaid Taxes did
not, as of December 31, 2000 exceed the amount of the current
liability accruals for such Taxes (excluding reserves for deferred
Taxes) reflected on the Financial Statements.
(iv) BlueStone has withheld and paid over to the proper Tax
Authority all Taxes required to have been withheld and paid over (and
complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto) in connection with amounts paid to any employee, independent
contractor, creditor, or other third party.
(v) BlueStone has received no notice of any Tax Proceeding
currently pending with respect to it and BlueStone has not received
notice from any Tax Authority that it intends to commence a Tax
Proceeding.
(vi) No waiver or extension by BlueStone of any statute of
limitations is currently in effect with respect to the assessment,
collection, or payment of Taxes of BlueStone or for which BlueStone is
liable.
(vii) BlueStone has not requested any extension of the time
within which to file any Tax Return of BlueStone that is currently in
effect.
(viii) There are no liens on the assets of BlueStone relating or
attributable to Taxes (except liens for Taxes not yet due).
(ix) BlueStone is not and has not been at any time during the
preceding five years a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code.
(x) BlueStone has not entered into an agreement or consent made
under Section 341(f) of the Code.
(xi) BlueStone has not agreed to, nor is it required to, make any
adjustments under Section 481(a) of the Code as a result of a change
in accounting methods.
(xii) BlueStone is not and has not at any time been a party to a
tax sharing, tax indemnity or tax allocation agreement, and BlueStone
has not assumed the Tax Liability of any other Person under any
Contract.
(xiii) BlueStone is not and has not at any time been a member of
an affiliated group filing a consolidated federal income tax return
and does not have any liability for the Taxes of another entity or
person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law), as a transferee or
successor, or otherwise.
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(xiv) BlueStone is not a party to any joint venture, partnership
or other arrangement that is treated as a partnership for U.S. federal
income tax purposes.
(xv) None of BlueStone's assets are treated as "tax exempt use
property" within the meaning of Section 168(h) of the Code.
(xvi) Until April 23, 2001, BlueStone had in effect an election
under Section 1362 of the Code to be treated as an "S" Corporation,
but is not currently treated as an "S" Corporation for federal income
tax purposes.
(b) BlueStone has furnished or otherwise made available to HealthStar
correct and complete copies of (i) all income, franchise and other material
Tax Returns filed by BlueStone since January 1, 1998; and (ii) all
examination reports, statements of deficiencies and closing agreements
received by BlueStone relating to Taxes.
(c) The Tax Return of the Predecessor for the year ended December 31,
2000 accurately reflects (i) BlueStone's basis in its assets, (ii) the
amount of any net operating loss, net capital loss and any other Tax
carryovers of BlueStone (including losses and other carryovers subject to
any limitations), and (iii) material Tax elections made by BlueStone. To
the Knowledge of the Principal Shareholders, except as stated in Schedule
3.11(c), BlueStone has no net operating losses or other Tax attributes
presently subject to limitation under Code Sections 382, 383 or 384, or the
federal consolidated return regulations.
3.12. Insurance. As of the date of this Agreement, BlueStone maintains
insurance policies covering all of its assets and properties and the various
occurrences which may arise in connection with the operation of its business,
including director and officer and errors and omissions policies covering its
officers and directors, except where the failure to carry such insurance would
not have a BlueStone Material Adverse Effect. To the Knowledge of the Principal
Shareholders, such policies are in full force and effect, all premiums due
thereon have been paid, and BlueStone has complied in all material respects with
the provisions of such policies. Such insurance policies are of comparable
amounts and coverage as that which companies engaged in similar businesses would
maintain in accordance with good business practice. BlueStone has not received
(a) any notices of any pending or threatened terminations, (b) any refusal of
coverage, (c) any notice that a defense will be afforded with reservation of
rights or (d) any notice of significant premium increases with respect to any
such policies, and such policies will not be modified as a result of or
terminate or lapse by reason of the transactions contemplated by this Agreement.
BlueStone has given timely notice to the insurer of all claims that may be
insured by the policies described above.
3.13. Reports. To the Knowledge of the Principal Shareholders, all material
returns, reports, and statements that BlueStone is currently required to file
with the SEC, the NASD or any other Governmental Body have been filed and
satisfy all applicable Legal Requirements except where the failure to make such
filings would have a BlueStone Material Adverse Effect. To the extent any notice
of noncompliance has been received by BlueStone from a Governmental Body, such
noncompliance, if material, was corrected by BlueStone and, to the Knowledge of
the Principal Shareholders, as a result of such correction there is no BlueStone
Material Adverse Effect therefrom.
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3.14. Personnel and Employee Benefits.
(a) Employees and Compensation. Schedule 3.14 contains a true and
complete list of all Employees employed by BlueStone as of April 30, 2001.
Schedule 3.14 also contains a true and complete list of all employee
benefit plans as such term is defined in Section 3.3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively,
"Benefit Plans") or arrangements (collectively, "Benefit Arrangements")
covering the officers and employees employed by BlueStone.
(b) BlueStone Benefit Plans. BlueStone does not sponsor, maintain, or
contribute to any Benefit Plans other than as listed on Schedule 3.14. To
the Knowledge of the Principal Shareholders, each Benefit Plan complies
currently and has been maintained in substantial compliance with its terms
and, both as to form and in operation, with all material requirements
prescribed by any and all material statutes, orders, rules and regulations
that are applicable to such plans, including ERISA and the Code, except
where the failure to comply would have a BlueStone Material Adverse Effect.
(c) BlueStone Benefit Arrangements. To the Knowledge of Principal
Shareholders, each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the material requirements prescribed by
all statutes, orders, rules and regulations that are applicable to such
Benefit Arrangement. Except as set forth on Schedule 3.14, BlueStone has no
written contract prohibiting the termination of any Employee.
(d) Labor Relations. Except as set forth in Schedule 3.14(d),
BlueStone is not a party to or subject to any collective bargaining
agreement. Since January 1, 1998, with respect to the Employees, BlueStone
has not received written notice of an alleged failure to comply in a
material way with any laws, rules or regulations relating to the employment
of labor, including those related to wages, hours, occupational safety,
discrimination, and the payment of social security and other payroll
related taxes. No proceedings are pending or, to the Knowledge of the
Principal Shareholders, threatened between BlueStone and any Employee
(singly or collectively). No labor union or other collective bargaining
unit represents or, to the Knowledge of the Principal Shareholders, claims
to represent any of the Employees.
3.15. Legal Actions and Orders.
(a) BlueStone has delivered to the HealthStar Parties a copy of its
Form BD and a log of all written complaints received by BlueStone since
January 1, 2000, and has made available to the HealthStar Parties the file
of complaints described in such log, which file is maintained by
BlueStone's Chief Compliance Officer. Except as disclosed on Schedule 3.15,
on BlueStone's Form BD, or in such file of complaints, there is no claim,
legal action, counterclaim, suit, arbitration, or other legal or
administrative proceeding, or Tax Proceeding pending or, to the Knowledge
of the Principal Shareholders, threatened against BlueStone or relating to
the assets used by BlueStone, or the business or operations of BlueStone,
which, if decided adversely to BlueStone, would have a BlueStone Material
Adverse Effect.
(b) To the Knowledge of the Principal Shareholders, except as set
forth in Schedule 3.15 or on BlueStone's Form BD:
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(i) there is no Order to which BlueStone or the assets owned or
used by BlueStone, or to which BlueStone's business or operations, is
subject;
(ii) neither Principal Shareholder is subject to any Order that
relates to the business of, or any of the assets owned or used by, or
to the business or operations of, BlueStone; and
(iii) to the Knowledge of the Principal Shareholder, no officer,
director, agent, or employee of BlueStone is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity, or practice relating to the
business of BlueStone.
(c) To the Knowledge of the Principal Shareholders, except as set
forth in BlueStone's Form BD,
(i) BlueStone is, and at all times since January 1, 1998 has
been, in substantial compliance with all of the terms and requirements
of each Order to which it, or any of the assets owned or used by it,
or its business or operations, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
material violation of or failure to comply with any term or
requirement of any Order to which BlueStone, or any of the assets
owned or used by BlueStone, or its business or operations, is subject;
and
(iii) BlueStone has not received in writing, at any time since
January 1, 2000 any notice or other communication from any
Governmental Body regarding any actual or alleged violation of, or
failure to comply with, any term or requirement of any Order to which
BlueStone, or any of the assets owned or used by BlueStone, or its
business or operations, is or has been subject.
3.16. Compliance with Legal Requirements. Except as set forth in Schedule
3.15 or 3.16 or on BlueStone's Form BD:
(a) To the Knowledge of the Principal Shareholders, BlueStone is, and
at all times since January 1, 1998 has been, in substantial compliance with
each Legal Requirement that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any of its assets,
except where the failure to comply with such Legal Requirement would not
have a BlueStone Material Adverse Effect;
(b) BlueStone is, and at all times since January 1, 1998, has been in
compliance with SEC Rule 15c-3(1) and Rule 15c-3(3) and in substantial
compliance with the other provisions of Rule 15c-3.
(c) To the Knowledge of the Principal Shareholders, except as set
forth in the log referred to in Section 3.15(a), no event has occurred or
circumstance exists that (with or without notice or lapse of time) (A) may
constitute or result in a violation by BlueStone of, or a failure on the
part of BlueStone to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of BlueStone to undertake, or to bear
all or any portion of the cost of,
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any remedial action of any nature, except, in each case where such
violation or failure was cured or such remedial action was taken and, to
the Knowledge of the Principal Shareholders, as a result of such remedial
action there is no BlueStone Material Adverse Effect therefrom; and
(d) BlueStone has not received, at any time since January 1, 1998, any
notice or other communication from any Governmental Body regarding (A) any
actual or alleged violation of, or failure to comply with, any Legal
Requirement, or (B) any actual or alleged obligation on the part of
BlueStone to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature, (i) except, in each case, where such
violation or failure was cured or such remedial action was taken and, to
the Knowledge of the Principal Shareholders, as a result of such remedial
action there is no BlueStone Material Adverse Effect therefrom and (ii)
except for notices which would not have a BlueStone Material Adverse
Effect.
3.17. Conduct of Business in Ordinary Course. Since March 31, 2001 and
through the date hereof, BlueStone has conducted its business and operations in
the Ordinary Course of Business and, except as disclosed in Schedule 3.17, has
not:
(a) made any material increase in compensation payable or to become
payable to any of its employees other than those in the normal and usual
course of business or in connection with any change in an officer's or
employee's responsibilities, or any bonus payment made or promised to any
of its Employees, or any material change in personnel policies, employee
benefits, or other compensation arrangements affecting its officers or
employees;
(b) made any sale, assignment, lease, or other transfer of assets
other than in the normal and usual course of business with suitable
replacements being obtained therefor;
(c) canceled any debts owed to or claims held by BlueStone outside the
Ordinary Course of Business;
(d) made any changes in BlueStone's accounting practices;
(e) suffered any material write-down of the value of any assets or any
material write-off as uncollectable of any accounts receivable;
(f) transferred or granted any right under, or entered into any
settlement regarding the breach or infringement of, any license, patent,
copyright, trademark, trade name, franchise, or similar right, or modified
any existing right;
(g) imposed any security interest upon any of its assets, tangible or
intangible;
(h) made any material capital expenditures outside the Ordinary Course
of Business;
(i) made any material capital investment in or any loan to any other
Person outside the Ordinary Course of Business;
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(j) created, incurred, assumed, or guaranteed more than Ten Thousand
Dollars ($10,000.00) in aggregate indebtedness for borrowed money in
capitalized lease obligations;
(k) made any or authorized any change to BlueStone's Certificate of
Incorporation or Bylaws;
(l) issued, sold, or otherwise disposed of any of its capital stock,
or granted any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital
stock;
(m) declared, set aside, or paid any dividend or made any distribution
with respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(n) experienced any material damage, destruction, or loss (whether or
not covered by insurance) to its property;
(o) made any loan to, or entered into any other transaction with, any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(p) granted any increase in the base compensation of any of its
directors, officers, and employees outside the Ordinary Course of Business;
(q) made any other material change of employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
(r) made or changed any material Tax election or taken any other
action with respect to Taxes not in the Ordinary Course of Business and
consistent with past practices; or
(s) committed to do any of the foregoing.
3.18. Insolvency Proceedings. (i) BlueStone is not and its assets and
properties are not the subject of any pending or, to the Knowledge of the
Principal Shareholders, threatened insolvency proceedings of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary; (ii)
BlueStone has not made an assignment for the benefit of creditors or taken any
action in contemplation of or which would constitute a valid basis for the
institution of any such insolvency proceedings; and (iii) BlueStone is not
insolvent nor will it become insolvent as a result of the consummation of the
transactions contemplated by this Agreement.
3.19. Capitalization. The authorized capital stock of BlueStone consists of
two classes of stock consisting of (a) 25,000,000 shares of common stock, par
value of $.01 per share, and (b) 1,000,000 shares of preferred stock, par value
of $.01 per share, of which 1,942,000 shares of Common Stock, 200,000 shares of
Series A Preferred Stock and 300,000 shares of Series B Preferred Stock are
issued and outstanding and held by the Persons whose names and addresses as they
appear in the records of BlueStone are set forth on Schedule 3.19. All of the
outstanding shares of BlueStone capital stock have been validly issued and are
fully paid and nonassessable.
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Except as described on Schedule 3.19, (a) no shares of capital stock of
BlueStone are held in treasury; (b) there are no other issued or outstanding
equity securities of BlueStone; (c) there are no outstanding stock appreciation
rights, phantom stock rights, profit participation rights, or other similar
rights with respect to any capital stock of BlueStone; (d) there are no other
issued or outstanding securities of BlueStone convertible or exchangeable at any
time into equity securities of BlueStone; and (e) BlueStone is not subject to
any commitment or obligation that would require the issuance or sale of
additional shares of capital stock of BlueStone at any time under options,
subscriptions, warrants, rights, or other obligations. Except as set forth on
Schedule 3.19, BlueStone does not have any subsidiaries and does not have any
equity interest in any corporation, partnership, limited liability company,
joint venture, or other entity.
3.20. Representations as to Principal Shareholders.
(a) Principal Shareholders hereby represent and warrant that: (i)
BlueStone has full power and authority to enter into this Agreement, and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of BlueStone; (ii) this
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all required actions on the part of
BlueStone; and (iii) this Agreement has been duly executed and delivered by
each Principal Shareholder and BlueStone and constitutes a legal, valid and
binding obligation of each Principal Shareholder and BlueStone, enforceable
against each Principal Shareholder and BlueStone in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights of creditors generally and
to the exercise of judicial discretion in accordance with general
principles of equity, whether applied by a court of law or equity.
(b) No Principal Shareholder nor anyone acting on behalf of any
Principal Shareholder has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection
with the Merger and the transactions contemplated by this Agreement.
However, BlueStone is responsible for a finders fee payable in shares in
connection with the Merger, which it will direct HealthStar to issue out of
the Consideration Shares.
3.21. No Material Adverse Change. There has not been any BlueStone Material
Adverse Change, except as set forth on Schedule 3.21.
3.22. Relationships with Related Persons. Neither of the Principal
Shareholders nor any Related Person of any of the Principal Shareholders or, to
the Knowledge of the Principal Shareholders, of BlueStone has, or since January
1, 1999 has had, any interest in any property (whether real, personal, or mixed
and whether tangible or intangible), used in or pertaining to BlueStone's
business. Except as set forth in Schedule 3.22, none of the Principal
Shareholders, nor any Related Person of the Principal Shareholders or, to the
Knowledge of the Principal Shareholders, of BlueStone owns, or since January 1,
1999 has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (i) had business
dealings or a material financial interest in any transaction with BlueStone
other than business dealings or transactions conducted in the Ordinary Course of
Business with BlueStone at substantially prevailing market prices and on
substantially prevailing market terms (other than the purchase of securities of
BlueStone by such Persons) or (ii) engaged in
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competition with BlueStone (a "Competing Business") except for less than one
percent of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Except as set forth in Schedule 3.22, none of the Principal Shareholders or any
Related Person of the Principal Shareholders or, to the Knowledge of the
Principal Shareholders, of BlueStone (with respect to Contracts) is a party to
any Contract with, or has any claim or right against, BlueStone.
3.23. Investment Representations. Each Principal Shareholder hereby makes,
with respect to himself, for the benefit of HealthStar, and with respect to the
Consideration Shares, the investment representations set forth in Section 5.2
hereof, provided that the representation set forth in Section 5.2(a)(ii) is
being made with respect to HealthStar's business and affairs. Each of the
Principal Shareholders has received and reviewed copies of the latest Forms
10-KSB and 10-QSB and all Forms 8-K and Proxy Statements since March 31, 2000 of
HealthStar and the financial statements contained therein.
3.24. Disclosure. To the Knowledge of the Principal Shareholders no
representation or warranty in this Agreement and no statement in the Schedules
omit to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
3.25. Aggregate Effect of BlueStone Material Adverse Effect Qualifiers. To
the extent there would be a breach of any of the foregoing representations and
warranties set forth in this Section 3 but for the fact that such representation
or warranty contains a BlueStone Material Adverse Effect qualifier, the
aggregate of all such breaches would not have a BlueStone Material Adverse
Effect.
SECTION 4:
REPRESENTATIONS AND WARRANTIES
OF THE HEALTHSTAR PARTIES
The HealthStar Parties, jointly and severally, represent and warrant to the
BlueStone Shareholders, as defined in Section 9.3, and to BlueStone as of the
date hereof and as of the Closing Date (except for representations and
warranties that speak as of a specific date or time, in which case, such
representations and warranties shall be true and complete as of such date or
time) as follows:
4.1. Corporate Existence and Power. Each of HealthStar, M(2), Ltd., a
Maryland corporation and wholly-owned subsidiary of HealthStar ("M(2)"), and
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of their respective incorporation,
and are duly qualified to do business as a foreign corporation and are in good
standing in each jurisdiction where the failure to so qualify would have a
HealthStar Material Adverse Effect, and each of them has all corporate power
required to own, lease and operate its respective properties and assets and to
carry on its respective business.
4.2. Corporate Authorization. The execution and delivery by each of
HealthStar and Merger Sub of this Agreement and the ancillary agreements hereto,
the consummation of the transactions contemplated hereby and thereby, and the
performance by HealthStar and Merger
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Sub of their respective obligations hereunder and thereunder, are within the
corporate powers of HealthStar and Merger Sub and have been duly authorized by
all necessary corporate action on the part of HealthStar and Merger Sub. This
Agreement constitutes, and each ancillary agreement when executed and delivered
by HealthStar and/or Merger Sub pursuant to this Agreement will constitute, a
legal, valid and binding obligation of HealthStar and/or Merger Sub (as the case
may be) in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws affecting the rights of
creditors generally and to the exercise of judicial discretion in accordance
with general principles of equity, whether applied by a court of law or equity.
4.3. Absence of Conflicting Agreements. As to the HealthStar Parties and
M(2), subject to obtaining the necessary NASD approvals, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement (with or without the giving of notice, the lapse of time, or
both): (a) do not require the Consent of any third party the failure of which to
obtain would have a HealthStar Material Adverse Effect; (b) will not conflict
with any provision of the Certificate of Incorporation, By-Laws, or other
organizational documents of the HealthStar Parties which conflict would have a
HealthStar Material Adverse Effect; (c) will not conflict with, result in a
material breach of, or constitute a material default under any applicable Order,
Legal Requirement, or ruling of any court or Governmental Body to which any of
the HealthStar Parties is subject which conflict, breach or default would have a
HealthStar Material Adverse Effect; (d) will not conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
or accelerate or permit the acceleration of any performance required by the
terms of, any material agreement, instrument, license, or permit to which either
of the HealthStar Parties is a party or by which either of the HealthStar
Parties or either of their assets may be bound which conflict, breach,
termination, default or acceleration would have a HealthStar Material Adverse
Effect; and (e) will not create any claim, liability, mortgage, lien, pledge,
condition, charge, or encumbrance of any nature whatsoever upon any of the
assets of either of the HealthStar Parties which would have a HealthStar
Material Adverse Effect. To the Knowledge of HealthStar, except for filings in
connection with obtaining NASD approvals, as set forth above, and the filing of
the Certificate of Merger, no filing with any Governmental Body or any other
third party is required to consummate this Agreement or the transactions
contemplated hereby, other than filings HealthStar is required to make by virtue
of being a public company.
4.4. Capitalization. The authorized capital stock of HealthStar consists of
15,000,000 shares of Common Stock, $.001 par value, of which 8,345,872 shares
are issued and outstanding on the date hereof and 1,000,000 shares of Preferred
Stock, $.001 par value per share of which no shares are issued and outstanding
on the date hereof. The shares of Preferred Stock to be issued to holders of
BlueStone common stock in the Merger and the shares of Common Stock issuable
upon conversion of such shares will, upon issuance of such shares of Preferred
Stock and upon conversion with respect to the Common Stock, be duly authorized,
validly issued and fully paid and non-assessable, issued without violation of
the preemptive rights of any Person. There are no warrants, options, calls,
commitments by or agreements to which HealthStar is bound on the date hereof
relating to the issuance, conversion or purchase of any shares of Common Stock,
or any other capital stock of HealthStar, except as set forth on Schedule 4.4
attached hereto or except for options granted by HealthStar pursuant to option
plans in effect on the date hereof.
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4.5. Interests in Other Entities. Other than National Health Benefits &
Casualty Corp., a Nevada corporation which is inactive, Merger Sub and M(2),
HealthStar does not: (a) own, directly or indirectly, of record or beneficially,
any shares of voting stock or other equity securities of any other corporation,
(b) have any ownership interest, direct or indirect, of record or beneficially,
in any unincorporated entity, or (c) have any obligation, direct or indirect,
present or contingent, (i) to purchase or subscribe for any interest in, advance
or loan money to, or in any way make investments in, any person, or (ii) to
share any profits or capital investments or both.
4.6. SEC Filings; Financial Statements.
(a) Except as set forth on Schedule 4.6, HealthStar has timely filed
all forms, reports and documents required to be filed by HealthStar with
the SEC, including any amendments thereto (collectively, the "HealthStar
SEC Reports"). The HealthStar SEC Reports (a) at the time filed, complied
in all material respects with the applicable requirements of the Securities
Act and the Securities Exchange Act of 1934, as amended, as the case may
be, and (b) did not at the time they were filed (or if amended or
superseded by a subsequent filing, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in such HealthStar SEC Reports or necessary in order
to make the statements in such HealthStar SEC Reports, in the light of the
circumstances under which they were made, not misleading. To the Knowledge
of the HealthStar Parties, there is no material adverse information omitted
from the HealthStar SEC Reports with respect to HealthStar which a
reasonable investor would consider material in making an investment
decision in a similar situation.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the HealthStar SEC Reports, the
"HealthStar Financial Statements"), (i) is accurate and complete and
complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, (ii) is consistent
in all material respects with the books and records of HealthStar, (iii)
was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to
such financial statements or, in the case of unaudited statements, as
permitted by Form 10-QSB or 8-K promulgated by the SEC), and (iv) fairly
presented in all material respects the consolidated financial position of
HealthStar and its subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount. Each of the Additional
HealthStar Financial Statements (as defined in Section 5.6): (i) will be
accurate and complete in all material respects, (ii) will be consistent in
all material respects with the books and records of HealthStar and (iii)
will fairly present in all material respects the financial condition and
results of operations of HealthStar, consistently applied, as of the dates
and for the periods set forth therein. No financial statements of any other
Person other than the HealthStar Parties and M(2) are required by GAAP to
be included in the financial statements of HealthStar.
(c) The certificate of deposit issued by First International Bank &
Trust Ltd. in the amount of $500,000 (the "CD") and the funds held for
HealthStar at American Equity Management Group, Inc. in the amount of
$2,524,201 (the "American Equity Funds"), all as
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described in Section 6.2(f), represent valid and binding obligations of
such entities to HealthStar and can be liquidated by HealthStar on October
11, 2001 in the case of the CD and immediately in the case of the American
Equity Funds.
4.7. Absence of Certain Changes. Since March 31, 2001, there has not been
any Material Adverse Change with respect to HealthStar, M(2) or Merger Sub.
4.8. Absence of Undisclosed Liabilities. Except for liabilities disclosed
in the HealthStar SEC Reports and liabilities and obligations which would not
have a HealthStar Material Adverse Effect, neither HealthStar, M(2) nor Merger
Sub has any liabilities or obligations of any nature whatsoever, whether
accrued, absolute, contingent or otherwise (including but not limited to any
retained liabilities or obligations of any former or current subsidiary, the
assets or capital stock of which was sold by HealthStar), which have not been
(i) in the case of liabilities and obligations of a type customarily reflected
on a balance sheet, or (ii) in the case of other types of liabilities and
obligations, described in Schedule 4.8 or any of the other Schedules delivered
by HealthStar and Merger Sub pursuant hereto, or (iii) incurred, consistent with
past practice, in the Ordinary Course of business since March 31, 2001. Except
as described in Schedule 4.8, with respect to any current or former Subsidiary,
the assets or stock of which have been sold, HealthStar has not received any
notice or claim from the purchaser or an affiliate of the purchaser for any
indemnification obligations of HealthStar or its affiliates.
4.9. Tax Matters.
(a) To the Knowledge of HealthStar, except as set forth on Schedule
4.9(a) hereto and except as would have a HealthStar Material Adverse
Effect:
(i) All Tax Returns required to be filed by HealthStar have been
filed when due in a timely fashion and all such Tax Returns are true,
correct and complete.
(ii) HealthStar has paid in full on a timely basis all Taxes owed
by it that were payable on or prior to the date hereof, whether or not
shown on any Tax Return.
(iii) The amount of HealthStar liability for unpaid Taxes did
not, as of March 31, 2000 exceed the amount of the current liability
accruals for such Taxes (excluding reserves for deferred Taxes)
reflected on the Financial Statements.
(iv) HealthStar has withheld and paid over to the proper Tax
Authority all Taxes required to have been withheld and paid over (and
complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto) in connection with amounts paid to any employee, independent
contractor, creditor, or other third party.
(v) HealthStar has received no notice of any Tax Proceeding
currently pending with respect to it and HealthStar has not received
notice from any Tax Authority that it intends to commence a Tax
Proceeding.
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(vi) No waiver or extension by HealthStar of any statute of
limitations is currently in effect with respect to the assessment,
collection, or payment of Taxes of HealthStar or for which HealthStar
is liable.
(vii) HealthStar has not requested any extension of the time
within which to file any Tax Return of HealthStar that is currently in
effect.
(viii) There are no liens on the assets of HealthStar relating or
attributable to Taxes (except liens for Taxes not yet due).
(ix) HealthStar is not and has not been at any time during the
preceding five years a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code.
(x) HealthStar has not entered into an agreement or consent made
under Section 341(f) of the Code.
(xi) HealthStar has not agreed to, nor is it required to, make
any adjustments under Section 481(a) of the Code as a result of a
change in accounting methods.
(xii) HealthStar is not and has not at any time been a party to a
tax sharing, tax indemnity or tax allocation agreement, and HealthStar
has not assumed the Tax Liability of any other Person under any
Contract.
(xiii) HealthStar is not and has not at any time been a member of
an affiliated group filing a consolidated federal income tax return
and does not have any liability for the Taxes of another entity or
person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law), as a transferee or
successor, or otherwise.
(xiv) None of HealthStar's assets are treated as "tax exempt use
property" within the meaning of Section 168(h) of the Code.
(xv) HealthStar is not a party to any joint venture, partnership
or other arrangement that is treated as a partnership for U.S. federal
income tax purposes.
(b) HealthStar has furnished or otherwise made available to BlueStone
correct and complete copies of (i) all income, franchise and other material
Tax Returns filed by HealthStar since January 1, 1998; and (ii) all pending
examination reports, statements of deficiencies and closing agreements
received by HealthStar relating to Taxes.
(c) HealthStar's tax return for the year ended March 31, 2000
accurately reflects (i) HealthStar's basis in its assets, (ii) the amount
of any net operating loss, net capital loss and any other Tax carryovers of
HealthStar (including losses and other carryovers subject to any
limitations), and (iii) material Tax elections made by HealthStar. To the
Knowledge of HealthStar, except as stated in Schedule 4.9(c), HealthStar
has no net operating losses or other Tax attributes presently subject to
limitation under Code Sections 382, 383 or 384, or the federal consolidated
return regulations.
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4.10. Certain Contracts. Set forth on Schedule 4.10 is a list of all
material Contracts of HealthStar, M(2) and Merger Sub (the "HealthStar Material
Contracts") (which for purposes of this Section shall mean such Contracts that
provide for annual payments or receipts in excess of $50,000). Except as set
forth on Schedule 4.10, each of the HealthStar Material Contracts are in full
force and effect and are legal, valid and binding obligation of HealthStar, M(2)
or Merger Sub, as the case may be, and is enforceable against each other party
thereto in accordance with its terms (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally, and
subject to the limitations imposed by general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity),
and neither HealthStar, M(2), Merger Sub, nor, to the Knowledge of HealthStar
and Merger Sub, any other party thereto is in default or has failed to perform
any material obligation thereunder other than defaults violations or breaches
which would not have a HealthStar Material Adverse Effect. Complete and correct
copies of each of such contracts listed on Schedule 4.10 have been previously
made available to BlueStone. To the Knowledge of HealthStar, other than in the
Ordinary Course of Business, no party to any HealthStar Material Contract has
given notice to HealthStar of its intention (a) to terminate such Contract or
amend the terms thereof; (b) to refuse to renew such Contract upon expiration of
its term; or (c) to renew such Contract upon expiration only on terms and
conditions that are more onerous than those now existing.
4.11. Governmental Authorizations. HealthStar, M(2) and Merger Sub possess
and are in substantial compliance with all Governmental Authorizations that are
required to conduct their respective businesses and the use and ownership of
their respective assets except where the failure to obtain or comply with such
Governmental Authorization would not have a HealthStar Material Adverse Effect.
Each of such Governmental Authorizations is set forth on Schedule 4.11. Each of
such Governmental Authorizations is valid and in full force and effect and
neither HealthStar nor any of its Employees received in writing, at any time
since January 1, 1998 any notice or other communication from any Governmental
Body or any other Person regarding (i) any actual or alleged violation of or
failure to comply with any material term or requirement of any Governmental
Authorization, or (ii) any actual or proposed withdrawal, suspension,
cancellation, termination of, or modification to any Governmental Authorization.
4.12. Disputes and Litigation. Except as described in the HealthStar SEC
Reports or as set forth in Schedule 4.12, there is no action, suit, proceeding
or claim, pending or, to the Knowledge of the HealthStar Parties, threatened by
any Person or Governmental Body, and no investigation by any court, or
Governmental Body pending or threatened, against HealthStar, M(2) or Merger Sub,
before any court or Governmental Body, nor is there any outstanding Order
against HealthStar, M(2) or Merger Sub, which, if decided adversely to
HealthStar or Merger Sub would have a HealthStar Material Adverse Effect.
4.13. Brokers or Finders. Neither HealthStar, M(2) nor Merger Sub, nor any
director, officer, agent or employee thereof, has employed any broker or finder
or has incurred or will incur any broker's, finder's or similar fees,
commissions or expenses, in each case in connection with the transactions
contemplated by this Agreement.
4.14. Insurance. As of the date of this Agreement, HealthStar, M(2) and
Merger Sub maintain insurance policies covering all of their respective assets
and properties and the various
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occurrences which may arise in connection with the operation of their business,
including, as applicable, director and officer policies covering their officers
and directors except where the failure to carry such insurance would not have a
HealthStar Material Adverse Effect. All such insurance policies are set forth on
Schedule 4.14. Such policies are in full force and effect, all premiums due
thereon have been paid, and each of HealthStar and M(2) has complied in all
material respects with the provisions of such policies. Such insurance policies
are of comparable amounts and coverage as that which companies engaged in
similar businesses would maintain in accordance with good business practice.
Neither HealthStar nor M(2) has received (a) any notices of any pending or
threatened terminations, (b) any refusal of coverage, (c) any notice that a
defense will be afforded with reservation of rights or (d) any notice of any
significant premium increases with respect to any such policies, and such
policies will not be modified as a result of or terminate or lapse by reason of
the transactions contemplated by this Agreement. HealthStar has given notice to
the insurer of all claims that may be insured by the policies described above.
4.15. Insolvency Proceedings. (i) Neither HealthStar nor M(2) is nor are
their assets and properties the subject of any pending or, to the Knowledge of
the HealthStar Parties, threatened insolvency proceedings of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary; (ii)
neither HealthStar nor M(2) has made an assignment for the benefit of creditors
or taken any action in contemplation of or which would constitute a valid basis
for the institution of any such insolvency proceedings; and (iii) neither
HealthStar nor M(2) is insolvent nor will it become insolvent as a result of the
consummation of the transactions contemplated by this Agreement.
4.16. Personnel and Employee Benefits.
(a) Employees and Compensation. Schedule 4.16 contains a true and
complete list of all employees employed by HealthStar and M(2) as of April
30, 2001. Schedule 4.16 also contains a true and complete list of all
employee benefit plans as such term is defined in Section 3.3 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, "HealthStar Benefit Plans") or arrangements (collectively,
"HealthStar Benefit Arrangements") covering the officers and employees
employed by HealthStar and M(2).
(b) HealthStar Benefit Plans. HealthStar does not sponsor, maintain,
or contribute to any Benefit Plans other than as listed on Schedule 4.16.
To the Knowledge of the HealthStar Parties, each Benefit Plan complies
currently and has been maintained in substantial compliance with its terms
and, both as to form and in operation, with all material requirements
prescribed by any and all material statutes, orders, rules and regulations
that are applicable to such plans, including ERISA and the Code, except
where the failure to comply would have a HealthStar Material Adverse
Effect.
(c) HealthStar Benefit Arrangements. To the Knowledge of the
HealthStar Parties, each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the material requirements
prescribed by all statutes, orders, rules and regulations that are
applicable to such Benefit Arrangement. Except as set forth on Schedule
4.16, HealthStar has no written contract prohibiting the termination of any
Employee.
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(d) Labor Relations. Except as set forth in Schedule 4.16(d), neither
HealthStar nor M(2) is a party to or subject to any collective bargaining
agreement. Since January 1, 1998, with respect to the employees, HealthStar
and M(2) have not received written notice of an alleged failure to comply
in a material way with any laws, rules or regulations relating to the
employment of labor, including those related to wages, hours, occupational
safety, discrimination, and the payment of social security and other
payroll related taxes. No proceedings are pending or, to the Knowledge of
the HealthStar Parties, threatened between HealthStar or M(2) and any of
their respective employees (singly or collectively). No labor union or
other collective bargaining unit represents or, to the Knowledge of the
HealthStar Parties, claims to represent any of the employees of HealthStar
or M(2).
4.17. Relationships with Related Persons. Neither of HealthStar nor any
Related Person of HealthStar, M(2) or of Merger Sub has, or since January 1,
1999 has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to HealthStar's business.
Except as set forth in Schedule 4.17, none of HealthStar or any Related Person
of HealthStar or of Merger Sub owns, or since January 1, 1999 has owned, (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with HealthStar other than business
dealings or transactions conducted in the Ordinary Course of Business with
HealthStar at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with HealthStar (a
"Competing Business") except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 4.17, none of HealthStar or any Related Person of HealthStar or of
Merger Sub (with respect to Contracts) is a party to any Contract with, or has
any claim or right against, HealthStar.
4.18. Title to Properties. Except as disclosed in Schedule 4.18, to the
Knowledge of HealthStar, each of HealthStar and M(2) has good and marketable
title to its assets and properties, except where the failure to obtain such
marketable title would not have a HealthStar Material Adverse Effect, and its
assets and properties are not subject to any mortgages, pledges, liens, security
interests, encumbrances, or other charges or rights of others of any kind or
nature except for Permitted Encumbrances.
4.19. Disclosure. To the Knowledge of HealthStar no representation or
warranty in this Agreement and no statement in the Schedules omit to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
4.20. Aggregate Effect of HealthStar Material Adverse Effect Qualifiers. To
the extent there would be a breach of any of the foregoing representations and
warranties set forth in this Section 4 but for the fact that such representation
or warranty contains a HealthStar Material Adverse Effect qualifier, the
aggregate of all such breaches would not have a HealthStar Material Adverse
Effect.
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SECTION 5:
COVENANTS
5.1. Procedure for Exchange. Immediately after the Effective Time,
HealthStar shall make appropriate provision for issuance of certificates
representing the Consideration Shares against surrender of the BlueStone Shares
or otherwise at the direction of BlueStone.
5.2. Qualifications and Representations of Future Shareholders. BlueStone
will require each Future Shareholder to represent and warrant upon his purchase
of capital stock of BlueStone prior to the Closing Date as follows:
(a) (i) Each Future Shareholder (x) has prior investment experience,
including investment in restricted securities, (y) has the capacity to
evaluate the merits and risks of the acquisition of the Consideration
Shares, and (z) understands the nature of an investment in the
Consideration Shares and is able to bear the economic risks of such an
investment; and
(ii) Future Shareholders have been afforded a reasonable
opportunity to ask questions and receive answers from BlueStone and
its management about BlueStone's business and financial affairs and
condition, prospects, strategic plans, and resources and about the
terms of the Merger.
(b) Investment Intent. Each Future Shareholder will acquire the
Consideration Shares pursuant to this Agreement for investment for their
own account and not with a view to the distribution (as such term is used
in Section 2(11) of the Securities Act) thereof.
(c) Resale Restrictions. Each Future Shareholder understands and
acknowledges that the Consideration Shares will not be registered under the
Securities Act or applicable state "Blue Sky" laws at or after the Closing
Date and must be held indefinitely unless or until (i) they are
subsequently registered under the Securities Act and applicable state "Blue
Sky" laws, or (ii) an exemption from such registration is available for any
subsequent sale or distribution.
(d) Exempt Sale. Each Future Shareholder understands and acknowledges
that the transfer and delivery of the Consideration Shares by HealthStar
under this Agreement has not been registered (i) under the Securities Act
and is intended to be exempt from the registration and prospectus delivery
requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act and/or Regulation D thereunder, (ii) under applicable state
securities laws and regulations in reliance upon exemptions contained in
such laws and regulations, and (iii) that the reliance by HealthStar on
such exemption is predicated in part on each Future Shareholder's
representations set forth in this Section 5.2. None of the Future
Shareholders has offered the Consideration Shares to any Person or taken
any other action that of itself would cause the aforesaid non-public
offering exemption not to be available to HealthStar with respect to the
issuance of the Consideration Shares.
(e) Legends on Certificates. Each Future Shareholder understands and
acknowledges that any certificate or other instrument evidencing any of the
Consideration Shares
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delivered at the Closing shall be stamped or otherwise imprinted with the
legends substantially in the form set forth below.
(i) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR UNDER THE SECURITIES LAW OF ANY STATE. SUCH
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
HYPOTHECATED OR DISTRIBUTED, EXCEPT (A) (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT, OR (ii) PURSUANT TO A VALID EXEMPTION FROM SUCH
REGISTRATION UNDER THE SECURITIES ACT AND UNDER THE SECURITIES
LAW OF ANY STATE, AND (B) UPON RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION SHALL BE
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH SALE
IS IN COMPLIANCE WITH THE SECURITIES ACT AND SUCH STATE
SECURITIES LAW."
(ii) Any legend imposed or required by HealthStar's certificate
of incorporation or bylaws or applicable state securities laws and
state corporate laws.
Each Future Shareholder understands and acknowledges that HealthStar will make,
or cause to be made, a notation in its stock transfer registry with respect to
the restrictions on offer and sale of the Consideration Shares.
5.3. Conduct of BlueStone's Business Prior to Closing. Except as otherwise
contemplated by this Agreement from the date hereof through the Closing Date,
the Principal Shareholders shall cause BlueStone to conduct, and BlueStone shall
conduct, its business in the Ordinary Course of Business. Without limiting the
generality of the foregoing, except as contemplated by this Agreement or as
consented to by HealthStar (which consent may not be unreasonably withheld by
HealthStar) from and after the date hereof, the Principal Shareholders shall
act, shall cause BlueStone to act, and BlueStone shall act as follows:
(a) BlueStone shall not adopt any material change in any method of
accounting or accounting practice, except as contemplated or required by
GAAP;
(b) BlueStone shall not amend its charter or bylaws;
(c) except for the disposition of obsolete equipment in the Ordinary
Course of Business, BlueStone will not sell, mortgage, pledge, or otherwise
dispose of any material assets or properties owned, leased, or used in the
operation of its business;
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(d) BlueStone shall not merge or consolidate with, or agree to merge
or consolidate with, or purchase or agree to purchase all or substantially
all of the assets of, or otherwise acquire, any other business entity;
(e) other than as described in Schedule 3.19, BlueStone shall not
authorize for issuance, issue, or sell any additional shares of its capital
stock or issue any securities or obligations convertible or exchangeable
into shares of its capital stock or issue or grant any option, warrant, or
other right to purchase any shares of its capital stock;
(f) BlueStone shall not incur, or agree to incur, any debt for
borrowed money;
(g) BlueStone shall not change its historic practices concerning the
payment of accounts payable;
(h) BlueStone shall not declare, issue, or otherwise approve the
payment of dividends of any kind in respect of the capital stock of
BlueStone or redeem, purchase, or acquire any of its capital stock;
(i) BlueStone shall maintain the existing insurance policies on the
assets of its business or other policies providing substantially similar
coverages;
(j) except in the Ordinary Course of Business or except as otherwise
contemplated by this Agreement, BlueStone will not permit any increases in
the compensation of any of its Employees except as required by law or
existing contract or agreement or enter into or amend any BlueStone Benefit
Plan or BlueStone Benefit Arrangement;
(k) except in the Ordinary Course of Business, BlueStone shall not
enter into or renew, extend or terminate, or waive any Contract, or incur
any obligation that will be binding on BlueStone after Closing;
(l) BlueStone shall not enter into any transactions with any Affiliate
that will be binding upon BlueStone following the Closing Date;
(m) BlueStone shall maintain its assets or replacements thereof in
good operating condition and adequate repair, normal wear and tear
excepted;
(n) BlueStone shall not make or change any Tax election, amend any Tax
Return, or take or omit to take any other action not in the Ordinary Course
of Business that would have the effect of increasing any Taxes of
BlueStone;
(o) BlueStone shall file all Tax Returns when due;
(p) BlueStone shall use its commercially reasonable efforts consistent
with past practice to preserve its business and assets and to keep
available its present employees and to preserve present relationships with
its customers, employees, and others having business relations with it; and
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(q) BlueStone shall not take any action that would adversely effect in
any material respect the applicable Governmental Authorizations or cause
BlueStone to not be in substantial compliance with all SEC, NASD, and
applicable State Governmental Authorizations that relate to its business
and assets.
5.4. Conduct of HealthStar's and M(2)'s Business Prior to Closing. Except
as otherwise contemplated by this Agreement from the date hereof through the
Closing Date, HealthStar shall cause M(2) to conduct, and HealthStar shall
conduct, its business in the Ordinary Course of Business. Without limiting the
generality of the foregoing, except as contemplated by this Agreement or as
consented to by BlueStone (which consent may not be unreasonably withheld by
BlueStone) from and after the date hereof, HealthStar shall act and shall cause
M(2) to act as follows:
(a) Neither HealthStar nor M(2) shall adopt any material change in any
method of accounting or accounting practice, except as contemplated or
required by GAAP;
(b) Neither HealthStar nor M(2) shall amend its charter or bylaws;
(c) except for the disposition of obsolete equipment in the Ordinary
Course of Business, neither HealthStar nor M(2) shall sell, mortgage,
pledge, or otherwise dispose of any material assets or properties owned,
leased, or used in the operation of its business;
(d) Neither HealthStar nor M(2) shall merge or consolidate with, or
agree to merge or consolidate with, or purchase or agree to purchase all or
substantially all of the assets of, or otherwise acquire, any other
business entity;
(e) Neither HealthStar nor M(2) shall authorize for issuance, issue,
or sell any additional shares of its capital stock or issue any securities
or obligations convertible or exchangeable into shares of its capital stock
or issue or grant any option, warrant, or other right to purchase any
shares of its capital stock;
(f) Neither HealthStar nor M(2) shall incur, or agree to incur, any
debt for borrowed money;
(g) Neither HealthStar nor M(2) shall change its historic practices
concerning the payment of accounts payable;
(h) Neither HealthStar nor M(2) shall declare, issue, or otherwise
approve the payment of dividends of any kind in respect of the capital
stock of HealthStar or M(2) or redeem, purchase, or acquire any of its
capital stock;
(i) Each of Healthstar and M(2) shall maintain the existing insurance
policies on the assets of its business or other policies providing
substantially similar coverages;
(j) except in the Ordinary Course of Business or except as otherwise
contemplated by this Agreement, neither HealthStar nor M(2) will permit any
increases in the compensation of any of its employees except as required by
law or existing contract or
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agreement or enter into or amend any HealthStar Benefit Plan or HealthStar
Benefit Arrangement;
(k) except in the Ordinary Course of Business, neither HealthStar nor
M(2) shall enter into or renew, extend or terminate, or waive any Contract,
or incur any obligation that will be binding on HealthStar or M(2) after
Closing;
(l) Neither HealthStar nor M(2) shall enter into any transactions with
any Affiliate that will be binding upon HealthStar or M(2) following the
Closing Date;
(m) Each of HealthStar and M(2) shall maintain its assets or
replacements thereof in good operating condition and adequate repair,
normal wear and tear excepted;
(n) Neither HealthStar nor M(2) shall make or change any Tax election,
amend any Tax Return, or take or omit to take any other action not in the
Ordinary Course of Business that would have the effect of increasing any
Taxes of HealthStar or M(2);
(o) Each of HealthStar and M(2) shall file all Tax Returns when due;
(p) Each of HealthStar and M(2) shall use its commercially reasonable
efforts consistent with past practice to preserve its business and assets
and to keep available its present employees and to preserve present
relationships with its customers, employees, and others having business
relations with it; and
(q) Neither HealthStar nor M(2) shall take any action that would
adversely effect in any material respect the applicable Governmental
Authorizations or cause HealthStar or M(2) to not be in substantial
compliance with all SEC, NASD, and applicable State Governmental
Authorizations that relate to its business and assets.
5.5. Access to BlueStone Information. From and after the date of this
Agreement until the Closing Date, BlueStone shall (a) give the HealthStar
Parties and the HealthStar Parties' employees, accountants and counsel full and
complete access upon reasonable notice during normal business hours, to all
officers, employees, offices, properties, agreements, records and affairs of
BlueStone; (b) provide the HealthStar Parties with all financial information of
BlueStone that is distributed to the officers and directors of BlueStone,
including, but not limited to, the monthly internal financial statements
prepared by BlueStone and the monthly FOCUS Reports of BlueStone, promptly upon
distribution of such information to the officers and directors of BlueStone (all
of the foregoing financial information, financial statements and FOCUS Reports
collectively, the "Additional BlueStone Financials Statements"); and (c) provide
copies of such information concerning BlueStone as the HealthStar Parties may
reasonably request.
5.6. Access to HealthStar Information. From and after the date of this
Agreement until the Closing Date, HealthStar shall (a) give BlueStone and
BlueStone's employees, accountants and counsel full and complete access upon
reasonable notice during normal business hours, to all officers, employees,
offices, properties, agreements, records and affairs of the HealthStar Parties
and M(2); (b) provide BlueStone with all financial information of HealthStar and
M(2) that is distributed to the officers and directors of HealthStar, including,
but not limited to,
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the monthly internal financial statements prepared by HealthStar and M(2),
promptly upon distribution of such information to the officers and directors of
HealthStar (all of the foregoing financial information and financial statements
collectively, the "Additional HealthStar Financials Statements"); and (c)
provide copies of such information concerning HealthStar and M(2) as BlueStone
may reasonably request.
SECTION 6:
CONDITIONS TO OBLIGATIONS OF THE PARTIES
6.1. Conditions to Obligations of the HealthStar Parties. All obligations
of the HealthStar Parties to consummate the Merger and the other transactions
contemplated by this Agreement are subject, at the HealthStar Parties' option,
to the fulfillment prior to or at the Closing Date of each of the following
conditions:
(a) Representations and Warranties. All representations and warranties
of the Principal Shareholders contained in this Agreement shall be true and
complete at and as of the Closing as though made at and as of that time
(except for representations and warranties that speak as of a specific date
or time which need only be true and complete as of such date or time),
except where the failure to be true and complete does not have a BlueStone
Material Adverse Effect.
(b) Covenants and Conditions. The Principal Shareholders and BlueStone
shall have performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by
them prior to or on the Closing Date, except where the failure to have
performed and complied does not have a BlueStone Material Adverse Effect.
(c) NASD Approvals. The required approvals from the NASD shall have
been received or the parties determine to proceed with the Closing as set
forth in Section 2.3.
(d) No Litigation. No action, suit or proceeding against any of the
Principal Shareholders or BlueStone relating to the consummation of any of
the transactions contemplated by this Agreement or any governmental action
seeking to delay or enjoin any such transactions shall be pending or
threatened.
(e) Deliveries. The Principal Shareholders and BlueStone shall have
made or stand willing to make all the deliveries to the HealthStar Parties
described in Section 7.1.
6.2. Conditions to Obligations of Principal Shareholders and BlueStone. All
obligations of Principal Shareholders and BlueStone to consummate the Merger and
the other transactions contemplated by this Agreement, are subject, at the
Principal Shareholders' and BlueStone's option, to the fulfillment prior to or
at the Closing Date of each of the following conditions:
(a) Representations and Warranties. All representations and warranties
of the HealthStar Parties contained in this Agreement shall be true and
complete in all material respects at and as of the Closing Date as though
made at and as of that time (except for representations and warranties that
speak as of a specific date or time which need only be true
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and complete as of such date or time) except where the failure to be true
and complete does not have a HealthStar Material Adverse Effect.
(b) Covenants and Conditions. The HealthStar Parties shall have
performed and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by them prior to or on the Closing Date, except where the
failure to have performed and complied does not have a HealthStar Material
Adverse Effect.
(c) NASD Approvals. The required approvals from the NASD shall have
been received or the parties determine to proceed with the Closing as set
forth in Section 2.3.
(d) No Litigation. No action, suit or proceeding against HealthStar
relating to the consummation of any of the transactions contemplated by
this Agreement or any governmental action seeking to delay or enjoin any
such transactions shall be pending or threatened.
(e) Deliveries. The HealthStar Parties shall have made or stand
willing to make all the deliveries described in Section 7.2.
(f) HealthStar Cash. Immediately prior to the Closing, HealthStar
shall have not less than $3,500,000 in cash and shall have no liabilities
for borrowed money other than those that appear on the consolidated balance
sheet of HealthStar as of May 31, 2001. Of such $3,500,000, $500,000 shall
be in the form of a certificate of deposit issued by First International
Bank & Trust Ltd., Roseau, Commonwealth of Dominica, which matures on
October 11, 2001, and the remainder shall be cash in the account of
HealthStar at Provident Bank of Maryland. In that connection, HealthStar
shall have liquidated its funds currently held at American Equity
Management, Inc. in the amount of $2,524,201 and deposited such funds in
the account of HealthStar at Provident Bank of Maryland.
SECTION 7:
CLOSING AND CLOSING DELIVERIES
7.1. Deliveries by Principal Shareholders and BlueStone. On the Closing
Date, the Principal Shareholders and BlueStone shall deliver to the HealthStar
Parties the following, in form and substance reasonably satisfactory to the
HealthStar Parties and its counsel:
(a) Certificate of Merger. A Certificate of Merger substantially in
the form attached hereto as Exhibit 7.1(a) dated the Closing Date and duly
executed by the appropriate officers of BlueStone (the "Certificate of
Merger");
(b) Certificate. A certificate, dated as of the Closing Date, executed
by the Principal Shareholders, certifying severally to HealthStar: (i) that
the representations and warranties of Principal Shareholders contained in
this Agreement are true and complete as of the Closing Date as though made
on and as of that date (except for representations and warranties that
speak as of a specific date or time, which need only be true and complete
as of such date or time), and (ii) that the Principal Shareholders and
BlueStone have in all respects performed and
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complied with all of their respective obligations, covenants and agreements
in this Agreement to be performed and complied with on or prior to the
Closing Date.
(c) Secretary's Certificate. A certificate, dated as of the Closing
Date, executed by BlueStone' Secretary (i) certifying that the resolutions,
as attached to such certificate, were duly adopted by each of BlueStone'
Board of Directors and shareholders, authorizing and approving the
execution of this Agreement and the consummation of the transaction
contemplated hereby and that such resolutions remain in full force and
effect, and (ii) providing, as attachments thereto, the Certificate of
Incorporation and Bylaws of BlueStone, with all amendments;
(d) Good Standing Certificates. Certificates as to the formation
and/or good standing of BlueStone issued by the NY SOS to be dated a date
not more than a reasonable number of days prior to the Closing Date;
(e) Opinion of Counsel. An opinion of Blank Rome Xxxxxx Xxxxxxxxxx,
LLP dated as of the Closing Date, addressed to the HealthStar Parties and
to Xxxx Capital Partners LLC, which is acting as Qualified Independent
Underwriter for the Merger pursuant to the rules of the NASD ("Xxxx
Capital") substantially in the form of Exhibit 7.1(e) attached hereto; and
(f) Other Documents. Such other documents reasonably requested by the
HealthStar Parties or their counsel for complete implementation of this
Agreement and consummation of the transaction contemplated hereby.
7.2. Deliveries by the HealthStar Parties. Prior to or on the Closing Date,
the HealthStar Parties shall deliver to BlueStone and the Principal Shareholders
the following, in form and substance reasonably satisfactory to Principal
Shareholders, BlueStone and their counsel:
(a) Certificate of Merger. The Certificate of Merger duly executed by
the appropriate officers of Merger Sub;
(b) Officer's Certificate. A certificate, dated as of the Closing
Date, executed on behalf of an officer of each of the HealthStar Parties,
certifying (i) that the representations and warranties of each of the
HealthStar Parties contained in this Agreement are true and complete in all
material respects as of the Closing Date as though made on and as of that
date, and (ii) that each of the HealthStar Parties have in all material
respects performed and complied with all of its obligations, covenants and
agreements in this Agreement to be performed and complied with on or prior
to the Closing Date;
(c) Secretary's Certificate. A certificate, dated as of the Closing
Date, executed by each of the HealthStar Parties' Secretary: (i) certifying
that the resolutions, as attached to such certificate, were duly adopted by
each of the HealthStar Parties' Board of Directors authorizing and
approving the execution of this Agreement and the consummation of the
transaction contemplated hereby and that such resolutions remain in full
force and effect; and (ii) providing, as an attachment thereto, each of the
HealthStar Parties' Certificates of Incorporation and Bylaws;
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(d) Good Standing Certificates. Certificates as to the formation
and/or good standing of the HealthStar Parties issued by the Secretary of
State of Delaware (in the case of HealthStar) and the NY SOS (in the case
of Merger Sub) to be dated a date not more than a reasonable number of days
prior to the Closing Date;
(e) Opinion of Counsel. An opinion of Xxxxxx & Xxxxxxxx, P.A. dated as
of the Closing Date, addressed to BlueStone, the Principal Shareholders and
Xxxx Capital substantially in the form of Exhibit 7.2(e) hereto; and
(f) Other Documents. Such other documents reasonably requested by
Principal Shareholders, BlueStone or their counsel for complete
implementation of this Agreement and consummation of the transactions
contemplated hereby.
SECTION 8:
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated at any
time prior to Closing by the mutual consent of the parties.
8.2. Other Termination. This Agreement may be terminated by BlueStone or
HealthStar and the Merger abandoned if the terminating party is not then in
default hereunder and Closing has not occurred by September 15, 2001.
8.3. Specific Performance. The parties recognize that, if either party
hereto breaches this Agreement and refuses to perform under the provisions of
this Agreement, monetary damages alone would not be adequate to compensate the
other party for its injury. Such party shall therefore be entitled, in addition
to any other remedies that may be available, to obtain specific performance of
the terms of this Agreement. If any action is brought by such party to enforce
this Agreement, the breaching party shall waive the defense that there is an
adequate remedy at law.
8.4. Survival. Notwithstanding the termination of this Agreement pursuant
to this Section 8, the obligations of the HealthStar Parties and Principal
Shareholders set forth in Sections 10.1, 10.2 and 10.11 shall survive such
termination, and the parties hereto shall have any and all rights and remedies
to enforce such obligations provided at law or in equity or otherwise (including
without limitation, specific performance).
SECTION 9:
SURVIVAL; INDEMNIFICATION; CERTAIN REMEDIES
9.1. Survival. All representations and warranties, covenants and agreements
of the HealthStar Parties and Principal Shareholders contained in or made
pursuant to this Agreement or in any certificate furnished pursuant hereto shall
survive the Closing Date and the Effective Time and remain in full force and
effect for a period of one hundred twenty days (120) days after the Closing
Date; provided that the representations, warranties and covenants in Section
3.11, 3.19, 4.4, 4.9, 10.1,10.2, 10.11 and 10.14, shall survive for the
applicable period of time under the statute of limitations for the matters
described therein; and provided further that anything to the contrary in this
Section 9.1 notwithstanding, any claim for indemnification under Section 9
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hereof which is asserted in a reasonably detailed writing prior to the
expiration of the one hundred twenty (120) day survival period provided in this
Section 9.1 shall survive with respect to such claim or dispute until final
resolution thereof. For purposes of clarification, the Indemnifying Party, as
defined in Section 9.4, shall be responsible for all reasonable attorney's fees
of the non-breaching party which arise after expiration of the survival period
in connection with a claim for indemnification hereunder, provided that such
claim is asserted in writing prior to the expiration of the survival period as
set forth above.
9.2. Indemnification by Principal Shareholders and BlueStone.
(a) Principal Shareholders shall severally and not jointly indemnify
and hold the HealthStar Parties harmless against and with respect to and
shall reimburse the HealthStar Parties for any and all Losses arising out
of or resulting from any untrue representation or any breach of any
warranty, covenant or agreement of the indemnifying Principal Shareholder
or BlueStone contained in this Agreement or in any certificate, document,
or instrument delivered to the HealthStar Parties by the indemnifying
Principal Shareholder or BlueStone under or in connection with this
Agreement, provided, however, after the Effective Time, but subject to the
proviso in the last sentence of Section 9.2(c), that the sole recourse
against the Principal Shareholders under this Section 9.2 shall be to
require the forfeiture, return, assignment or transfer to the HealthStar
Parties of the appropriate number of Consideration Shares equal to the
amount of the indemnification obligation of such Principal Shareholders,
free and clear of all security interests, liens or encumbrances. Before the
Effective Time, the sole recourse against the Principal Shareholders shall
be for specific performance, to the extent available. In calculating the
amount of Consideration Shares to be forfeited, returned, assigned or
transferred by the Principal Shareholders pursuant to this Section 9.2,
each Consideration Share shall be valued at the value thereof on the
Closing Date.
(b) Principal Shareholders shall have no liability with respect to
claims for indemnification pursuant to this Section 9.2 or otherwise under
or in connection with this Agreement unless HealthStar and/or Merger Sub
have paid, suffered and/or incurred Losses which, in the aggregate, exceed
$350,000.00 (the "HealthStar Basket"), after which time the Principal
Shareholders shall indemnify HealthStar and Merger Sub for all amounts in
excess of the HealthStar Basket, subject, however, to the Cap. No Principal
Shareholder shall have any liability to the HealthStar Parties for Losses
in excess of the value of Two Million (2,000,000) Consideration Shares
(based on 20,000 shares of Preferred Stock) and therefore, in no event
shall more than 2,000,000 Consideration Shares be required to be forfeited,
returned, assigned or transferred by either Principal Shareholder
(4,000,000 Consideration Shares (based on 40,000 shares of Preferred Stock)
in the aggregate), as such number of Consideration Shares shall be adjusted
for stock dividends, stock splits, reverse stock splits and similar events,
(the "Cap") in the aggregate as to both HealthStar Parties as indemnified
parties with respect to claims for indemnification pursuant to this Section
9.2 and/or otherwise at law or in equity, in connection with this Agreement
and the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary in Section 9.2(b), under
no circumstances shall the HealthStar Basket or the Cap apply to any Losses
resulting from Fraud which shall be defined to be the knowing and
intentional misrepresentation or omission of facts in connection with the
transactions contemplated by this Agreement. In addition, the HealthStar
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Parties shall have all rights and remedies at law or in equity for any
Losses described in the preceding sentence, including, without limitation,
money damages and/or the forfeiture, return, assignment and transfer of the
Consideration Shares, and without regard to the HealthStar Basket or the
Cap, the parties having agreed that all such rights and remedies are
cumulative and supplementary. Subject to this Section 9.2(c), the sole
remedy the HealthStar Parties shall have against the Principal Shareholders
for all Losses incurred by the HealthStar Parties under or in connection
with this Agreement shall be limited to the forfeiture, return, assignment
and transfer to the HealthStar Parties of the appropriate number of
Consideration Shares as contemplated by Section 9.2(a); provided, however,
that (i) if and to the extent a Principal Shareholder no longer owns such
number of Consideration Shares that such Principal Shareholder received in
connection with the Merger and HealthStar and/or Merger Sub would otherwise
be entitled to the forfeiture, return, assignment and transfer thereof,
then, the HealthStar Parties shall be entitled to obtain money damages in
lieu of such Consideration Shares, up to the value thereof valued as set
forth in Section 9.2(a), and (ii) if the Principal Shareholder owns such
number of Consideration Shares but fails to or refuses for any reason
whatsoever to forfeit, return, assign or transfer them, then the HealthStar
Parties shall be entitled at their option (a) to obtain specific
performance of the forfeiture, return, assignment or transfer of such
Consideration Shares, or (b) to obtain money damages in lieu of such
Consideration Shares up to the value thereof valued as set forth in Section
9.2(a).
9.3. Indemnification by the HealthStar Parties.
(a) The HealthStar Parties shall jointly and severally indemnify and
hold all of the holders of capital stock of BlueStone on the Closing Date
(the "BlueStone Shareholders") harmless against and with respect to and
shall reimburse the BlueStone Shareholders for any and all Losses arising
out of or resulting from any untrue representation, breach of any warranty,
covenant or agreement by the HealthStar Parties contained in this Agreement
or in any certificate, document, or instrument delivered to BlueStone or
the Principal Shareholders by either or both of the HealthStar Parties
under or in connection with this Agreement.
(b) Neither one or both of the HealthStar Parties shall have any
liability to the BlueStone Shareholders pursuant to Section 9.3(d)(i) in
excess of the Cap (as defined in Section 9.2(b) and calculated pursuant to
the last sentence of Section 9.2(a)) in the aggregate as to all BlueStone
Shareholders with respect to claims for indemnification pursuant to this
Section 9.3 and/or otherwise at law or in equity, in connection with this
Agreement and the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary in Section 9.3(b), under
no circumstances shall the Cap apply to any Losses resulting from Fraud as
defined in Section 9.2(c).
(d) In the event that HealthStar is required to indemnify any of the
BlueStone Shareholders under this Section 9.3, such obligation shall be
satisfied by (i) the payment to such BlueStone Shareholder(s) in cash,
subject to the provisions of Section 9.3(b), (as modified by Section
9.3(c)), of the direct Losses, if any, suffered by such BlueStone
Shareholder(s), plus (ii) the issuance to such BlueStone Shareholder(s), of
such number of additional shares of HealthStar Common Stock determined by
(a) multiplying the dollar amount of the indemnified
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claim by the percentage of the issued and outstanding shares of Common
Stock (treating the Preferred Stock of HealthStar on an as converted basis)
owned by such BlueStone Shareholder(s) on the Closing Date (the "Ownership
Percentage"), (b) dividing such result by one minus the Ownership
Percentage and (c) further dividing such result by the value of a share of
HealthStar Common Stock on the Closing Date.
9.4. Procedure for Indemnification. The procedure for indemnification shall
be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly
give notice to the party from which indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying in reasonable detail the factual basis for the
claim. If the claim relates to an action, suit, or proceeding filed by a
third party against Claimant, such notice shall be given by Claimant within
five (5) business days after written notice of such action, suit, or
proceeding was given to Claimant.
(b) With respect to claims solely between the parties, following
receipt of notice from the Claimant of a claim, the Indemnifying Party
shall have thirty (30) days to make such investigation of the claim as the
Indemnifying Party deems necessary or desirable. For the purposes of such
investigation, the Claimant agrees to make available to the Indemnifying
Party and its authorized representatives the information relied upon by the
Claimant to substantiate the claim pursuant to the provision of this
Section 9. If the Claimant and the Indemnifying Party agree at or prior to
the expiration of the thirty (30) day period (or any mutually agreed upon
extension thereof) to the validity and amount of such claim, the
Indemnifying Party shall immediately pay to the Claimant the full amount of
the claim. If the Claimant and the Indemnifying Party do not agree within
the thirty (30) day period (or any mutually agreed upon extension thereof),
the Claimant may seek appropriate remedy at law or equity.
(c) With respect to any claim by a third party as to which the
Claimant is entitled to indemnification under this Agreement, the
Indemnifying Party shall have the right at its own expense, to participate
in or assume control of the defense of such claim, and the Claimant shall
cooperate fully with the Indemnifying Party, subject to reimbursement for
actual out-of-pocket expenses incurred by the Claimant as the result of a
request by the Indemnifying Party. If the Indemnifying Party elects to
assume control of the defense of any third-party claim, the Claimant shall
have the right to participate in the defense of such claim at its own
expense. If the Indemnifying Party does not elect to assume control or
otherwise participate in the defense of any third-party claim, it shall be
bound by the results obtained in good faith by the Claimant with respect to
such claim.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) Principal Shareholders hereby release BlueStone and its officers,
directors, employees and agents from any and all claims, damages and
liabilities (including, without limitation, claims, liabilities or damages
for contribution, indemnification and/or other rights of recourse), in
connection with any claims or counterclaims brought hereafter against any
of the
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Principal Shareholders by any of the HealthStar Parties arising under or in
connection with this Agreement.
9.5. Certain Limitations. The amount of the Losses suffered by an
Indemnified Party shall be net of any insurance payment or recovery which such
party or its representatives realizes in respect of or as a result of such
Losses or the facts or circumstances relating thereto. If any Losses for which
indemnification is provided hereunder is subsequently reduced by any such
insurance payment or other recovery from a third party, the amount of such
reduction shall be remitted to the Indemnifying Party. If, after the Closing,
either party realizes any Losses for which it is indemnified by the other party
hereunder, such Claimant shall use its reasonable efforts to obtain the maximum
recovery or other benefit reasonably believed by it to be available to it under
any applicable insurance policy. A Claimant shall furnish to the indemnifying
party, on demand, a certificate of its chief financial officer verifying the
amount of any such insurance recovery or other benefit. Notwithstanding any
other provision of this Agreement to the contrary, in no event shall a party be
entitled to indemnification for such party's consequential or punitive damages,
regardless of the theory of recovery. Each party hereto agrees to use reasonable
efforts to mitigate any Losses which form the basis for any claim for
indemnification hereunder.
SECTION 10:
MISCELLANEOUS
10.1. Fees and Expenses. Except as otherwise provided in this Agreement,
each party shall pay its own expenses incurred in connection with the
authorization, preparation, execution and performance of this Agreement,
including all fees and expenses of counsel, accountants, agents and
representatives, and each party shall be responsible for all fees or commissions
payable to any finder, broker, advisor, or similar Person retained by or on
behalf of such party. In no event shall BlueStone pay for any of the
aforementioned fees, expenses or commissions of Principal Shareholders without
the consent of HealthStar, which consent HealthStar may withhold in its sole and
absolute discretion.
10.2. Notices. All notices, requests, consents, payments, demands, and
other communications required or contemplated under this Agreement shall be in
writing and (a) personally delivered or sent via telecopy (receipt confirmed and
followed promptly by delivery of the original), or (b) sent by Federal Express
or other reputable overnight delivery service (for next business day delivery),
shipping prepaid, as follows:
If to the HealthStar Parties to:
HealthStar Corp. HealthStar Corp.
0000 X.X. 000xx Xxxxxx, Xxxxx 000 19 Hillsyde Court
Aventura, Florida 33180 Xxxxxxxxx, Xxxxxxxx 00000
Attn: President
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
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With a copy to:
Xxxxxxx X. Xxxxx, XX, Esquire
Xxxxxx & Xxxxxxxx, P.A.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to BlueStone to:
BlueStone Capital Corp.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Chief Operating Officer
Telephone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxxx X. Xxxxxxx, Esquire
Blank Rome Xxxxxx Xxxxxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to Principal Shareholders to:
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxx
000 Xxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
With a copy to:
Xxxxxx X. Xxxxxxx, Esquire
Blank Rome Xxxxxx Xxxxxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
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or to such other Persons or addresses as any Person may request by notice given
as aforesaid. Notices shall be deemed given and received at the time of personal
delivery or completed telecopying, or, if sent by Federal Express or such other
overnight delivery service one Business Day after such sending.
10.3. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns,
executors and personal and legal representatives.
10.4. Further Assurances. The parties shall take any actions and execute
any other documents that may be necessary or desirable (before or after the
Closing) to the implementation and consummation of this Agreement.
10.5. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Delaware (without regard to
the choice of law provisions thereof).
10.6. Entire Agreement. Any confidentiality agreement entered into between
or among the parties, this Agreement and the Annexes and the Schedules hereto,
each of which Annexes and Schedules are hereby incorporated herein by reference,
and all documents, certificates and other documents to be delivered by the
parties pursuant hereto, collectively, represent the entire understanding and
agreement between HealthStar, Merger Sub and Principal Shareholders with respect
to the subject matter of this Agreement. Except for the aforementioned
confidentiality agreement, this Agreement supersedes all prior negotiations
between the parties and cannot be amended, supplemented, or changed except by an
agreement in writing duly executed by each of the parties hereto.
10.7. Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement, or condition herein may be waived
by the party entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, representation, warranty, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 10.7.
10.8. Headings. The headings of the sections and subsections contained in
this Agreement are inserted for convenience only and do not form a part or
affect the meaning, construction or scope thereof.
10.9. Counterparts. This Agreement may be signed in two or more
counterparts with the same effect as if the signature on each counterpart were
upon the same instrument.
10.10. Cooperation. The parties hereto shall reasonably cooperate with each
other and their respective counsel and accountants in connection with any
actions required to be taken as part of their respective obligations under this
Agreement, and in connection with any litigation after the implementation and
consummation of this Agreement, and otherwise use their
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commercially reasonable efforts to consummate the transaction contemplated
hereby and to fulfill their obligations under this Agreement.
10.11. Public Announcements. The parties hereto shall consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
herein and shall not issue any such press release or make any such public
statement without the prior written consent of the other party, which shall not
be unreasonably withheld; provided, however, that a party may, without the prior
written consent of the other party, issue such press release or make such public
statement as may be required by law or any listing agreement with a national
securities exchange to which the HealthStar Parties are a party if it has used
all reasonable efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
10.12. Knowledge. References in this Agreement to "Knowledge of Principal
Shareholders" and words of similar import shall mean the actual knowledge of the
Principal Shareholder making the representation, provided that upon notice of
circumstances that could reasonably make the representation untrue, such
Principal Shareholder shall have inquired as to whether such circumstances in
fact make such circumstances untrue. References in this Agreement to "Knowledge
of the HealthStar Parties" and words of similar import shall mean the actual
knowledge of either or both of HealthStar and Merger Sub's executive officers,
provided that upon notice of circumstances that could reasonably make the
representation untrue, such executive officer shall have inquired as to whether
such circumstances in fact make such circumstances untrue.
10.13. Schedules. The Disclosure Schedules delivered pursuant to this
Agreement (collectively, "Disclosure Schedules") are an integral part hereof,
and are considered to be part of the representations and warranties to which
they relate. Each such Disclosure Schedule shall be in writing and shall
indicate the subparagraph pursuant to which it is being delivered. For purposes
of this Agreement, information which is necessary to make a given Disclosure
Schedule complete and accurate, but is omitted therefrom, shall nevertheless be
deemed to be contained therein if it is contained on any other Disclosure
Schedule; but only if such information appears on such other Disclosure Schedule
in such form and detail that it is responsive to the requirements of such given
Disclosure Schedule. The parties may, at their option, include in one or more of
the Disclosure Schedules delivered by it pursuant hereto items which are not
"material" or otherwise required to be disclosed; and the inclusion of any such
item shall not be deemed to be an acknowledgement by such party that it is
"material" or that it is required to be disclosed.
10.14. Consent of Auditors. Each party shall use its commercially
reasonable efforts before and after the Closing to obtain the consent of such
party's auditors to permit inclusion of the audited financial statements of such
party in the applicable securities filings of HealthStar.
[Signatures Begin on Following Page]
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IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized officers of the BlueStone and the HealthStar Parties as of the date
first written above.
The HealthStar Parties:
HealthStar Corp.
By: /s/ Zirk Xxxxxxxxxxx
-----------------------------------
Name: Zirk Xxxxxxxxxxx
Title: President
BS Acquisition Corp.
By: /s/ Zirk Xxxxxxxxxxx
-----------------------------------
Name: Zirk Xxxxxxxxxxx
Title: President
Principal Shareholders:
/s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxx
----------------------------------
Name: Xxxxxxx X. Xxxx
BlueStone:
BlueStone Capital Corp.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Name:
Title:
-38-
Annex 1
CERTAIN DEFINITIONS
The following terms, as used in this Agreement, have the meanings set forth
in this Annex 1 (terms defined in the singular to have the correlative meaning
in the plural and vice versa):
"Affiliate" means, with respect to any Person, (a) any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person, or (b) an officer or
director of such Person or of an Affiliate of such Person within the meaning of
clause (a) of this definition. For purposes of clause (a) of this definition,
(i) a Person shall be deemed to control another Person if such Person (A) has
sufficient power to enable such Person to elect a majority of the board of
directors of such Person, or (B) owns a majority of the beneficial interests in
income and capital of such Person; and (ii) a Person shall be deemed to control
any partnership of which such Person is a general partner.
"BlueStone Material Adverse Change" means since March 31, 2001, any
material adverse change in the business, operations, properties, financial
condition, assets, liabilities or results of operations of BlueStone, or the
occurrence of any event or the existence of any circumstance that may result in
such a material adverse change, provided that it is stipulated that any changes
effected by the reorganization of the Predecessor into BlueStone or the purchase
by the Predecessor of certain assets of Xxxxx.xxx Global Markets, Inc. do not
constitute a BlueStone Material Adverse Change.
"BlueStone Material Adverse Effect" shall mean a material adverse effect on
the business, operations, properties, financial condition, assets, liabilities
or results of operations of BlueStone taken as a whole, or the ability of
BlueStone to consummate the transactions contemplated by this Agreement.
However, a BlueStone Material Adverse Effect does not include material adverse
effects on the business, operations, properties, financial condition, assets,
liabilities or results of operations of BlueStone which occur after the date of
this Agreement and are caused by downturns in the economy or in the industry in
which BlueStone operates.
"BlueStone Shares" means the shares of capital stock of BlueStone that are
currently issued and outstanding.
"Closing" means the closing of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" means the date on which the Closing occurs, as determined
pursuant to Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consents" means the consents, permits, declarations, or approvals of
Government Bodies and other Persons necessary to effect the Merger or otherwise
to consummate the transactions contemplated by this Agreement.
Annex 1 Page 1
"Contracts" means all contracts, consulting agreements, leases,
non-governmental licenses and other agreements (including leases for personal or
real property and employment agreements), written or oral (including any
amendments and other modifications thereto) that either (a) are in effect on the
date of this Agreement, or (b) are entered into between the date of this
Agreement and the Closing Date, other than such Contracts which are terminable
by BlueStone or HealthStar, as the case may be, on notice of 120 days or less.
"Employees" means the principals, officers and employees of BlueStone or
HealthStar, as the case may be.
"Employee Licenses" means all Governmental Authorizations issued to any
principal, officer or employee of BlueStone currently in effect and used in
connection with the conduct or operations of BlueStone's business, together with
all amendments thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Future Shareholder" means any Person who acquires stock of BlueStone from
and after the date of this Agreement but prior to the Effective Time.
"GAAP" means generally accepted United States accounting principles,
applied on a consistent basis.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);
(d) multi-national organization or body;
(e) self-regulatory organization (including, without limitation,
NASD); or
(f) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"HealthStar Material Adverse Change" means since March 31, 2001, any
material adverse change in the business, operations, properties, financial
conditions, assets, liabilities or results of operations of HealthStar, or the
occurrence of any event or the existence of any circumstance that may result in
such a material adverse change.
Annex 1 Page 2
"HealthStar Material Adverse Effect" shall mean a material adverse effect
on the business, operations, properties, financial condition, assets,
liabilities or results of operations of HealthStar taken as a whole, or the
ability of HealthStar to consummate the transactions contemplated by this
Agreement. However, a HealthStar Material Adverse Effect does not include
material adverse effects on the business, operations, properties, financial
condition, assets, liabilities or results of operations of HealthStar which
occur after the date of this Agreement and are caused by downturns in the
economy or in the industry in which HealthStar operates.
"Intangibles" means all copyrights, trademarks, trade names, service marks,
service names, licenses, patents, permits, proprietary information, technical
information and data, machinery and equipment warranties, and other similar
intangible property rights and interests (and any goodwill associated with any
of the foregoing) applied for, issued to, or owned by BlueStone or under which
BlueStone is licensed or franchised and that are used in the business and
operations of BlueStone, together with any additions thereto between the date of
this Agreement and the Closing Date.
"Leased Real Property" means all real property and all buildings and other
improvements thereon and appurtenant thereto leased or held by BlueStone.
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, self regulatory organization or other
administrative order, constitution, law, ordinance, principle of common law,
rule, regulation, statute, treaty, by-law, or the like.
"Losses" means any loss, liability, damage, cost, or expense, including,
without limitation, reasonable attorneys' fees and expenses.
"NASD" means National Association of Securities Dealers, Inc. and its
subsidiaries.
"Order" means any award, decision, injunction, judgment, decree, order,
ruling, writ, determination, subpoena, or verdict entered, issued, made, or
rendered by any court, administrative agency, or other Governmental Body or by
any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
Annex 1 Page 3
"Permitted Encumbrances" means (a) encumbrances of a landlord, or other
statutory lien not yet due and payable, or landlord's liens arising in the
Ordinary Course of Business, (b) encumbrances arising in connection with
equipment or maintenance financing or leasing under, in the case BlueStone, the
terms of the Contracts set forth on the Schedules, which Contracts have been
made available to the HealthStar Parties, or, in the case of BlueStone or
HealthStar, with respect to items of equipment that are valued at less than
$25,000 each, (c) encumbrances for Taxes not yet delinquent or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on BlueStone's or HealthStar's, as the case may
be, books in accordance with generally accepted accounting principles, or (d)
encumbrances that do not materially detract from the value of any of the assets
of BlueStone or HealthStar, as the case may be, or materially interfere with the
use thereof as currently used.
"Person" means an individual, corporation, association, partnership,
limited partnership, joint venture, trust, estate, limited liability company,
limited liability partnership, organization or other entity or Governmental
Body.
"Real Property" means all real property and all buildings and other
improvements thereon and appurtenant thereto leased by BlueStone used in the
business or operations of BlueStone.
"Related Person" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
Annex 1 Page 4
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 5% of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least 5% of the outstanding equity securities or equity
interests in a Person.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tangible Personal Property" means all machinery, equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant, inventory,
spare parts and other tangible personal property owned or held by BlueStone that
is used or useful in the conduct of the business or operations of BlueStone,
together with any additions, substitutions and replacements thereof and thereto
between the date of this Agreement and the Closing Date.
"Tax" or "Taxes" means any federal, state, local, or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, capital, transfer, employment, withholding, or other
tax or similar governmental assessment, together with any interest, additions,
or penalties with respect thereto and any interest in respect of such additions
or penalties.
"Tax Authority" means any Governmental Body or other authority exercising
any taxing or tax regulatory authority.
"Tax Liability" means any liability for Taxes.
"Taxable Period" means any taxable year or any other period that is treated
as a taxable year with respect to which any Taxes may be imposed under any
applicable statute, rule, or regulation.
"Tax Proceeding" means any audit, examination, claim, or other
administrative or judicial proceeding involving Taxes.
"Tax Return" means any tax return, declaration of estimated tax, tax report
or other tax statement (including supporting information), or any other similar
filing required to be submitted to any Governmental Body with respect to any
Taxes.
Annex 1 Page 5
