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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 4, 2000
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MIM Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-28740 05-0489664
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(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
100 Clearbrook Road, Elmsford, NY 10523
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 460-1600
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On August 4, 2000, the Company, through its principal pharmacy benefit
management operating subsidiary, MIM Health Plans, Inc. ("Health Plans"),
acquired all of the issued and outstanding membership interests of American
Disease Management Associates, L.L.C., a Delaware limited liability company
("ADIMA"), from Radix Capital Investment Group, LLC, a Delaware limited
liability company, Elizabeth Williams, Bruce Blake and Sal Rafanelli, pursuant
to a Purchase Agreement dated as of August 3, 2000 (the "Purchase Agreement").
ADIMA, located in Livingston, New Jersey, provides intravenous and injectible
specialty pharmaceutical products to chronically ill patients receiving
healthcare services from home by IV certified registered nurses, typically after
a hospital discharge.
The aggregate purchase price for ADIMA was approximately $24 million
consisting of $19 million in cash and the balance in Company common stock, a
portion of which is being held in escrow to secure potential indemnification
claims for breaches of seller's representations and warranties. The cash portion
of the purchase price was partially funded with cash on hand and the remainder
with funds from its primary lender under its existing $30 million revolving
credit facility. The transaction will be accounted for as a purchase.
The descriptions of the transaction contained herein are qualified in
their entirety by reference to the Purchase Agreement attached hereto as Exhibit
2.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. The financial statements
required by this item will be filed on or before October 18, 2000.
(b) Pro Forma Financial Information. The financial information required by
this item will be filed on or before October 18, 2000.
(c) Exhibits.
2.1 Purchase Agreement, dated as of August 3, 2000, among
American Disease Management Associates, L.L.C., its Members
and Certain Related Parties, MIM Health Plans, Inc. and MIM
Corporation.
4.1 Registration Rights Agreement, dated as of August 3, 2000,
by and between MIM Corporation and Livingston Group, LLC.
10.1 Employment Agreement, dated August 3, 2000, by and
between American Disease Management Associates, L.L.C.,
an indirect wholly owned subsidiary of MIM Corporation
and Bruce Blake.
99.1 Press Release, dated August 4, 2000, issued by MIM
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 10, 2000 MIM Corporation
By: /s/ Barry A. Posner
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Name: Barry A. Posner
Title: Vice President
EXHIBIT INDEX
Exhibit No. Exhibit
2.1 Purchase Agreement, dated as of August 3, 2000,
among American Disease Management Associates, L.L.C.,
its Members and Certain Related Parties, MIM Health Plans, Inc.
and MIM Corporation.
4.1 Registration Rights Agreement, dated as of August 3, 2000, by
and between MIM Corporation and Livingston Group, LLC.
10.1 Employment Agreement, dated August 3, 2000, by and
between American Disease Management Associates, L.L.C.,
an indirect wholly owned subsidiary of MIM Corporation
and Bruce Blake.
99.1 Press Release, dated August 4, 2000, issued by MIM
Corporation.
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PURCHASE AGREEMENT
among
AMERICAN DISEASE MANAGEMENT ASSOCIATES, L.L.C,
ITS MEMBERS AND CERTAIN RELATED PARTIES,
MIM HEALTH PLANS, INC.
and
MIM CORPORATION
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Dated as of August 3, 2000
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TABLE OF CONTENTS
Page
Article I
CERTAIN DEFINITIONS.......................................................1
Section 1.01. Certain Definitions..................................1
Article II
PURCHASE AND SALE OF THE INTERESTS........................................6
Section 2.01. Purchase and Sale of the Interests...................6
Section 2.02. Purchase Price; Escrowed Shares......................6
Section 2.03. [INTENTIONALLY OMITTED]..............................7
Section 2.04. Payments.............................................7
Section 2.05. release of escrowed shares and/or funds..............7
Section 2.06. PURCHASE PRICE ALLOCATION............................7
Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS.............8
Section 3.01. Corporate Existence; Capital Stock...................8
Section 3.02. Subsidiaries.........................................9
Section 3.03. Ownership of the Interests...........................9
Section 3.04. Authority; Validity..................................9
Section 3.05. Certificate of Formation and
Operating Agreement................................9
Section 3.06. No Conflict or Violation............................10
Section 3.07. Approvals and Consents..............................10
Section 3.08. Financial Information; No Undisclosed
Liabilities; No Material Adverse Effect............10
Section 3.09. Receivables.........................................11
Section 3.10. Assets..............................................12
Section 3.11. Conduct and Scope of Business.......................12
Section 3.12. Litigation..........................................13
Section 3.13. Licenses............................................13
Section 3.14. Contracts...........................................14
Section 3.15. Customers...........................................15
Section 3.16. Real Property; Leases...............................15
Section 3.17. Bank Accounts.......................................16
Section 3.18. Intellectual Property...............................16
Section 3.19. Insurance...........................................16
Section 3.20. Taxes...............................................16
Section 3.21. Hazardous Materials.................................17
Section 3.22. Employee Benefit Plans..............................18
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Section 3.23. Labor Relations.....................................19
Section 3.24. Directors, Officers and Key Employees...............20
Section 3.25. Broker's Commission.................................20
Section 3.26. Independent Contractors and Customers...............20
Section 3.27. No Violation of Law; Certifications
for Reimbursement.................................21
Section 3.28. Disclosures.........................................23
Section 3.29. Investment Representations..........................24
Article IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND PARENT...............24
Section 4.01. Organization and Standing...........................24
Section 4.02. Authority...........................................24
Section 4.03. No Conflict or Violation............................25
Section 4.04. Approvals and Consents..............................25
Section 4.05. Litigation..........................................25
Section 4.06. Broker's Commission.................................26
Section 4.07. Reports and Financial Statements....................26
Article V
CLOSING..................................................................26
Section 5.01. Closing; Delivery...................................26
Article VI
COVENANTS FOLLOWING THE CLOSING..........................................28
Section 6.01. Certain Tax Matters.................................28
Section 6.02. Restrictions on Transfer
of Parent Stock...................................29
Section 6.03. Remitted Payments...................................31
Section 6.04. Proprietary Information and
Restrictive Covenants.............................31
Section 6.05. [INTENTIONALLY OMITTED].............................35
Section 6.06. Further Assurances..................................35
Section 6.07. Use of Company Name.................................35
Section 6.08. Insurance Coverage..................................35
Article VII
SURVIVAL AND INDEMNIFICATION.............................................35
Section 7.01. Survival............................................35
Section 7.02. Indemnification.....................................36
Section 7.03. Claims for Indemnification..........................37
Section 7.04. Defense of Claims...................................39
Article VIII
AMENDMENTS AND WAIVERS...................................................40
Section 8.01. Amendments..........................................40
Section 8.02. Waivers.............................................40
Article IX
GENERAL PROVISIONS.......................................................41
Section 9.01. Notices.............................................41
Section 9.02. Assignment; Third Party Beneficiaries...............41
Section 9.03. Dispute Resolution..................................42
Section 9.04. Expenses............................................43
Section 9.05. Counterparts; Section Headings......................43
Section 9.06. Entire Agreement....................................43
Section 9.07. Governing Law.......................................43
Section 9.08. Severability........................................43
Section 9.09. Good Faith..........................................43
Section 9.10. Public Announcement.................................43
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PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of August 3, 2000,
among: (A) AMERICAN DISEASE MANAGEMENT ASSOCIATES, L.L.C., a Delaware limited
liability company (the "Company"), (B) RADIX CAPITAL INVESTMENT GROUP, LLC (the
"Seller LLC"), JOHN CHAY and GEORGE BROWN (the "Seller LLC Members"), ELIZABETH
WILLIAMS, BRUCE BLAKE, and SAL RAFANELLI (each individually a "Seller", and
together with the Seller LLC and the Seller LLC Members, the "Sellers"); (C)
LIVINGSTON GROUP LLC, a Maryland limited liability company (the "Designated
Seller"); (D) MIM HEALTH PLANS, INC., a Delaware corporation (the "Purchaser")
and a wholly owned subsidiary of MIM Corporation (the "Parent"), a Delaware
corporation, and (E) the Parent (the Sellers (including the Seller LLC Members),
the Company, the Purchaser and the Parent are referred to hereinafter
individually as a "Party" and collectively as the "Parties").
W I T N E S S E T H:
WHEREAS, the Sellers collectively own, directly or indirectly, all of
the outstanding membership interests or other equity interests (the "Interests")
in the Company;
WHEREAS, the Purchaser desires to purchase from the Sellers, and
Sellers desire to sell, assign and transfer to the Purchaser, their respective
Interests in the Company subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Company, the Sellers and the
Purchaser hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01. Certain Definitions.
Except as otherwise set forth herein, as used herein the following
terms have the following respective meanings:
"AAA" has the meaning set forth in Section 9.03 of this
Agreement.
"Affiliate" shall mean with respect to any Person, (i) in the
case of any Person that is an individual, (A) a spouse of such Person,
(B) any relative that is a parent, grandparent, child, grandchild or
sibling (each by blood, adoption or marriage) of such Person, (C) any
entity of which such Person is a director, partner, officer or
employee or in which such Person or its Affiliates own or control
twenty percent (20%) or more of the outstanding equity securities or
(ii) in the case of any other Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect
common control with such Person.
"Allocation" has the meaning set forth in Section 2.07 of this
Agreement.
"Assets" has the meaning set forth in Section 3.10 of this
Agreement.
"Assignment of Membership Interest" shall mean an assignment
agreement, substantially in the form of Exhibit A hereto, providing
for the transfer of an Interest by the applicable Seller to the
Purchaser.
"Authorizations" has the meaning set forth in Section 3.27 of
this Agreement.
"Business" shall mean the Company's specialty pharmacy and home
infusion business operations.
"Business Day" means a day other than (a) Saturday, (b) Sunday or
(c) a day on which banks are not required to be open or are authorized
to remain closed in New York, New York.
"Capped Representations" has the meaning set forth in Section
7.01 of this Agreement.
"Cash Portion" has the meaning set forth in Section 2.02 of this
Agreement.
"Closing" has the meaning set forth in Section 5.03 of this
Agreement.
"Closing Date" shall mean the date and time of the Closing.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder, as amended.
"Company EBITDA" means the sum of (a) net income (or the negative
amount of any net loss), (b) interest expense, (c) income tax expense,
(d) depreciation expense and (e) amortization expense, for the Company
for the twelve months ended December 31, 2000 determined in accordance
with GAAP applied on a basis consistent with past practice.
"Company Permits" has the meaning set forth in Section 3.13 of
this Agreement.
"Contracts" has the meaning set forth in Section 3.14 this
Agreement.
"competing business" has the meaning set forth in Section 6.04 of
this Agreement.
"Customers" has the meaning set forth in Section 3.15 of this
Agreement.
"Damages" has the meaning set forth in Section 7.02 of this
Agreement.
"Designated Seller" means Livingston Group LLC, a Maryland
limited liability company.
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"Employee Benefit Plan" has the meaning set forth in Section
3.22(a) of this Agreement.
"Employment Agreements" shall mean the Employment Agreements to
be entered into by the Sellers and the Company in the form of Exhibits
B-1, B-2 and B-3 hereto.
"Encumbrances" shall mean any and all liens, security interests,
pledges, charges, claims, restrictions, limitations, options, or other
encumbrances of any kind, character, or description, whether or not of
record.
"Environmental Laws" means any Law, and any judicial or
administrative interpretation thereof now in effect, including any
judicial or administrative order, consent decree or judgment, relating
to the environment, health, safety or hazardous materials (which shall
include, without limitation, medical waste).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the regulations promulgated thereunder, as
amended.
"Escrow Agent" has the meaning set forth in Section 2.02 of this
Agreement.
"Escrow Agreement" has the meaning set forth in Section 2.02 of
this Agreement.
"Escrowed Shares" has the meaning set forth in Section 2.02.
"Final Escrow Certificate" has the meaning set forth in Section
2.06 of this Agreement.
"Financial Statements" has the meaning set forth in Section 3.08
of this Agreement.
"GAAP" shall mean the generally accepted accounting principles
and practices as promulgated by the American Institute of Certified
Public Accountants as in effect from time to time and consistently
applied throughout the periods involved.
"Governmental Approval" shall mean any authorization, consent,
approval, license, franchise, lease, ruling, tariff, rate, permit,
certificate, exemption of, or filing or registration with, any
Governmental Authority or other legal or regulatory body required
under applicable Laws.
"Governmental Authority" means any United States federal, state
or local or foreign government or governmental, regulatory or
administrative authority, department, agency, commission, entity or
other political subdivision thereof or any court, tribunal, or
judicial or arbitral body including, without limitation, any entity
primarily engaged in regulating the health insurance or medical
industries or practice.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
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"HSR Person" has the meaning set forth in Section 3.08 of this
Agreement.
"Indemnified Party" has the meaning set forth in Section 7.03 of
this Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.03 of
this Agreement.
"Indemnity Notice" has the meaning set forth in Section 7.03 of
this Agreement.
"Intellectual Property" has the meaning set forth in Section 3.18
of this Agreement.
"Interests" has the meaning set forth in the Recitals to this
Agreement.
"Interim Financial Statements" has the meaning set forth in
Section 3.08 of this Agreement.
"Investment Notice" has the meaning set forth in Section 6.04(b)
of this Agreement.
"knowledge of the Company" or "the Company's knowledge" means the
knowledge of one or more of John Chay, George Brown, Elizabeth
Williams, Sal Rafanelli and Bruce Blake. One or more of the foregoing
individuals will be deemed to have "knowledge" of a particular fact or
other matter if such individual is actually aware of, or through the
exercise of reasonable diligence, should have known, such fact or
matter.
"Laws" shall mean all ordinances, statutes, rules, regulations,
decrees, orders, injunctions, writs or decrees of any Governmental
Authority.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured
or unmatured or determined or determinable and those arising under any
contract, agreement, arrangement, commitment or undertaking.
"Material Adverse Effect" means the occurrence of any event or
the existence of any circumstance that represents a change in, or
effect on the Company or its business that, individually or in the
aggregate with any other such changes in, or effects on, the Company
or its business is, or is reasonably likely to be, materially adverse
to the business, operations, assets, Liabilities, prospects, results
of operations or the condition (financial or otherwise) of the
Company, individually or in the aggregate excluding events or
circumstances which affect the industries in which the Company does
business generally or the effect of general economic conditions.
"Medical Reimbursement Programs" has the meaning set forth in
Section 3.27 of this Agreement.
"Non-Capped Agreements" has the meaning set forth in Section 7.01
of this Agreement.
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"Non-Capped Representations" has the meaning set forth in Section
7.01 of this Agreement.
"Non-Capped Representations and Agreements" has the meaning set
forth in Section 7.01 of this Agreement.
"Non-Escrowed Shares" has the meaning set forth in Section 2.02.
"Operative Agreements" shall mean this Agreement, the
Registration Rights Agreement, the Escrow Agreement and the Employment
Agreements.
"Parent Stock" has the meaning set forth in Section 2.03(a) of
this Agreement.
"Passive Investment" has the meaning set forth in Section 6.04(b)
of this Agreement.
"Person" means any corporation, association, partnership, joint
venture, limited liability company, organization, business,
individual, Governmental Authority or any other entity.
"Prime Rate" means the prime rate of interest listed in the Money
Rates section of the Wall Street Journal, from time to time.
"Purchase Price" has the meaning set forth in Section 2.02 of
this Agreement.
"Purchaser Indemnified Party" has the meaning set forth in
Section 7.02 of this Agreement.
"Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Company from third parties, including
customers, arising from the conduct of the business of the Company or
otherwise before the Closing Date, whether or not in the ordinary
course.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into among the Purchaser and the Sellers in
the form of Exhibit C hereto.
"Related Person" has the meaning set forth in Section 3.14 of
this Agreement.
"Seller Indemnified Party" has the meaning set forth in Section
7.02(b) of this Agreement.
"Shares" has the meaning set forth in Section 2.02.
"Tax Returns" has the meaning set forth in Section 3.20 of this
Agreement.
"Taxes" has the meaning set forth in Section 3.20 of this
Agreement.
"Territory" has the meaning set forth in Section 6.04 of this
Agreement.
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"Threshold Amount" has the meaning set forth in Section 7.03 of
this Agreement.
Construction.
Unless the context of this Agreement otherwise requires, references to
the plural include the singular, references to the singular include the plural,
references to any gender include the other gender, the term "including" is not
limiting and has the inclusive meaning represented by the phrase "including
without limitation" and the term "or" has the inclusive meaning represented by
the phrase "and/or." The terms "hereof," "herein," "hereunder" and similar terms
in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. All Section, clause, Exhibit and Schedule
references herein are to this Agreement unless otherwise specified.
ARTICLE II
PURCHASE AND SALE OF THE INTERESTS
Section 2.01. Purchase and Sale of the Interests.
Upon the terms and subject to the conditions contained herein, at the
Closing (as hereinafter defined) each of the Sellers will sell, assign, transfer
and deliver to the Purchaser, and the Purchaser agrees to purchase from each of
the Sellers, all of the Interests, free and clear of all Encumbrances, in
exchange for the payment of the Purchase Price in the manner described below by
Purchaser and/or Parent to the Sellers in the respective proportions described
on Schedule 2.01. The Seller LLC Members agree to cause the Seller LLC to comply
with its obligations under Article II.
SECTION 2.02. Purchase Price; Escrowed Shares.
Subject to Section 2.03, the aggregate purchase price for all of the
Interests (the "Purchase Price") shall consist of (i) $19,000,000 in cash (the
"Cash Portion"), all of which shall be delivered to the Sellers at Closing as
provided in Section 2.05 plus (ii) 2,697,947 shares of common stock, par value
$.0001 per share of the Parent (the "Parent Stock"), represented by one or more
share certificates duly registered in the name of the Designated Seller on the
share transfer books of Parent, of which (A) 2,181,818 shares of Parent Stock
(the "Escrowed Shares") shall be delivered to First Union National Bank, as
escrow agent (the "Escrow Agent"), pursuant to the form of Escrow Agreement
attached as Exhibit D (the "Escrow Agreement") among the Purchaser, the
Designated Seller, the Sellers and the Escrow Agent, to be held and disposed of
by the Escrow Agent as provided in Section 2.04 and in accordance with the
Escrow Agreement and (B) 516,129 shares of Parent Stock (the "Non-Escrowed
Shares", and together with the Escrowed Shares, the "Shares") shall be delivered
to the Designated Seller at Closing. The Designated Seller acknowledges that the
shares of Parent Stock to be acquired hereunder will be subject to certain
claims of the Purchaser Indemnified Parties for indemnification pursuant to
Article VII.
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Section 2.02. Intentionally Omitted.
Section 2.03. Intentionally Omitted.
Section 2.04. Payments.
All cash payments made hereunder shall be made in immediately available
(same day) funds by wire transfer or certified check in Dollars to the accounts
indicated in writing to the payor-party by the payee-party prior to the date on
which such payment is due. Whenever any payment hereunder shall be stated to be
due on or by no later than a day that is not a Business Day, such payment shall
be made on or by no later than the next succeeding Business Day. In the event
funds or shares ultimately determined to be payable or deliverable to the
Sellers or Purchaser pursuant to Section 2.06 are not paid or delivered on April
30, 2001, then interest shall accrue and be payable on such funds and/or shares
from and after April 30, 2001 at the Prime Rate plus one percent per year, until
the funds are so paid or the shares so delivered. Interest on the shares shall
be calculated at an assumed price of $2.75 per share (subject to adjustment in
the event of a stock split or recapitalization).
Section 2.05. Release of Escrowed Shares and/or Funds.
On or prior to the April 30, 2001, Purchaser shall deliver to the
Escrow Agent a certificate (the "Final Escrow Certificate") identifying each
outstanding claim for indemnification under Article VII with respect to which a
Seller is an Indemnifying Party together with Purchaser's good faith estimate of
the amount of such claim. To the extent that the aggregate estimated amount of
any such claims identified by Purchaser in the Final Escrow Certificate is less
than the aggregate value of all Escrowed Shares then held in Escrow (based on an
assumed priced of $2.75 per share (subject to adjustment in the event of a stock
split or recapitalization)), then Purchaser shall direct the Escrow Agent to
deliver to the Designated Seller all of the Escrowed Shares then held in escrow
less the number of Escrowed Shares which represent the aggregate estimated
amount of any such identified claims; provided, however, that the Designated
Seller may, at its election, replace such Escrowed Shares with a cash payment in
an amount equal to the value of such remaining Escrowed Shares (valued for such
purposes based at an assumed price of $2.75 per share (subject to adjustment in
the event of a stock split or recapitalization)), following which payment such
shares shall be released to the Designated Seller. In the event that the Final
Escrow Certificate does not identify any such claims, then Purchaser shall
direct the Escrow Agent to release all of the Escrowed Shares then held in
escrow to the Designated Seller.
Section 2.06. Purchase Price Allocation.
The Purchase Price shall be allocated for purposes of this Agreement,
as of the Closing Date, as set forth on Schedule 2.07 (the "Allocation"), which
Allocation shall be agreed upon by the Parties on or prior to the Closing Date.
For all Tax and accounting purposes, the transactions contemplated by this
Agreement shall be reported in a manner consistent with the terms of this
Agreement, including the Allocation, and no Party shall take any position
inconsistent therewith in any Tax return, in any Tax refund claim or in any
litigation or otherwise.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SELLERS
In order to induce the Purchaser to enter into this Agreement and to
purchase the Interests, the Company and each Seller jointly and severally (or
severally, in the case of any portion of a representation or warranty which is
made by a particular Seller as indicated by the words "such Seller") represents
and warrants to the Purchaser as follows:
Section 3.01. Corporate Existence; Capital Stock.
(a) The Company: (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) has all requisite corporate power to own its assets and carry on its
business as now being conducted and to consummate the transactions contemplated
hereunder; and (iii) is qualified to do business in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure so to qualify would have a Material Adverse Effect.
(b) The Seller LLC: (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) has all requisite corporate power to own its assets and carry on its
business as now being conducted and to consummate the transactions contemplated
hereunder; and (iii) is qualified to do business in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure to so qualify would have a Material Adverse Effect.
(c) The Designated Seller: (i) is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Maryland; (ii) has all requisite corporate power to own its assets and carry on
its business as now being conducted and to consummate the transactions
contemplated hereunder; and (iii) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect.
(d) The Company's issued and outstanding membership interests are owned
of record by the Sellers in the respective amounts shown on Schedule 3.01(d).
All of the Interests have been duly authorized and validly issued and are fully
paid and nonassessable, and none of the Interests were issued in violation of
any preemptive rights. Except as set forth on Schedule 3.01(b), the Company has
no other interests of any class or other equity authorized, issued or
outstanding and has not granted or issued, or agreed to grant or issue, any
options, warrants, similar rights to acquire, subscribe for or receive any
interests of the Company or any securities convertible or exchangeable for any
interests of the Company (including any "phantom" equity interest or equity
appreciation rights), and is not subject to any obligation (contingent or
otherwise) to repurchase, redeem or otherwise acquire or retire any interests or
rights.
(e) The Designated Seller's issued and outstanding membership interests
are owned of record by the Sellers in the respective amounts shown on Schedule
3.01(e). The Designated Seller does not have and following the Closing will not
have any operations, assets or liabilities other than its ownership of the
Parent Shares and cash.
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Section 3.02. Subsidiaries.
The Company does not have any direct or indirect equity or other
similar interests or investments in any other Person, whether by means of share
purchase, asset purchase, loan, capital contribution, advance or otherwise.
Section 3.03. Ownership of the Interests.
(a) Such Seller is the record and beneficial owner of its Interests in
the amount shown on Schedule 3.01. Such Seller has good and marketable title to
its Interests, free and clear of any Encumbrances. The interests held by
Sellers, as reflected on Schedule 3.01, constitute all of the issued and
outstanding membership interests of the Company, and no other Person has any
rights as to the Interests or any other membership or other equity interest in
the Company. Such Seller has the exclusive right, power and authority to
transfer, sell, assign or encumber and to vote the Interests of the Company it
owns and such Seller is not a party to or bound by any other agreement affecting
or relating to such Seller's right to transfer, sell, assign, encumber and vote
the Interests. Other than the Interests of the Sellers listed on Schedule 3.01,
neither such Seller nor any other Person owns any interests in the Company or
any other equity interest in the Company or right of any kind to have such
security issued.
(b) Upon consummation of the transactions contemplated by this
Agreement, the Purchaser will own valid and marketable title to such Seller's
interests free and clear of all Encumbrances.
Section 3.04. Authority; Validity.
The Company and such Seller have all requisite power and authority to
execute, deliver and perform this Agreement. The execution and delivery of this
Agreement by the Company and such Seller, the performance by them of their
respective obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite action on the
part of the Company and such Seller. This Agreement has been duly executed and
delivered by the Company and such Seller, and (assuming due authorization,
execution and delivery by the Purchaser and Parent), this Agreement constitutes
a legal, valid and binding obligation of the Company and such Seller,
enforceable against the Company and such Seller in accordance with its terms
subject only to bankruptcy, insolvency or similar laws affecting the rights of
creditors generally and general principles of equity.
Section 3.05. Certificate of Formation and Operating Agreement.
The Sellers have delivered to the Purchaser complete and correct copies
of the certificate of formation and operating agreement, including all
amendments thereto to the date hereof, and any other governing documents
(including shareholder or member agreements to which the Company and/or any of
the Sellers is a party) of the Company. Except as set forth in Schedule 3.05,
the minutes of any meetings of (or other actions by) the members or any
committee of the members and the stock books of the Company (all of which have
been previously made available to the Purchaser) are the complete and correct
records of such meetings or actions and the membership interest issuances of the
Company and reflect all
9
transactions required to be contained in such records, as well as those matters
customarily contained in records of such type.
Section 3.06. No Conflict or Violation.
Except as disclosed on Schedule 3.06 hereto, the execution, delivery
and performance by the Company and such Seller of this Agreement and the
consummation of the transactions contemplated hereby will not (i) violate,
conflict with, result in a breach of any provision of, constitute a default (or
an event that, with notice or lapse of time or both, would constitute a default)
under, result in the automatic termination of, accelerate the performance
required by, or result in a right of termination or acceleration, or the
creation of any Encumbrance upon any of the properties or assets of the Company
under, any of the terms, conditions or provisions of (A) the certificate of
formation, operating agreement or similar organizational document of the Company
or any shareholder or member agreements) or (B) any mortgage, note, bond,
indenture, or material commitment, contract, agreement, license or other
instrument or obligation to which such Seller or the Company is a party, or by
which such Seller or the Company may be bound, including any Contract (as
defined in Section 3.14), (ii) violate or conflict with any provision of any
Laws applicable to such Seller or the Company or (iii) alter or impair any
permits, certificates, licenses, approvals and other authorizations required by
such Seller or the Company to conduct their respective business, including any
Company Permits (as hereinafter defined).
Section 3.07. Approvals and Consents.
Except as disclosed in Schedule 3.07 hereto, no consent, approval or
action of, filing with or notice to any Governmental Authority or other public
or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or order of any Governmental Authority, any
Company Permit, or any Contract to which such Seller or the Company is a party
or by which such Seller or the Company or any of their respective assets or
properties is bound in connection with the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby,
except those consents or approvals required under Contracts which, individually
or in the aggregate, would not have a Material Adverse Effect.
Section 3.08. Financial Information; No Undisclosed Liabilities; No
Material Adverse Effect.
(a) Correct and complete copies of (i) the balance sheets of the
Company as of December 31, 1997, 1998 and 1999, and the related statements of
income, retained earnings and cash flows of the Company for the periods then
ended, together with (as to the period ending on or as of December 31, 1999) all
related notes and schedules thereto (collectively referred to herein as the
"Financial Statements") and (ii) the balance sheet of the Company as of June 30,
2000, and the related statements of income and cash flows of the Company for the
three months then ended, (collectively referred to herein as the "Interim
Financial Statements") have been delivered by the Sellers to the Purchaser. The
Financial Statements and the Interim Financial Statements (i) were prepared from
the books of account and other financial records of the Company, (ii) present
fairly the financial condition and results of operations of the Company as of
the dates thereof or for the periods covered thereby, (iii) have been prepared
in accordance
10
with GAAP applied on a basis consistent with the past practices of
the Sellers and the Company and (iv) include all adjustments that are necessary
for a fair presentation of the financial condition of the Company and the
results of the operations of the Company as of the dates thereof or for the
periods covered thereby. The Financial Statements have been compiled by George
Brown & Associates LLC (or Brown, Ramina & Wright, LLC), who are not
independent, as shown in their reports attached thereto in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. The Interim Financial
Statements have not been audited, reviewed or compiled by any independent
certified public accountants.
(b) The books of account and other financial records of the Company:
(i) reflect all items of income and expense and all assets and Liabilities
required to be reflected therein in accordance with GAAP applied on a basis
consistent with the past practices of the Company, and (ii) are in all material
respects correct and complete, and do not contain or reflect any inaccuracies or
discrepancies.
(c) There are no Liabilities of the Company of a type that would be
required by generally accepted accounting principles, consistently applied, to
be either (i) reflected or reserved against on the balance sheet of the Company
as of the date hereof or (ii) disclosed in the notes thereto, in either case
other than (x) those Liabilities reflected, reserved against or disclosed on the
balance sheet of the Company as of December 31, 1999 included in the Financial
Statements, (y) disclosed in Schedule 3.08(c) or (z) incurred since January 1,
2000 in the ordinary course of the business, consistent with the past practice
of the Company. Except for Liabilities disclosed on Schedule 3.08(c), sufficient
reserves are reflected on such balance sheet against all Liabilities of the
Company in amounts that have been established on a basis consistent with the
past practices of the Company and in accordance with GAAP.
(d) Except as set forth in Schedule 3.08(d), since December 31, 1999,
there has not occurred or arisen any event or circumstance that represents a
change in, or effect on the Company or its business that, individually or in the
aggregate with any other such changes in, or effects on, the Company or its
business is, or to the knowledge of the Company, is reasonably likely to be,
materially adverse to the business, operations, assets, Liabilities, prospects,
results of operations or the condition (financial or otherwise) of the Company,
individually or in the aggregate excluding events or circumstances which affect
the industries in which the Company does business generally or the effect of
general economic conditions.
(e) As of June 30, 2000, the total assets of the person within which
the Company is included for purposes of the HSR Act (the "HSR Person") has total
assets of less than $10 million (as defined under the HSR Act).
Section 3.09. Receivables.
Schedule 3.09 sets forth a list of the Receivables as of June 30, 2000
showing separately those Receivables that as of such date had been outstanding
(i) 29 days or less, (ii) 30 to 59 days, (iii) 60 to 89 days, (iv) 90 to 119
days and (v) more than 119 days. Except to the extent of the $645,000 reserve on
June 30, 2000 which is reflected in the balance sheet included in the Interim
Financial Statements, all Receivables reflected as of June 30, 2000 and
reflected on the balance
11
sheet included in the Interim Financial Statements, and the Receivables existing
on the Closing Date have arisen from the sale of services to Persons not
affiliated with the Sellers or the Company and in the ordinary course of the
business consistent with past practice and, except as reserved against on June
30, 2000 and reflected in the balance sheet included in the Interim Financial
Statements, constitute or will constitute, as the case may be, valid, undisputed
collectible claims of the Company not subject to claims of set-off or other
defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of the business consistent with past practice. Receivables
reflected on June 30, 2000 or arising from the date thereof until the Closing
(subject to the $645,000 reserve reflected on June 30, 2000) are or will be good
and collectible.
Section 3.10. Assets.
(a) Except as disclosed on Schedule 3.10 hereto, the Company owns or
leases all the properties and assets used or intended to be used in the conduct
of the Business as currently conducted or otherwise owned, leased or used by the
Company (all such properties and assets being the "Assets"). The Company has
good and marketable title to, or, in the case of leased or subleased Assets,
valid and subsisting leasehold interests in, all the Assets, free and clear of
all Encumbrances.
(b) Except as disclosed on Schedule 3.10 hereto, following the
consummation of the transactions contemplated by this Agreement, the Company
will continue to own, pursuant to good and marketable title, or lease, under
valid and subsisting leases, the Assets without incurring any penalty or other
adverse consequence, including any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement. Immediately following the Closing,
the Company shall own and possess all documents, books, records, agreements and
financial data of any sort used by the Company in the conduct of the Business or
otherwise except for communications with the Sellers' professional advisors
relating to this transaction.
Section 3.11. Conduct and Scope of Business.
Except as disclosed on Schedule 3.11 hereto, since December 31, 1999,
the business of the Company has been conducted in the ordinary course and
consistent with past practice and (as amplification of the foregoing and without
limitation) the Company has not (i) sold, leased or transferred, or agreed to
sell, lease or transfer, any of its assets, or canceled, or agreed to cancel,
any debts or claims, or entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase any of its assets,
property or rights or requiring the consent of any party to the transfer and
assignment of such assets, property and rights; (ii) entered or agreed to enter
into any transactions other than in the ordinary course of business except as
herein stated; (iii) increased or agreed to increase the rate of compensation or
benefits payable, or to become payable, to any of its officers or employees;
(iv) made any change in any accounting method, practice or principle or in any
system of internal accounting controls; (v) made or agreed to make capital
expenditures or commitments therefor; (vi) taken any action not in the ordinary
course of business consistent with past practice that would have the effect of
increasing the amount of Company EBITDA; (vii) declared or made any dividends or
distributions or made any payment on behalf of any membership interests or
capital stock, or made any other distribution in
12
respect thereof, either directly or indirectly, whether in cash, property or
obligations of the Company, or redeemed any membership interests or capital
stock of the Company other than cash distributions to Sellers (A) in an amount
not to exceed Sellers' state and federal income tax liabilities relating to the
Company's taxable income up to Closing and (B) in an amount of $275,000, with
respect to previously agreed upon tax liabilities resulting from the Company's
election to use the accrual basis method of accounting in the aggregate amount
of $275,000 or (ix) agreed, whether in writing or otherwise, to take any action
described in this Section 3.11.
Section 3.12. Litigation.
Except as disclosed on Schedule 3.12 hereto, there are no claims,
actions, suits, proceedings, audits or investigations pending or, to the
knowledge of the Company, threatened or anticipated, against the Company or any
of its assets or business, or affecting this Agreement or any Operative
Agreement or the Company's or such Seller's ability to perform their respective
duties and obligations hereunder or thereunder, at law or in equity, by or
before any Governmental Authority, or any other body, and to the knowledge of
the Company, there is no basis for any such claim, action, suit or proceeding or
investigation, including without limitation any such claim, action, suit,
proceeding or investigation relating to, arising out of, or based upon, any
proceedings by a Governmental Authority. The Company and such Seller are not
operating under, subject to, or in default with respect to, any order, judgment,
injunction or decree of any Governmental Authority.
Section 3.13. Licenses.
(a) The Company holds all permits, licenses, registrations variances,
exemptions, orders approvals and other authorizations of all Governmental
Authorities necessary for the lawful conduct of its business (the "Company
Permits"). The Company is in compliance with the terms of the Company Permits.
The Company Permits listed on Schedule 3.13 constitute all licenses,
authorizations, consents, permits and approvals material to the conduct of the
Company's business, as is now conducted and as it is contemplated will be
conducted after the Closing. All Company Permits are valid and in good standing,
non-probationary, non-provisional and in full force and effect. To the knowledge
of the Company, there are no grounds to believe that any such Company Permits
will not, in the ordinary course, be renewed upon expiration or as a result of
the consummation of the transactions contemplated hereby.
(b) The Company has not (i) had any of its Company Permits revoked,
withdrawn, terminated, suspended, or otherwise restricted (ii) been involved in
a proceeding or investigation, whether formal or informal, to revoke, withdraw,
terminate, suspend or otherwise restrict any Company Permit or (iii) been
notified by any Governmental Authority that such Governmental Authority might
have cause to revoke, withdraw, terminate, suspend or otherwise restrict any
Company Permit and, to the knowledge of the Company, no such revocation
withdrawal, termination, suspension or other restriction is threatened
(including as a result of the possible consummation of the transactions
contemplated hereby).
(c) The Company is not subject to any restrictions of any Governmental
Authority that adversely affect the conduct of the Company's business, other
than restrictions that apply to all providers of the goods and services
furnished by the Company in the relevant jurisdiction.
13
Section 3.14. Contracts.
(a) Schedule 3.14(a) is a complete and correct list of each obligation,
contract, agreement and commitment, written or oral (collectively, "Contracts")
to which the Company is a party or by which the Company or its assets may be
bound and which:
(i) is likely to involve an aggregate amount of consideration of more
than $10,000;
(ii) was not made in the ordinary course of business and consistent
with past practice;
(iii) relates to or evidences indebtedness for borrowed money or a
security interest or mortgage in the property or assets of the Company;
(iv) under which the Company assumes any liability or obligations
(including indebtedness) of any other person or entity;
(v) grants any person or entity authority to execute agreements or
otherwise act on behalf of the Company
(vi) grants to any person the right to use any property or property
right of the Company;
(vii) is with a Related Person (as used herein, "Related Person"
means: (i) one or more of the Sellers (including the Seller LLC Members);
(ii) the spouses, children and other lineal descendants and any other
member of the immediate family, as defined in Rule 16a-1 under the Exchange
Act, of any of the Sellers; (iii) any corporation, partnership, joint
venture or other entity or other enterprise owned or controlled by any of
the Sellers or by any Related Person of a Seller (ii); and (iv) any trust
of which any Seller or member of the immediate family, as defined in Rule
16a-1 under the Exchange Act, of a Seller is a grantor or beneficiary;
(viii) is with any of the Customers, as set forth in Section 3.15; and
(ix) limits or purports to limit the ability of any Seller holders or
the Company to engage in any line of business or with any Person or in any
geographic area or during any period of time.
(b) The Sellers have heretofore delivered to the Purchaser a complete
and correct copy of all such Contracts, including any modifications or
supplements thereto. Each Contract:
(i) is valid and binding on the respective parties thereto and is in
full force and effect, enforceable in accordance with its terms subject
only to bankruptcy, insolvency or similar laws affecting the rights of
creditors generally and general principles of equity, and neither the
Company nor any Seller has received any written notice challenging the
foregoing and to the Company's knowledge, there is no bankruptcy,
insolvency or similar proceeding involving any such parties, and
14
(ii) except as disclosed on Schedule 3.14(b) hereto, upon consummation
of the transactions contemplated by this Agreement shall continue in full
force and effect, enforceable in accordance with its terms, and the
foregoing will not give rise to any right of termination, penalty or any
right to impose any other adverse consequence. The Company is not in breach
of, or default under, any Contract. To the knowledge of the Company, no
other party to any Contract is in breach thereof or default thereunder.
There is no contract, agreement or other arrangement granting any Person
any preferential right to purchase, other than in the ordinary course of
business consistent with past practice, any of the properties or assets of
the Company. Except as described on Schedule 3.14, there are no material
oral Contracts, and neither such Seller nor the Company has received any
written or oral notice (nor to the knowledge of the Company, are there
facts which cause the Company to believe) that any Contract will not be
renewed or terminated by the other party thereto in the foreseeable future
(including as a result of the consummation of the transactions contemplated
hereby).
Section 3.15. Customers.
Schedule 3.15 identifies the names of customers of the Company that
collectively represent more than 95% of the revenues of the Company recorded for
the fiscal year ended December 31, 1999, including each such customer that
represented more than 1% of such revenues (the "Customers"), and the amount for
which each Customer was invoiced during such period. The Sellers have provided
to the Purchaser copies of every written contract, agreement and commitment
between the Company and each Customer and every amendment thereto (all of which
are listed in Schedule 3.15). Except as described on Schedule 3.15, there are no
material oral contracts, agreements or commitments between the Company and a
Customer of the Company and neither such Seller nor the Company has received any
written or oral notice (nor, to the knowledge of the Company, are there facts
which cause the Company to believe) that any Customer of the Company has ceased,
or, in the reasonably foreseeable future, will cease, to use the services of the
Company, or has substantially reduced, or, in the reasonably foreseeable future,
will substantially reduce, the use of such services at any time (including as a
result of the consummation of the transactions contemplated hereby).
Section 3.16. Real Property; Leases.
(a) The Company does not own any real property or any outstanding
options or rights of first refusal to purchase any real property.
(b) Except for the leases described in Schedule 3.16 (true and
complete copies of which have heretofore been delivered by the Sellers to
the Purchaser), the Company is not party to any lease or agreement under
which the Company is a lessee or lessor of, or holds, manages or operates,
any property, real or personal, owned by any third party, or under which
any property, real or personal, owned by the Company is held, operated or
managed by a third party. The Company is the owner and holder of all
leasehold estates purported to be granted by such leases. Each such lease
is in full force and effect and constitutes a valid and binding obligation
of, and is enforceable in accordance with its terms against, the respective
parties thereto subject only to bankruptcy, insolvency or similar laws
affecting the rights of creditors generally and general principles of
equity, and neither the Company nor any Seller has received any written
notice
15
challenging the foregoing and to the Company's knowledge, there is no
bankruptcy, insolvency or similar proceeding involving any such parties.
The Company has in all material respects performed all the obligations
required to be performed by it to date under such leases so as not to be in
default thereunder, and there has not occurred any event which (whether
with or without the passage of time or the giving of notice or both) would
constitute such a default.
Section 3.17. Bank Accounts.
Schedule 3.17 sets forth a correct and complete list and description of
all of the Company's bank accounts and other accounts with financial
institutions and of the persons authorized to sign checks or who hold powers of
attorney with respect to any of such accounts.
Section 3.18. Intellectual Property.
Schedule 3.18 sets forth a list of all trademarks, trade names, brand
names, service names, service marks, copyrights, patents, all software and other
licenses, invention disclosures, applications pending and to be filed for any
and all of the foregoing and registration thereof and other intangible
intellectual property (collectively, "Intellectual Property") owned by the
Company. All Intellectual Property registrations owned by the Company are valid
and in full force and effect, and there are no outstanding challenges by any
third party, either to any such registrations or to any of the applications
thereof. The Company has the right to use all of the Intellectual Property
necessary for the conduct of its business. To the Company's knowledge, no third
party is infringing or has infringed upon any of the Company's rights relating
to the Intellectual Property and no infringement of any Intellectual Property
right of any Person results from the operations of the Company. There is no
claim of any infringement by the Company of any Intellectual Property right of
any Person being made, asserted, or to the Company's knowledge threatened
against the Company or the Sellers.
Section 3.19. Insurance.
Schedule 3.19 sets forth a list of all policies or binders of insurance
held or maintained by the Sellers (only as they relate to the Company or the
Business) and the Company on the date hereof, along with the amount of coverage
and any retention or deductible thereunder, any pending claims thereunder and
the expiration date thereof. Such policies and binders are valid and enforceable
in accordance with the terms thereof and are in full force and effect subject
only to bankruptcy, insolvency or similar laws affecting the rights of creditors
generally and general principles of equity and neither the Company nor any
Seller has received any written notice challenging the foregoing and to the
Company's knowledge, there is no bankruptcy, insolvency or similar proceeding
involving any of the providers of such insurance policies.
Section 3.20. Taxes.
(a) Except as disclosed on Schedule 3.20, the Company has or, in the
case of returns becoming due prior to the Closing Date, will have prior to the
Closing Date duly filed with the appropriate Governmental Authorities all
federal, state, local, foreign and other applicable tax returns, reports and
declarations of estimated tax required to be filed by it on or before the
Closing Date (the "Tax Returns") with respect to all applicable taxes (including
income, profit, franchise, sales, user, real property, personal property, ad
valorem, excise, employment,
16
social security and wage withholding taxes of every kind, character, or
description imposed by any governmental or quasi-governmental authorities). The
Company is not currently the beneficiary of any extension of time within which
to file any Tax Return. All of the Company's Tax Returns are accurate and
complete in all material respects. The Company has paid or established in
conformity with GAAP applied on a basis consistent with prior practice in the
financial statements provided to the Purchaser pursuant to this Agreement
adequate reserves for the payments of all federal, state, local and foreign
taxes (including installments of estimated taxes) and all other taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings, or other similar governmental charges, and any interest,
penalties or additions to tax imposed thereon or in connection therewith
(collectively "Taxes") due or claimed to be due by any taxing authority in
connection with any of the Company's Tax Returns.
(b) The Company, either in its own right or as a transferee, does not
have or at the Closing Date will not have any Liability for Taxes payable for or
with respect to any periods prior to and including the Closing Date in excess of
the amounts actually paid prior to the Closing Date or reserved for in the
Financial Statements, all amounts for such period required to be paid, withheld
or collected by any of the foregoing for income taxes, social security taxes,
unemployment insurance taxes and other employee withholding taxes have been so
paid, withheld or collected, and either paid to the respective Governmental
Authority or set aside for such purpose and accrued and reserved against and
entered upon the financial statements of the Company provided to the Purchaser
pursuant to this Agreement.
(c) There is no action, suit, proceeding, audit, investigation or claim
pending or to the knowledge of the Company threatened in respect of any Taxes
for which the Company is or may become liable, nor has any deficiency or claim
for any such Taxes been proposed or asserted. The Company has not consented to
any waivers or extensions of any statute of limitations with respect to any
taxable year of the Company. There is no agreement, waiver or consent providing
for an extension of time with respect to the assessment or collection of any
Taxes against the Company and no power of attorney granted by the Company with
respect to any Tax matters is currently in force.
(d) The Company and the Sellers have made available to the Purchaser
for inspection complete and correct copies of all income, profit, franchise,
sales, use, real property, personal property, ad valorem, excise, employment,
social security and wage withholding tax returns, and all schedules thereto,
filed by the Company with any Governmental Authority, and all written
communications relating to any such return, for each taxable year ending on or
after December 31, 1997.
Section 3.21. Hazardous Materials.
Except with respect to the disposal of medical waste disclosed on
Schedule 3.21 hereto, the Company has not engaged, at any site owned or leased
by it, in any business or activity involving hazardous waste, nor has it engaged
in any activity requiring identification, permitting, licensing or authorization
for the generation, treatment, storage or disposal of hazardous waste as defined
in the Resource Conservation and Recovery Act of 1976, as amended. The Company
is in all material respects in compliance in all material respects with the
requirements of all Environmental Laws applicable to it and there has not been
any reportable release of hazardous
17
substances, as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, at any facility owned or leased by the
Company, nor any release triggering a remediation obligation under applicable
Environmental Law, during its ownership or lease of such sites. The Company has
not handled and does not use or handle hazardous chemicals other than in de
minimis quantities in compliance with applicable Environmental Law.
Section 3.22. Employee Benefit Plans.
Except as set forth on Schedule 3.22:
(a) There are no plans, programs, policies or arrangements (whether
written or oral) providing cash or other compensation or benefits of any kind or
description whatsoever (whether current or deferred) to, or on behalf of, any
current or former officer, employee or director of the Company or any of its
dependents under which the Company has any liability, duty or obligation
whatsoever, whether fixed or contingent, including but not limited to, any
employment, consulting or severance agreement and any "employee benefit plan" as
defined in Section 3(3) of ERISA (individually an "Employee Benefit Plan" and
collectively the "Employee Benefit Plans").
(b) The Sellers and the Company have furnished to the Purchaser: (i) a
correct, complete and current copy of (A) each written Employee Benefit Plan and
all amendments to such plan together with any trust agreements or other
contracts or agreements which are a part of such plan, and (B) all Internal
Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation
rulings or determinations, annual reports, summary plan descriptions, actuarial
and other financial reports for all periods ending on or after December 31,
1997, with respect to each such Employee Benefit Plan, (ii) an accurate written
summary of all material provisions of each unwritten Employee Benefit Plan; and
(iii) such other documentation with respect to any Employee Benefit Plan as is
reasonably requested by the Purchaser.
(c) All of the assets which have been set aside in a trust or insurance
company separate account to satisfy any obligations under any Employee Benefit
Plan are shown on the books and records of each such trust and each such account
at their current fair market value as of the most recent valuation date and the
fair market value of such assets equals or exceeds the present value of any
obligation under any Employee Benefit Plan, and the liabilities for all other
obligations under any Employee Benefit Plan are accurately set forth in the
Company's most recent Financial Statement.
(d) Each Employee Benefit Plan has been established, maintained and
administered in compliance with all applicable Laws, and all applicable
reporting and disclosure requirements with respect to each Employee Benefit Plan
have been satisfied on a timely basis, including all such requirements under the
Code and ERISA. No Employee Benefit Plan is described in ERISA Sections 3(37),
4(b)(4), 4063 or 4064 or is subject to Code Section 412, and the Company has
never maintained or contributed directly or indirectly to (or had an obligation
to contribute directly or indirectly to) such a plan. No Employee Benefit Plan
which is described in ERISA Section 3(1) provides any benefits after a
termination of employment except to the extent such benefits are required to
satisfy the minimum requirements under Part 6 of Title I of ERISA.
18
(e) There are no pending or to the knowledge of the Company threatened
claims with respect to an Employee Benefit Plan (other than routine and
reasonable claims for benefits made in the ordinary course of the plan's
operations) or with respect to the terms and conditions of employment or
termination of employment of any employee or former employee of the Company,
which claims could reasonably be expected to result in any liability to the
Company, and no audit or investigation by any domestic or foreign governmental
or other law enforcement agency is pending or has been proposed with respect to
any Employee Benefit Plan.
(f) Each Employee Benefit Plan which the Company has been treated as
satisfying the requirements of Code Section 401 and each trust which the Company
has treated as satisfying the requirements of Code Section 501 have at all times
in fact satisfied such requirements.
(g) There have been no prohibited transactions or breaches of fiduciary
duty under ERISA or prohibited transactions under the Code for which the Company
has any liability or for which the Company has any indemnification obligation to
any other Person.
(h) Except as disclosed on Schedule 3.22(h), the Company has the right
pursuant to the terms of each Employee Benefit Plan and all agreements related
to such plan unilaterally to terminate such plan (or its participation in such
plan) or to amend the terms of such plan at any time without triggering a
penalty or an obligation to make any additional contributions to such plan, and
the Purchaser immediately after the Closing shall have exactly the same rights
as the Company unilaterally to take such action without triggering any penalty
or any obligation to make any additional contributions to such plan.
(i) The transactions contemplated by this Agreement will not result in
any additional payments to or benefit accruals for, or any increase in the
vested interest of, any current or former officer, employee or director or their
dependents under any Employee Benefit Plan. The transactions contemplated by
this Agreement will not result in any payments to any current or former officer,
employee or director of the Company which will be subject to Section 280G of the
Code.
Section 3.23. Labor Relations.
The Company does not have any agreement with any union or collective
bargaining group. The Company has complied and is in compliance in all material
respects with all Laws relating to the employment of labor, including provisions
relating to wages, hours, collective bargaining, occupational safety and health,
equal employment opportunity, and the withholding of income taxes and social
security contributions. Except as set forth in Schedule 3.23, there are no
employment agreements between the Company and any of its employees. The
consummation of the transactions contemplated hereby will not cause the Company
to incur or suffer any liability relating to, or obligation to pay severance,
termination or other payments to any Person. Except as set forth in Schedule
3.23, no employee of the Company has any contractual right to continued
employment by the Company.
19
Section 3.24. Directors, Officers and Key Employees.
Schedule 3.24 lists all directors and officers of the Company and all
written or oral employment or consulting contracts between the Company and each
director, officer, employee, independent contractor, or agent, and (i) any
commitment or agreement made by the Company to increase wages or to modify the
conditions or terms of employment of any of its employees or agents, whose
annual remuneration (including bonuses) exceeded $50,000 in the most recent
fiscal year and is expected to exceed $50,000 during the current fiscal year,
(ii) any agreements, arrangements or understandings with any of such Persons
relating to the matters described in Section 3.01(b) and (iii) any notice of
termination of employment or resignation since January 1, 2000 given by any
employee, independent contractor, or agent of the Company.
Section 3.25. Broker's Commission.
The Sellers will indemnify and hold the Purchaser harmless from any
claim, demand or liability for any broker's or lender's or placement fee or
commission incurred or alleged to have been incurred, in each case by the
Company or the Sellers, in connection with this transaction.
Section 3.26. Independent Contractors and Customers.
(a) Except as disclosed in Schedule 3.26(a), there is no existing
consultancy agreement or contract for services between the Company and any
Person which is void or ineffective or which is unenforceable by the Company,
either as against a consultant or independent contractor who has agreed to
provide services directly or indirectly to or on behalf of the Company or as
against any Person to whom or which the Company has agreed to provide the
services of a consultant or independent contractor, under any applicable Law
(which shall include all guidelines of any Governmental Authority).
(b) [Intentionally omitted.]
(c) Except as listed on Schedule 3.26(c), no consultant or independent
contractor who provides services directly or indirectly to or on behalf of the
Company is remunerated by the Company on a profit sharing or bonus or commission
basis of any nature whatsoever.
(d) There is no amount owing to any present or former consultant or
independent contractor who provides or has provided services directly or
indirectly to or on behalf of the Company other than for accrued remuneration or
for reimbursement of business expenses.
(e) No gratuitous payment has been made or promised by the Company in
connection with the actual or proposed termination or variation of any
consultancy agreement or contract for services of any present or former
consultant or independent contractor who provides or has provided services
directly or indirectly to or on behalf of the Company.
20
(f) For five years prior to the date hereof, the Company has, in
relation to each present and former consultant or independent contractor who
provides or has provided services directly or indirectly to or on behalf of the
Company, complied with all obligations imposed on it by all applicable Laws
(including guidelines of any Governmental Authority) relating to or affecting
the appointment or engagement of such consultants or independent contractors.
(g) Except as set forth in Schedule 3.26(g), since December 31, 1997,
no dispute has arisen between the Company and (i) any present or former
consultant or independent contractor who provides or has provided services
directly or indirectly to or on behalf of the Company or (ii) any present or
former customer of the Company nor to the knowledge of the Company, are there
any facts of which are likely to give rise to any such dispute.
(h) Except as set forth in Schedule 3.26(h), since December 31, 1997,
the Company has properly made all payments to present or former consultants or
independent contractors who provide or have provided services directly or
indirectly to or on behalf of the Company and has properly made all deductions
for tax and such other deductions as they are required to make in accordance
with applicable Laws (including guidelines of any Governmental Authority)
anywhere in the world and has accounted to the appropriate authorities for all
such deductions.
Section 3.27. No Violation of Law; Certifications for Reimbursement.
(a) The business and operations of Company have been conducted in
compliance, and are currently in compliance, with all applicable Laws of all
Governmental Authorities and regulatory bodies (including, without limitation,
Environmental Laws, laws, ordinances, regulations, guidelines and orders
relating to zoning and the safety and health of employees). Except as set forth
in Schedule 3.27, (i) neither such Seller nor the Company has been charged with
or, to the Company's knowledge, is now under investigation with respect to, a
violation of any Laws (including guidelines of any Governmental Authority), or
other requirements of a Governmental Authority or other regulatory body, (ii)
neither such Seller nor the Company is a party to, or bound by, any order,
judgment, decree or award of a Governmental Authority or other regulatory body;
and (iii) such Seller and the Company have filed all reports required to be
filed with any Governmental Authority or other regulatory body as to which the
failure to file such reports could be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company.
(b) The Company has all permits, certificates, licenses, registrations,
certifications, qualifications, approvals and other authorizations
(collectively, "Authorizations") necessary for Company to obtain payment under
the Medical Reimbursement Programs (as defined herein), except for such
Authorizations required to be obtained in connection with the consummation of
the transactions contemplated hereby. All Authorizations held by the Company are
valid and in good standing, non-probationary, non-provisional and in full force
and effect. There are no actions or proceedings to revoke, withdraw, terminate
or suspend any Authorization, and none of such Seller or the Company has
received any notice or other communication threatening any of the foregoing
(other than notices and communications that have been withdrawn or otherwise
resolved), and such Seller has no knowledge of any reason why any Authorization
is likely not to be renewed by the applicable Governmental Authority in the
ordinary course. As used herein, the "Medical Reimbursement Programs" shall mean
any private or governmental health care
21
reimbursement program under which the Company receives payment for goods and
services, including without limitation, Medicare, Medicaid, CHAMPUS, Blue Cross
and Blue Shield plans, commercial insurance companies, self-funded
organizations, employers who participate in self-funded trusts, health
maintenance organizations, preferred provider organizations, and other managed
care organizations or alternative delivery systems.
(c) Except as set forth in Schedule 3.27 hereto, the Company is not
required to submit any notice, report or other filing with any Governmental
Authority in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby. Except as
set forth in Schedule 3.27 hereto, no waiver, consent, approval or authorization
of any Governmental Authority is required to be obtained or made by the Company
in connection with the execution, delivery or performance of this Agreement or
the consummation of the transactions contemplated hereby.
(d) Neither the Company, nor any director, officer or employee of the
Company acting for or on behalf of the Company, has paid or caused to be paid,
directly or indirectly, in connection with the business of the Company: any
bribe, kickback or other similar payment to any Governmental Authority or any
agent of any supplier or customer; or any contribution to any political party or
candidate other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or in compliance with applicable law).
(e) The Company has filed or will timely file all material claims or
other reports required to be filed with respect to the purchase of services,
products and supplies by third-party payors, including, but not limited to, the
Medical Reimbursement Programs, in accordance with all applicable laws,
regulations and guidelines and requirements of the Medical Reimbursement
Programs. All such claims or reports are or will be complete and accurate in all
material respects. The Company has paid or has properly recorded on the
Company's financial statements in accordance with GAAP, consistently applied,
all actually known and undisputed overpayments, refunds, discounts or
adjustments which have become due pursuant to such claims, and the Company does
not have any material liability to any payor with respect thereto, except as has
been fully reserved for in the Company's financial statements.
(f) Neither the Company, nor any of its officers, directors, trustees,
partners, members, managers, employees or contractors, has been charged with or
convicted of any Medicare, Medicaid or other federal health care program-related
offense, or has been debarred, excluded or suspended from participation in
Medicare, Medicaid or any other federal health care program, or is currently
listed on the General Services Administration list of parties excluded from
Federal procurement programs and non-procurement programs.
(g) Such Seller, the Company, and their respective directors, officers
and employees and, to the Company's knowledge, the other persons and entities
providing professional services for or on behalf of the Company, have not
engaged in any activities which are in violation of the federal Medicare or
federal or state Medicaid statutes, Sections 1128, 1128A, 1128B, 1128C or 1877
of the Social Security Act (42 U.S.C.ss.ss.1320a-7, 1320a-7a, 1320a-7b, 1320a-7c
and 1395nn), the federal CHAMPUS statute (10 U.S.C.ss.1071 et seq.), the False
Claims Act (31
22
U.S.C.ss.3729 et seq.), the False Statements Acts (18 U.S.C.ss.2002), the
Program Fraud Civil Penalties Act (31 U.S.C.ss.3801 et seq.), or related
regulations or other federal or state laws and regulations, including, but not
limited to, the following:
(i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(ii) knowingly and willfully making or causing to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment;
(iii) failure to disclose knowledge by a Medicare or Medicaid claimant
or a claimant under any Medical Reimbursement Program of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment; or
(iv) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or kind (i) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or
in part by any Medical Reimbursement Program or (ii) in return for
purchasing, leasing, or ordering, or arranging, or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service,
or item for which payment may be made in whole or in part by any Medical
Reimbursement Program.
(h) The operations of the Company are and at all times have been in
compliance with all applicable state and federal laws and regulations regarding
health professional self-referrals, including without limitation 42 U.S.C.
ss.1395nn (commonly known as the "Stark Statute") and 42 U.S.C.ss.1396b.
(i) The Company is duly certified or accredited as a home infusion
therapy provider by the Joint Commission on Accreditation of Health Care
Organizations with a rating of 93 (collectively, the "Certifications").
There are no actions or proceedings to revoke, withdraw, terminate, suspend
or modify such Certifications at the ratings identified above, and the
Company has no knowledge of any reason why any such Certification is not
likely to be renewed in the ordinary course.
Section 3.28. Disclosures.
To the Company's knowledge (which shall be limited to the actual
knowledge of the persons enumerated in the definition of such term), this
Agreement and the Exhibits and Schedules attached hereto do not contain, as of
the Closing Date, any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein and
therein not misleading.
23
Section 3.29. Investment Representations.
(a) Such Seller is acquiring the shares of Purchaser Stock to be issued
pursuant to Article II solely for such Seller's account, for investment purposes
only and with no current intention or plan to distribute, sell, or otherwise
dispose of any of those shares in connection with any distribution;
(b) Such Seller is not a party to any agreement or other arrangement
for the disposition of any shares of Purchaser Stock other than this Agreement;
(c) Such Seller is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; and
(d) Such Seller (A) is able to bear the economic risk of an investment
in the Purchaser Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, (C) has such knowledge and experience
in financial and business matters that he or she is capable of evaluating the
merits and risks of the proposed investment in the Purchaser Stock, (D) has had
an adequate opportunity to ask questions and receive answers from the officers
of the Purchaser concerning any and all matters relating to the transactions
contemplated hereby, (E) has asked all questions of the nature described in
preceding clause (D), and all those questions have been answered to his or her
satisfaction and (F) has received and reviewed copies of all of the reports
required to be filed by the Parent pursuant to the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act") (collectively, the "Parent SEC Reports").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER AND PARENT
In order to induce the Sellers and the Company to enter into this
Agreement, the Purchaser and Parent jointly and severally represent and warrant
to the Company and the Sellers that:
Section 4.01. Organization and Standing.
(a) The Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
(b) The Parent is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
Section 4.02. Authority.
Except for any Governmental Approvals that may be required, the Parent
and Purchaser have all necessary corporate power and authority to enter into
this Agreement, the Operative Agreements and all other instruments contemplated
hereunder and thereunder and to perform the
24
obligations to be performed by Parent and Purchaser hereunder and thereunder.
The execution and delivery of this Agreement, the purchase of the Interests and
the other obligations of the Parent and Purchaser contemplated hereby have been
duly authorized by all requisite corporate action of the Parent and Purchaser,
respectively. The Shares delivered to the Escrow Agent and Designated Seller at
Closing when issued will be duly authorized, validly issued, fully paid and
non-assessable and free and clear of Encumbrances (other than created or caused
by Sellers or Designated Seller or contemplated by this Agreement). This
Agreement and any other agreements executed by the Parent and Purchaser pursuant
to this Agreement have been duly executed and delivered by the Parent and
Purchaser and constitute valid and binding obligations of the Parent and
Purchaser, enforceable against the Parent and Purchaser, respectively in
accordance with the terms hereof and thereof, subject, as to enforceability of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors' rights
and to general principles of equity.
Section 4.03. No Conflict or Violation.
The execution, delivery and performance by the Parent and Purchaser of
this Agreement and the consummation of the transactions contemplated hereby will
not (i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration, or
the creation of any Encumbrance upon any of the properties or assets of the
Parent or Purchaser under, any of the terms, conditions or provisions of (a) the
certificate of incorporation or by-laws of the Purchaser or (b) any mortgage,
note, bond, indenture or material commitment, contract, agreement, license or
other instrument or obligation to which the Parent or Purchaser is a party or by
which the Parent or Purchaser may be bound, (ii) violate or conflict with any
provision of any Laws applicable to the Parent or Purchaser, or (iii) alter or
impair any permits, certificates, licenses, approvals and other authorizations
required by the Parent or Purchaser to conduct its business.
Section 4.04. Approvals and Consents.
Except as disclosed in Schedule 4.04 hereto, no consent, approval or
action of, filing with or notice to any Governmental Authority or other public
or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or order of any Governmental Authority or
any Contract to which the Parent or Purchaser is a party or by which the Parent
or Purchaser or any of its assets or properties is bound for the execution and
delivery of this Agreement by the Parent or Purchaser, the performance by the
Parent or Purchaser of their respective obligations hereunder or the
consummation of the transactions contemplated hereby.
Section 4.05. Litigation.
There are no claims, actions, suits, proceedings or investigations
pending, or to the knowledge of any executive officer of the Parent or
Purchaser, threatened or contemplated, against or affecting this Agreement, the
Operative Agreements or the Parent or Purchaser's ability to perform its duties
and obligations hereunder, at law or in equity, by or before any Governmental
Authority, or any other body, and, to the knowledge of the Parent or Purchaser,
25
there is no basis for any such claim, action, suit or proceeding or
investigation, including any such claim, action, suit, proceeding or
investigation relating to, arising out of, or based upon, any proceedings by a
Governmental Authority.
Section 4.06. Broker's Commission.
The Purchaser will indemnify and hold the Sellers and the Company
harmless from any claim, demand or liability for any broker's or lender's or
placement fee or commission incurred or alleged to have been incurred, in each
case by the Purchaser, in connection with this transaction.
Section 4.07. Reports and Financial Statements.
As of their respective dates, the Parent SEC Reports were prepared in
all material respects in accordance with the requirements of the Securities Act
of 1933, as amended, and the rules and regulations thereunder or the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, as
the case may be, and did not, when filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
CLOSING
Section 5.01. Closing; Delivery.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of King & Spalding, counsel for the
Purchaser, 1185 Avenue of the Americas, New York, New York, on July 31, 2000.
(b) At the Closing, the Company and the Sellers shall deliver to the
Purchaser the following:
(i) A duly executed Assignment of Membership Interest transferring all
of the Interests from each Seller to the Purchaser.
(ii) An opinion, dated the Closing Date, of (A) Niles, Barton &
Wilmer, counsel to the Company, the Seller LLC and the Seller LLC Members
and (B) Gibbons, Del Deo, Dolan, Griffinger & Vecchione, counsel to the
Company and the Sellers, in each case, in form and substance reasonably
satisfactory to the Purchaser.
(iii) A certificate of the secretary or any assistant secretary of
each of the Company, the Seller LLC and the Designated Seller dated as of
the Closing Date to which is attached (a) the certificate of formation and
operating agreement of such Person, and (b) the resolutions of such
Person's board of directors or similar governing body and its members
approving the consummation of the transactions contemplated by this
26
Agreement and the Operative Agreements, and certifying the incumbency and
true signatures of the officers who execute the Agreement, the Operative
Agreements and any other instruments executed on behalf of such Person.
(iv) Duly executed counterparts to each Operative Agreement signed by
each of the Company and each Seller that is party thereto.
(v) A receipt reflecting payment of the Cash Portion of the Purchase
Price.
(vi) Such other instruments and documents as the Purchaser may
reasonably request in connection with the Closing of the transactions
contemplated hereby, all such instruments and documents to be reasonably
satisfactory in form and substance to the Purchaser and its counsel.
(vii) Written resignations of all officers, directors and members of
the Company effective immediately upon consummation of the Closing, except
as otherwise instructed by the Purchaser in writing to the Company prior to
the Closing; and
(c) On the Closing Date, the Purchaser shall deliver to the Sellers or
the Designated Seller, as the case may be, the following:
(i) Wire transfer or certified checks payable to the Sellers in the
aggregate amount of $19,000,000.
(ii) A certificate of the secretary or any assistant secretary of the
Purchaser dated as of the Closing Date to which is attached (a) the
certificate of incorporation and bylaws of the Purchaser, and (b) the
resolutions of the Purchaser's board of directors approving the
consummation of the transactions contemplated by this Agreement and the
Operative Agreements, and certifying the incumbency and true signatures of
the officers who execute the Agreement, the Operative Agreements and any
other instruments executed on behalf of the Purchaser.
(iii) Duly executed counterparts of each Operative Agreement to which
the Purchaser is a party.
(iv) Such other instruments and documents as the Sellers may
reasonably request in connection with the Closing of the transactions
contemplated hereby, all such instruments and documents to be reasonably
satisfactory in form and substance to the Purchaser and its counsel.
(v) An opinion, dated the Closing Date, of Barry A. Posner, General
Counsel to the Parent and King & Spalding, counsel to the Purchaser and
Parent, in form and substance reasonably satisfactory to the Sellers.
(vi) 516,129 shares of Non-Escrowed Shares in the form of share
certificates duly registered in the name of the Designated Seller on the
share transfer books of Parent.
27
(d) On the Closing Date, the Purchaser shall deliver to the Escrow
Agent 2,181,818 shares of Parent Stock in the form of share certificates duly
registered in the name of the Designated Seller on the share transfer books of
Parent to be held in accordance with the terms of the Escrow Agreement.
(e) On the Closing Date, the Parent shall deliver to the Sellers the
following:
(i) A certificate of the secretary or any assistant secretary of the
Parent dated as of the Closing Date to which is attached (a) the
certificate of incorporation and bylaws of the Parent, and (b) the
resolutions of the Parent's board of directors approving the consummation
of the transactions contemplated by this Agreement and the Operative
Agreements, and certifying the incumbency and true signatures of the
officers who execute the Agreement, the Operative Agreements and any other
instruments executed on behalf of the Parent.
(ii) Duly executed counterparts of each Operative Agreement to which
the Parent is a party.
(iii) Such other instruments and documents as the Sellers may
reasonably request in connection with the Closing of the transactions
contemplated hereby, all such instruments and documents to be reasonably
satisfactory in form and substance to the Parent and its counsel.
(f) Immediately following the Closing, the Amended and Restated
Operating Agreement of the Company shall be amended, restated and superseded in
its entirety by the operating agreement in the form attached as Exhibit E
hereto, following which each of the Sellers shall have no further rights or
obligations as members of the Company. Each Seller hereby waives any
restrictions on transfer pursuant to Article VI of the Amended and Restated
Operating Agreement in connection with the transactions contemplated by this
Agreement.
ARTICLE VI
COVENANTS FOLLOWING THE CLOSING
Section 6.01. Certain Tax Matters.
(a) The Purchaser, the Company and the Sellers agree that the Purchase
Price and the liabilities of the Company (plus other relevant items) will be
allocated to the assets of the Company for all purposes (including Tax and
financial accounting) in a manner consistent with Schedule 2.07 attached hereto.
The Purchaser, the Company and the Sellers will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
(b) The Sellers shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. The Sellers shall
permit the Purchaser to review and comment on each such Tax Return described in
the preceding sentence prior to filing.
28
(c) The Purchaser, the Company and the Sellers shall cooperate fully,
as and to the extent reasonably requested by the other Parties, in connection
with the filing of Tax Returns pursuant to this Section and any audit,
litigation, or other proceeding with respect to such Taxes. The Purchaser shall
cooperate with the Sellers in connection with any audit, litigation, or other
proceeding with respect to Tax Returns for prior taxable years, including but
not limited to retaining the related books and records for such prior years and
making such records available to Sellers and/or their tax representatives. The
Sellers may at their option appoint their tax advisor and/or tax counsel to deal
with such audit or proceeding with respect to a prior year.
(d) The Purchaser, the Company and the Sellers hereby agree, upon
request, to use their best efforts to obtain any certificate or other document
from any Governmental Authority or any other Person, or to file any kind of
election, as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed on the Company (including, but not limited to, with respect to
the transactions contemplated hereby). The party requesting cooperation pursuant
to this Section 6.01(d) shall reimburse the other party on an after-tax basis
for any costs attributable to complying with such request.
(e) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any corporate-level gains tax
triggered by the sale of the Interests and any similar tax imposed in other
jurisdictions), shall be paid by the Sellers when due, and the Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, the Purchaser will,
and will cause its Affiliates to, join in the execution of any such Tax Returns
and other documentation.
Section 6.02. Restrictions on Transfer of Parent Stock.
(a) During the one year period ending on the first anniversary of the
Closing Date, neither the Designated Seller nor any Seller voluntarily will: (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of Parent Stock received by any Seller in
the transactions contemplated herein or (B) any interest in (including any
option to buy or sell) any of those shares of Parent Stock, in whole or in part,
and the Parent will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Parent Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of Parent Stock acquired pursuant hereto (including, for example
engaging in put, call, short-sale, straddle or similar market transactions);
provided, however, that this Section 6.02 shall not restrict any transfer of
Parent Stock acquired by a Seller pursuant hereto to any spouse, sibling,
parent, grandparent, child or grandchild (whether by blood, adoption or
marriage), or any trust, the sole beneficiaries of which consist of any spouse,
sibling, parent, grandparent, child, or grandchild of such Seller who agree in
writing to be bound by the provisions of this Section 6.02. The certificates
evidencing the Parent Stock delivered to the Escrow Agent pursuant hereto will
bear a legend substantially in the form set forth below and containing such
other information as the Purchaser may deem necessary or appropriate:
29
"EXCEPT PURSUANT TO THE TERMS OF THE PURCHASE AGREEMENT
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD
ENDING ON AUGUST 3, 2001. ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE. THE SHARES REPRESENTED HEREBY ARE
SUBJECT TO THE ISSUER'S CLAIMS FOR INDEMNIFICATION UNDER THE
PURCHASE AGREEMENT."
(b) The Designated Seller and each Seller, severally and not jointly
with any other Person, (i) acknowledges that the shares of Parent Stock to be
delivered to the Designated Seller or the Escrow Agent pursuant hereto have not
been and may not be registered under the Securities Act and therefore may not be
resold by the Designated Seller or such Seller without compliance with the
Securities Act and (ii) covenants that none of the shares of Parent Stock issued
to the Designated Seller or such Seller pursuant hereto will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all the applicable provisions of the Securities Act
and the rules and regulations of the Commission, applicable state securities
laws and regulations and the terms of this Agreement and the Registration Rights
Agreement. All certificates evidencing shares of Parent Stock issued pursuant
hereto will bear the following legend in addition to the legend prescribed by
Section 6.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS, HAVE BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF
UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, UNLESS THE ISSUER HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) In addition, certificates evidencing shares of Parent Stock issued
pursuant hereto to the Designated Seller or the Escrow Agent will bear any
legend required by the securities or blue sky laws of the state in which that
Seller resides.
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Section 6.03. Remitted Payments.
The Sellers agree to cooperate with and assist the Purchaser in
connection the resolution of any claims by any private insurers or Medical
Reimbursement Programs seeking remittance of funds paid to the Company prior to
the Closing Date and any appeals or disputes by the Purchaser or the Company
after the Closing of any determination concerning the Company's entitlement to
payments received by the Company prior to the Closing.
Section 6.04. Proprietary Information and Restrictive Covenants
(a) Recognizing that the Purchaser and Parent are relying on the
representations, warranties and covenants of the Sellers in proceeding with the
transactions contemplated by this Agreement, each Seller (other than the Seller
LLC Members) hereby covenants and agrees that, after the Closing Date
(notwithstanding any provision hereof), he or she will:
(i) hold all Proprietary Information in strict confidence and trust
and not, at any time, disclose any Proprietary Information to any person or
entity, except in the course of such Seller's duties as an employee of the
Purchaser, Parent or their Affiliates on behalf of the Purchaser, Parent or
their Affiliates, and shall not copy, publish, or use any Proprietary
Information for the benefit of anyone or any entity other than the
Purchaser, Parent or their Affiliates;
(ii) not, (x) within the territory comprising the states of New York,
New Jersey, Pennsylvania, Delaware, Maryland and any other state in which
the Company was soliciting business during the period commencing six months
prior to the Closing Date (the "Territory") and (y) ending on the later of
(a) August 3, 2003 and (b) one year after the later of (i) the date on
which such Employee ceases to be an Employee of any of the Company,
Purchaser, Parent or their respective Affiliates and (ii) the last date on
which such Employee receives cash compensation from any of the Company,
Purchaser, Parent or their respective Affiliates, either directly or
indirectly (A) in any manner engage in a competing business or (B)
participate as a director, officer or employee of, or as a shareholder,
partner, consultant, agent or representative or other independent
contractor of, or have any direct or indirect financial interest in, any
enterprise that is engaged, or plans to engage, in any such competing
business; provided, that the foregoing restriction shall be inapplicable to
the ownership of no more than 1% of the securities of any publicly traded
company; provided, further, that if such Employee is terminated by the
Company on or after August 3, 2003 without Cause (as such term is defined
in the Employment Agreement) and such Employee is entitled to severance
payments from the Company in connection with such termination, Employee
shall have the option to waive its entitlement to such severance payments
and, in the event such Employee waives all rights that it has against the
Company, Parent or Purchaser for any such severance payments, such Employee
will not be bound by the foregoing restrictions from and after the date of
such termination; and
(iii) not personally nor through any third party, during the period
commencing on the date hereof and ending on the later of (a) August 1, 2003
and (b) one year after the later of (i) the date on which such Employee
ceases to be an Employee of any of the
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Company, Purchaser, Parent or their respective Affiliates and (ii) the last
date on which such Employee receives cash compensation from any of the
Company, Purchaser, Parent or their respective Affiliates, (x) provide or
offer to provide to any Customer any product or service similar to that
offered by the Company, Purchaser, Parent or any of their respective
Affiliates at the time of such termination of employment, (y) induce or
attempt to induce any Customer to withdraw, curtail or cancel its business
with the Company, Purchaser, Parent, or any of their respective Affiliates
or in any manner modify or fail to enter into any actual or potential
business relationship with the Company, Purchaser, Parent or any of their
respective Affiliates or (z) hire or solicit any employee, consultant,
independent contractor or Vendor of the Company, Purchaser, Parent or any
of their respective Affiliates, encourage any such person to leave such
employment or terminate such person's relationship with the Company,
Purchaser, Parent or their respective Affiliates.
(b) Recognizing that the Purchaser and Parent are relying on the
representations, warranties and covenants of the Sellers in proceeding with the
transactions contemplated by this Agreement, each Seller LLC Member hereby
covenants and agrees that, after the Closing Date (notwithstanding any provision
hereof), he or she will:
(i) hold all Proprietary Information in strict confidence and not, at
any time, disclose any Proprietary Information to any person or entity,
except at the request or on behalf of Purchaser, Parent or their
Affiliates, and shall not copy, publish, or use any Proprietary Information
for the benefit of anyone or any entity other than the Purchaser, Parent or
their Affiliates;
(ii) not, within the Territory and for a period of one year
immediately following the Closing Date, either directly or indirectly (x)
in any manner engage in competing business or (y) participate as a
director, officer or employee of, or as a shareholder, partner, agent or
representative or other independent contractor of, or have any direct or
indirect minority financial interest in, any enterprise that is engaged, or
plans to engage, in any such competing business; provided, however, that
such Seller LLC Member may acquire a direct or indirect minority financial
interest in an enterprise that is engaged or plans to engage in a competing
business (a "Passive Investment") if such Seller LLC Member provides prior
written notice of such Passive Investment (the "Investment Notice") to the
Purchaser, containing a detailed description of the financial terms and
conditions thereof, following which the Purchaser shall have the right,
exercisable upon notice to such Seller LLC Member within 30 days after
receipt of the Investment Notice, to exercise a right of first refusal to
purchase some or all of the Passive Investment on the same terms and
conditions as set forth in the Investment Notice in lieu of such Seller LLC
Member; and
(iii) not personally nor through any third party, during the period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date (the third anniversary of the Closing Date with respect to
clause (z) below), (w) provide or offer to provide to any Customer any
product or service similar to that offered by the Company, Purchaser,
Parent or any of their respective Affiliates, (x) induce or attempt to
induce any Customer to withdraw, curtail or cancel its business with the
Company, Purchaser,
32
Parent, or any of their respective Affiliates or in any manner modify or
fail to enter into any actual or potential business relationship with the
Company, Purchaser, Parent or any of their respective Affiliates, (y) hire
or solicit any employee (other than a Seller), consultant, independent
contractor or Vendor of the Company, Purchaser, Parent or their respective
Affiliates or encourage any such person to leave such employment or
terminate such person's relationship with the Company, Purchaser, Parent or
their respective Affiliates, or (z) hire or solicit any Seller or encourage
any such person to terminate their employment with the Company, Purchaser,
Parent or their respective Affiliates.
(c) For purposes of this Section 6.04, the following terms shall have
the following meanings:
For purposes of Section 6.04(a), the term "competing business" shall
mean any business of the type conducted or contemplated by the Purchaser,
Parent, Company or their respective Affiliates on the Closing Date.
For purposes of Section 6.04(b), the term "competing business" shall
mean any business of the type conducted or contemplated by the Company on the
Closing Date.
"Proprietary Information" means information, knowledge or data not
generally known in the relevant trade or industry that was disclosed to or known
by such Seller as a consequence of or through Seller's employment or ownership
of Interests or other affiliation with the Company or its Affiliates or in
connection with the transactions contemplated hereby (including, without
limitation, information conceived or developed by such Seller), whether before
or after the date of this Agreement, about:
(i) The Company's or its Affiliates' activities, services, products,
formulas, computer programs and systems, trade secrets, manufacturers,
compositions, inventions, discoveries, customer records, processes,
information relating to research, development, inventions, services
provided or to be provided for Customers, contractual agreements, lists of
past, current or prospective Customers, lists of employees and salary
information, marketing plans, strategies, and forecasts;
(ii) Customers' activities, plans, services, products and processes
including, without limitation, information relating to business operations,
employee relations, finance, and product or service marketing;
(iii) Vendors' activities, plans, services, products and processes
including, without limitation, information relating to business operations,
employee relations, finance, and product or service marketing; and
(iv) All information which such Seller has a reasonable basis to know
was created, modified or used and held secret by the Company or its
Affiliates or that was accepted by the Company or its Affiliates from any
third party under an obligation of confidentiality.
33
"Customer" means any person or entity for whom the Company, Purchaser,
Parent or any of their respective Affiliates provided services or products at
any time during the 12 months prior to the Closing, in the case of Section
6.04(b), and the termination of such Seller's employment, in the case of Section
6.04(a).
"Vendor" means any third party selling or licensing a product or
service to a Customer or to the Company, Purchaser, Parent or any of their
respective Affiliates at any time during the 12 months prior to Closing, in the
case of Section 6.04(b), and the termination of such Seller's employment, in the
case of Section 6.04(a). In the event of a breach or threatened breach by such
persons of the provisions of this Section 6.04, the Company, Purchaser, Parent
and their respective Affiliates shall be entitled to an injunction restraining
such persons from any such breach. Nothing herein shall be construed as
prohibiting the Company, Purchaser, Parent or their respective Affiliates from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
(d) If, in any judicial proceeding, a court shall refuse to enforce any
of the separate covenants contained in paragraphs (a) or (b) of this Section
6.04 because the time limit is too long, it is expressly understood and agreed
between the parties hereto that for purposes of such proceeding such time
limitation shall be deemed reduced to the extent necessary to permit enforcement
of such covenants. If, in any judicial proceeding, the court shall refuse to
enforce any of the separate covenants contained in paragraphs (a) or (b) of this
Section 6.04 because they are more extensive than would otherwise be
enforceable, it is expressly understood and agreed between the parties hereto
that for purposes of such proceeding such provisions shall be deemed reduced to
the extent necessary to permit enforcement of such covenants.
(e) Each Seller acknowledges that a breach of this Section 6.04 would
cause irreparable damage to the Company, Parent, Purchaser and their respective
Affiliates, and in the event of such Seller's actual or threatened breach of the
provisions of this Section 6.04, the Company, Parent, Purchaser and their
respective Affiliates shall be entitled to (i) a temporary restraining order and
injunction restraining such Seller from breaching such covenants without the
necessity of posting bond or proving irreparable harm, such being conclusively
admitted by such Seller and (ii) require such Seller to account for and pay over
to the Company, Purchaser, Parent and their respective Affiliates all
compensation, profits, monies, accruals, increments or other benefits derived or
received by him or her as the result of any transactions constituting a breach
of Section 6.04. Each Seller agrees that in any action seeking specific
performance or other equitable relief, he or she will not assert or contend that
any of the provisions of this Section 6.04 are unreasonable or otherwise
unenforceable. Nothing herein shall be construed as prohibiting the Company,
Purchaser, Parent or their respective Affiliates from pursuing any other
available remedies for such breach, including the recovery of damages from the
Sellers. Each Seller acknowledges that the restrictions set forth in this
Section 6.04 are ancillary to an otherwise enforceable agreement and are
reasonable in scope and duration, given the nature of the business of the
Company, Purchaser, Parent or their respective Affiliates. Each Seller agrees
that issuance of an injunction will not pose an unreasonable restriction on such
Seller's ability to obtain employment or other work.
The covenants and agreements of each Seller set forth in this Section
6.04 are several, and not joint and several, obligations of each Seller.
34
Section 6.05. [Intentionally Omitted].
Section 6.06. Further Assurances.
Subject to the terms and conditions of this Agreement, each Seller
shall (or in the case of the Seller LLC, each Seller LLC Member shall cause the
Seller LLC to) use all reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things reasonably necessary, proper,
or advisable under applicable Laws and regulations to consummate the
transactions contemplated by this Agreement and to make effective the purchase
and sale of the Interests pursuant to this Agreement, and to secure, as soon as
practicable after the date hereof, all approvals or consents of Governmental
Authorities or third parties as may be necessary to consummate the transactions
as contemplated hereby.
Section 6.07. Use of Company Name.
Purchaser and Parent shall, to the extent lawful, use the name
"American Disease Management Associates, L.L.C." or any commonly used
abbreviation thereof for all customary purposes in connection with the operation
of the Company's business during the period commencing on the Closing Date and
ending on December 31, 2000.
Section 6.08. Insurance Coverage.
The Sellers hereby represent and warrant that they have purchased on
behalf of the Company, at their own expense, the discovery policies set forth on
Schedule 6.08 which insure against claims which arose but were not asserted
prior to the Closing Date, and hereby covenant and agree that they will maintain
all such discovery policies on behalf of the Company, at their own expense, for
the period commencing on the Closing Date and ending on December 31, 2002.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.01. Survival.
It is the express intention and agreement of the Parties that all
covenants, agreements, statements, representations, warranties and indemnities
made by the Parties (including the annexed Exhibits and Schedules), or in any
document or instrument delivered by a Party pursuant to the provisions of this
Agreement or at or in connection with the Closing, shall survive the Closing
Date until April 30, 2001, except for (i) those covenants, representations and
warranties in Sections 3.01, 3.03, 3.04, 3.08(c)(i), 3.20 and 3.25 (the "Seller
Non-Capped Representations") (the term "Seller Non-Capped Representations" shall
include all payment obligations to the individuals set forth on Schedule 7.01
other than those payment obligations arising under the written agreements set
forth on Schedule 7.01 (excluding payment obligations under Section 6 of the
Exclusive Consulting Agreement dated July __, 2000 between the Company and Lou
Garruto) and payments made to such persons in the ordinary course to the extent
described on Schedule 7.01 and any payment obligations or other Liabilities to
35
Specialized Pharmaceutical Services arising from or relating to pre-Closing
disputes or liabilities) and Sections 4.01, 4.02 and 4.06 (the "Purchaser
Non-Capped Representations") (in each case, the provisions of which shall
survive for the relevant statute of limitations) and (ii) the covenants
contained in Article VI (the provisions of which shall survive until the fifth
anniversary of the Closing).
For purposes of this Article VII, all breaches by the Company or any
Seller of any of the provisions of Articles II and VII (subject to any caps or
other limitations imposed in Article VII), Sections 6.01, 6.02 and 6.04 and the
Employment Agreements are hereinafter referred to as "Seller Non-Capped
Agreements", and together with the Seller Non-Capped Representations, are
hereinafter referred to as the "Seller Non-Capped Representations and
Agreements". For purposes of this Article VII, all breaches by the Company or
any Seller of any covenants, agreements, statements, representations, warranties
and indemnities made by the Company or Sellers in this Agreement (including the
annexed Exhibits and Schedules), the Escrow Agreement, the Assignment Agreement
or in any certificate or documents delivered by or on behalf of the Company or
Sellers pursuant to this Agreement other than the Seller Non-Capped
Representations and Agreements are hereinafter referred to as "Seller Capped
Representations and Agreements".
For purposes of this Article VII, all breaches by the Parent or
Purchaser of any of the provisions of Articles II and VII (subject to any caps
or other limitations imposed in Article VII) are hereinafter referred to as
"Purchaser Non-Capped Agreements", and together with the Purchaser Non-Capped
Representations, are hereinafter referred to as the "Purchaser Non-Capped
Representations and Agreements. For purposes of this Article VII, all breaches
by the Parent or Purchaser of any covenants, agreements, statements,
representations, warranties and indemnities made by the Parent or Purchaser in
this Agreement (including the annexed Exhibits and Schedules), the Escrow
Agreement, the Assignment Agreement or in any certificate or documents delivered
by or on behalf of the Parent or Purchaser pursuant to this Agreement other than
the Purchaser Non-Capped Representations are hereinafter referred to as
"Purchaser Capped Representations and Agreements".
Section 7.02. Indemnification.
(a) Subject to Section 7.03, the Sellers (and the Designated Seller to
the extent of the value of the Shares (valued at $2.75 per share (subject to
adjustment in the event of a stock split or recapitalization))) jointly and
severally agree and covenant to hold harmless and indemnify the Purchaser and
Parent (including, after the Closing, the Company) and their respective
Affiliates, directors, officers, employees, agents and controlling persons
(collectively, the "Purchaser Indemnified Parties"), from and against any
losses, claims, damages, liabilities and expenses (including reasonable fees and
disbursements of counsel and expenses of investigation) (collectively,
"Damages") arising out of or based upon (i) any inaccuracy in or breach of any
representation, warranty, covenant or agreement of the Sellers or the Company
contained herein, in the Escrow Agreement, in the Assignment Agreement or in the
Exhibits or Schedules or in any certificate or documents delivered by or on
behalf of the Sellers pursuant to this Agreement; provided, however, that the
foregoing to the contrary notwithstanding, Sellers' agreements and covenants to
hold harmless and indemnify are several and not joint and several as to
representations, warranties and covenants indicated to be several in the
Agreement.
36
Notwithstanding any provision of this Agreement to the contrary, no Purchaser
Indemnified Party shall be indemnified for any Damages that constitute "lost
profits" or comparable measure of Damages for any breach of this Agreement other
than a breach of the representations and warranties contained in Sections 3.03,
3.13, 3.14(b), the last sentence of Section 3.15 and 3.27(b) (provided that for
purposes of determining whether there has been a breach of such of
representations and warranties entitling a Purchaser Indemnified Party to
indemnification for any Damages that constitute "lost profits" each such
representation and warranty shall be deemed to have been limited "to the
Company's knowledge," which for such purpose shall be limited to the actual
knowledge of the persons enumerated in the definition of such term).
(b) Subject to Section 7.03(c), the Purchaser and Parent jointly and
severally agree and covenant to hold harmless and indemnify the Sellers and
their respective Affiliates, directors, officers, employees, agents and
controlling persons (each, a "Seller Indemnified Party") from and against any
Damages arising out of or based upon any inaccuracy in or breach of any
representation, warranty, covenant or agreement of the Purchaser or Parent
contained herein, in the Escrow Agreement, in the Assignment Agreement or in the
Exhibits or Schedules or in any certificate or documents delivered by or on
behalf of the Purchaser or Parent pursuant to this Agreement.
Section 7.03. Claims for Indemnification.
(a) Whenever any claim shall arise for indemnification under this
Article VII, the party asserting its right to indemnification (the "Indemnified
Party") shall promptly notify the other parties (collectively, the "Indemnifying
Party") of the claim and provide a description of the basis for such claim (the
"Indemnity Notice"). The failure of the Indemnified Party to so notify the
Indemnifying Party will not affect any right of the Indemnified Party, except in
the event such failure to notify promptly results in loss of any material
defense or a material increase in any Damages. The Indemnifying Party shall
promptly provide to the Indemnified Party such information about such claim as
the Indemnified Party may reasonably request from time to time. If the
Indemnifying Party does not notify the Indemnified Party within sixty (60) days
from receipt of an Indemnity Notice that the Indemnifying Party disputes such
claim, the claim specified by the Indemnified Party in the Indemnity Notice will
be deemed a liability of the Indemnifying Party hereunder. In the event of a
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a Government Authority or other third party, the
Indemnity Notice shall specify, if known, the amount of the potential liability
arising therefrom. Any disputes as to indemnification obligations shall be
resolved by arbitration as provided in Section 9.03.
(b) All claims for indemnification by a Purchaser Indemnified Party
under this Section 7.03 shall be satisfied, at Purchaser's option, by either (i)
the release to Purchaser from escrow, pursuant to the terms thereof, of Escrowed
Shares or (ii) by the direct assertion against the Sellers (in the case of
claims which are joint and several) or the appropriate Seller (in the case of
claims which are several) of the Purchaser Indemnified Party's claim or in
either case, the Designated Seller (to the extent of the value of the Shares);
provided, however, that in the event of a claim for indemnification against a
Seller that is based on a several obligation, as opposed to a joint and several
obligation, the amount of the Escrowed Shares that will be available to satisfy
such claim shall be limited to such Seller's proportionate share of Escrowed
Shares initially
37
placed in escrow (as reflected on Schedule 2.01). For purposes of this Section
7.03, each Escrowed Share shall be valued at $2.75 per share (subject to
adjustment in the event of a stock split or recapitalization). All claims for
indemnification by a Seller Indemnified Party against the Purchaser or Parent
under this Section 7.03 shall be satisfied by the direct assertion against the
Purchaser or Parent of the applicable Seller Indemnified Party's indemnification
claim or by set off of amounts due to Purchaser by Sellers.
(c) Notwithstanding the foregoing, none of the Sellers shall be
required to indemnify any Purchaser Indemnified Parties unless and until the
aggregate amount of Damages for which the Purchaser Indemnified Parties would
otherwise be entitled to be indemnified by the Sellers hereunder exceeds
$100,000 (the "Threshold Amount"); provided, that at such time as the aggregate
amount of Damages for which the Purchaser Indemnified Parties would otherwise be
entitled to be indemnified hereunder exceeds the Threshold Amount, the Purchaser
Indemnified Parties shall be entitled to indemnification of all such Damages
above the Threshold Amount; provided, further, that the Purchaser Indemnified
Parties shall be entitled to indemnification for all Damages resulting from a
breach by any Seller or the Company of a Seller Non-Capped Representation and
Agreement regardless of the Threshold Amount; provided, however, that such
Damages shall not be considered in establishing whether the Threshold Amount has
been reached.
(d) No Seller Indemnified Party shall be indemnified pursuant to
Article VII with respect to any Damages resulting from a breach by Purchaser or
Parent of a Purchaser Capped Representation and Agreement if the aggregate of
all Damages for which the Seller Indemnified Parties shall have received
indemnification pursuant to Article VII (excluding amounts received for breaches
of Purchaser Non-Capped Representations and Agreements) shall have exceeded
$6,000,000 (the "Cap"); provided, however, that notwithstanding the foregoing,
the Seller Indemnified Parties shall be entitled to indemnification pursuant to
Article VII for all Damages resulting from a breach by Purchaser or Parent of a
Purchaser Non-Capped Representation and Agreement.
(e) No Purchaser Indemnified Party shall be indemnified pursuant to
Article VII with respect to any Damages if the aggregate amount of all Damages
for which the Purchaser Indemnified Parties shall have received indemnification
pursuant to Article VII (excluding amounts received for breaches of Seller
Non-Capped Representations and Agreements) shall have exceeded $6,000,000;
provided, however, that notwithstanding the foregoing, the Purchaser Indemnified
Parties shall be entitled to indemnification pursuant to Article VII for all
Damages resulting from a breach by any Seller or the Company of any Seller
Non-Capped Representation and Agreement.
(f) Any amounts due to an Indemnified Party pursuant to this Article
VII shall be reduced by an amount equal to (i) any insurance proceeds actually
received by Indemnified Party directly in connection with the matters that gave
rise to such indemnification (it being intended that indemnification be net of
insurance), and (ii) the actual Tax benefit realized by Indemnified Party as a
direct result of the Damages suffered in connection therewith. The Indemnified
Party shall provide reasonable supporting documentation and access to its books
and records to the Indemnifying Party with respect to any such insurance offset
or Tax offset as described above.
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In the event that Indemnifying Party disputes either the existence or
the amount of any such offset, notice of such dispute must be delivered in
writing to Indemnified Party as soon as possible and the Parties shall use their
reasonable best efforts to resolve the dispute.
(g) The indemnification provided to Indemnified Parties under this
Article VII shall be such Parties' exclusive remedy for any claim arising under
or with respect to this Agreement, the Escrow Agreement and the Assignment
Agreement; provided, that Purchaser and Parent shall be entitled to all
equitable remedies as to any breach of the covenants and agreements set forth in
Section 6.04.
(h) All covenants, agreements, statements, representations, warranties
and indemnities shall survive any investigation, audit, or inspection at any
time made by or on behalf of another Party, it being understood that such
covenants, agreements, statements, representations and warranties may only be
modified in a writing signed as provided in Section 8.01. No claim for
indemnification shall be made or asserted for the first time after the period of
survival for such representation, warranty or covenant has expired other than
claims asserted by amended complaint where the underlying claim was made or
asserted during the survival period. Any covenant, agreement, statement,
representation, warranty or indemnity which is the subject of a claim or dispute
asserted in writing prior to the expiration of the applicable of the
above-stated periods shall survive with respect to such claim or dispute until
the resolution thereof.
Section 7.04. Defense of Claims.
(a) In connection with any claim giving rise to indemnity hereunder
resulting from or arising out of any claim, action or legal proceeding by a
person who is not a party to this Agreement (a "Third Party Claim"), the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such Third Party Claim if it
acknowledges to the Indemnified Party in writing its obligation to indemnify the
Indemnified Party with respect to all elements of such claim; provided, that the
Indemnifying Party shall exercise its right to assume such defense within twenty
(20) days after notice was given by the Indemnified Party. In the event that the
Indemnifying Party (i) shall not assume such defense within twenty (20) days of
receipt of such notice or (ii) believes in good faith that it is not obligated
to indemnify the Indemnified Party with respect to such claim, then the
Indemnified Party may retain counsel and conduct defense of such claim as it
may, in its sole discretion, deem appropriate. The Parties shall submit such
disputed claim to arbitration in accordance with Section 9.03 to resolve the
issue of whether the Indemnified Party is entitled to indemnification hereunder
with respect to such claim; provided, that such arbitration shall not in any way
delay or restrict the Indemnified Party's ability to timely retain counsel and
conduct an appropriate defense. Notwithstanding the foregoing, in the event
either (x) the Third Party Claim seeks relief other than solely the payment of
monetary damages or (y) in the case of a Third Party Claim arising out of a
breach of a Seller Capped Representation and Agreement, the maximum amount of
such Third Party Claim, together with the aggregate amount of all other claims
and other indemnification payments subject to indemnification by the
Indemnifying Party which have been asserted prior to such time, exceeds the Cap,
the Indemnifying Party shall not be entitled to assume the defense of such Third
Party Claim. If the Indemnifying Party does not assume or is not entitled to
assume the defense of any such Third Party Claim, the Indemnified Party shall
(a) defend any such Third Party Claim in such manner as it may deem appropriate,
including settling
39
such Third Party Claim on such terms as the Indemnified Party may deem
appropriate (but to the extent any such settlement involves payment of money
damages which the Indemnified Party seeks from the Indemnifying Party, the
Indemnifying Party shall only be entitled to indemnification to the extent such
settlement is entered into in good faith and on commercially reasonable terms)
and (b) keep the Indemnifying Party reasonably informed concerning the status of
such Third Party Claim and any settlement discussions relating thereto (to the
extent reasonably practicable) prior to entering into any such settlement and
shall, from time to time, provide the Indemnifying Party with copies of such
information and documents concerning such Third Party Claim as the Indemnifying
Party reasonably requests, subject to issues of privilege and confidentiality.
The Indemnifying Party agrees to cooperate and make available to the Indemnified
Party all books and records and such officers, employees and agents as are
reasonably necessary and useful in connection with the defense. In the event (A)
the Sellers are the Indemnifying Party and have assumed the defense of a Third
Party Claim and (B) fail to defend, or if after commencing or undertaking any
such defense, fail to prosecute, withdraw from such defense or conduct such
defense in a manner that, in the reasonable opinion of the Purchaser, is
detrimental to the Company or the rights of the Purchaser Indemnified Parties,
the Purchaser shall have the right to undertake the defense or settlement
thereof and to seek indemnification for such expenses.
(b) If the Indemnifying Party assumes the defense of any Third Party
Claim, the Indemnified Party shall be entitled to participate in but not control
the defense of such Third Party Claim with its own counsel and at its own cost
and expense. Notwithstanding anything in this Section 7.04 to the contrary, the
Indemnifying Party will not, without the written consent of the Indemnified
Party, (i) settle or compromise any Third Party Claim or consent to the entry of
any judgment which does not include as an unconditional term thereof the
delivery by the claimant or plaintiff to the Indemnified Party of a written
release from all liability in respect of such action, suit or proceeding or (ii)
settle or compromise any Third Party Claim in any manner that (A) involves the
sale, forfeiture or loss of, or the creation of any Lien on, any property of
such Indemnified Party, (B) involves an award which together with previous
awards would exceed the Cap (as to Third Party Claims involving a breach of a
Seller Capped Representation and Agreement), or (C) involves equitable remedies
against the Indemnified Party or any of its Affiliates.
ARTICLE VIII
AMENDMENTS AND WAIVERS
Section 8.01. Amendments.
No amendment, modification or termination of any provision of this
Agreement, or any document, instrument or other agreement now or hereafter
executed in connection herewith shall be effective unless the same shall be
contained in a writing signed by the Sellers, the Designated Seller, the
Company, the Purchaser and the Parent.
Section 8.02. Waivers.
The failure of the Company, the Sellers, the Purchaser or the Parent to
insist upon the strict performance of any term, condition or other provision of
this Agreement or to exercise
40
any right or remedy hereunder or thereunder, shall not constitute a waiver by
such Party of any such term, condition or other provision or a waiver of any
default or event of default in connection therewith; and any waiver of any such
term, condition or other provision or of any default or event of default shall
not affect or alter this Agreement and each and every term, condition and other
provision hereof and thereof shall, in such event, continue in full force and
effect and shall be operative with respect to any other then existing or
subsequent default or event of default.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Notices.
All notices and other communications hereunder shall be in writing and
shall be mailed by certified mail, return receipt requested, postage prepaid, or
delivered by reliable overnight delivery service (receipt confirmed) or
facsimile transmission (receipt confirmed) (and shall be effective when so
mailed, delivered or confirmed), addressed (a) if to the Purchaser: MIM
Corporation, 100 Clearbrook Road, Elmsford, NY 10523, Attention: Barry Posner,
Facsimile: 914-460-1670, or at such other address as the Purchaser shall have
furnished to the Sellers in writing, with a copy to: King & Spalding, 1185
Avenue of the Americas, New York, New York 10036, Attention: John L. Graham,
Facsimile: (212) 556-2222, or (b) if to the Sellers: (i) if to Radix Capital
Investment Group, LLC, George J. Brown or John T. Chay, c/o George Brown &
Associates, LLC, 16 East Willow Avenue, Towson, Maryland, 21286, (ii) if to
Elizabeth Williams, at 42 Edgemere Drive, Matawan, New Jersey, 07747, (iii) if
to Bruce Blake, at 88 Bayberry Drive, Mahwah, New Jersey, 07430 and (iv) if to
Sal J. Rafanelli, at 115 Point View Parkway, Wayne, New Jersey, 07470, or at
such other address as the Sellers shall have furnished in writing to the
Purchaser, with a copy to Niles, Barton & Wilmer, Suite 1400, 111 S. Calvert
Street, Baltimore, Maryland 21202, Attention: Robert F. Scholz, or (c) if to the
Company: c/o American Disease Management Associates, L.L.C., 5N Regent Street,
Suite 506, Livingston, New Jersey, 07039, or at such other address as the
Sellers or Purchaser shall have furnished in writing to the Purchaser, with a
copy to Niles, Barton & Wilmer, Suite 1400, 111 S. Calvert Street, Baltimore,
Maryland 21202, Attention: Robert F. Scholz.
Section 9.02. Assignment; Third Party Beneficiaries.
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and assigns. Except as provided in the immediately following sentence, this
Agreement shall not be assigned by operation of law or otherwise. The Purchaser
may assign any of its rights and delegate any of its obligations hereunder, in
whole or in part, to (a) any Affiliate of the Purchaser without the Sellers'
consent and (b) General Electric Capital Corporation ("GECC") as Agent on behalf
of the Lender signatory to the Credit Agreement dated February 4, 2000, by and
among Purchaser, Parent, the persons named therein as Credit Parties, Agent and
the Lender as contemplated by the Consent of GECC dated the date hereof provided
in either case that such assignment and delegation shall not affect the
liability and responsibility of Purchaser or Parent hereunder. The
representation and warranties in Article IV that need to be made as of the
Closing shall be made by such Affiliate, as modified accordingly. This Agreement
is not intended to and shall not confer upon any Person other than the Parties
any rights or remedies hereunder or with respect hereto (other
41
than those persons obtaining rights or remedies pursuant to and as expressly set
forth in Article VII hereof).
Section 9.03. Dispute Resolution
(a) In the event of any claim, dispute or controversy between the
Parties relating to this Agreement, the Escrow Agreement, or Registration Rights
Agreement, the matter shall be resolved by final and binding arbitration in New
York, New York in accordance with the provisions of this Section 9.03 and there
shall be no appeal therefrom; provided, that in the event of any breach of any
provision of Article 6.04 of this Agreement and the Employment Agreements, the
Parent and Purchaser may, but shall not be required to, submit any such claim,
dispute or controversy to arbitration and shall be entitled to pursue any
equitable remedy before any court or other Governmental Authority that they may
otherwise have.
(b) It shall be a condition precedent to the right of the Sellers, on
the one hand, and the Purchaser and Parent, on the other hand, to submit a
matter to arbitration pursuant to the provisions hereof to give not less than
twenty Business Days' prior written notice to the other Parties of their
intention to do so, identifying the issues to be submitted to arbitration.
During such twenty Business Day period, an officer of the Purchaser (designated
by the Purchaser) and the Sellers which are party to such dispute shall meet no
fewer than two times in an effort to resolve or narrow such dispute or issues
outstanding between such parties. Upon the expiration of the said twenty
Business Day period, the Party who has given such notice may proceed to refer
the dispute to arbitration as herein provided.
(c) In the event Sellers or the Purchaser and Parent, as the case may
be, have given notice of their intention to proceed to arbitration, no later
than 45 Business Days following the receipt of such notice (i) the Sellers (and
the Company, to the extent applicable) shall appoint one arbitrator and (ii) the
Parent and the Purchaser (and the Company, to the extent applicable) shall
appoint one arbitrator, and the two arbitrators shall within twenty Business
Days of the appointment of both arbitrators agree upon the appointment of a
third arbitrator who will act with them and be chairman of the arbitration
panel. In the event of a failure of the said two arbitrators to agree within
forty-five Business Days after commencement of the arbitration proceedings upon
the appointment of a third arbitrator, such arbitrator shall be selected by
mutual agreement of the two arbitrators from a list of proposed arbitrators
(which list shall include the names of between 5 and 15 proposed arbitrators)
provided by the American Arbitration Association ("AAA").
(d) The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the AAA then in effect or such other rules
and procedures as the arbitrators shall mutually agree. Depositions may be taken
and other discovery may be obtained during such arbitration proceedings to the
same extent as authorized in civil judicial proceedings. In any arbitration
pursuant to this Agreement, the award or decision shall be rendered by a
majority of the members of the panel provided for herein. Judgment upon an award
rendered by the arbitrators shall be final and binding between the Parties and
shall be enforceable by any court having jurisdiction over the Party against
whom enforcement is sought. The arbitrators' fees and expenses shall be borne
equally by the Sellers, on the one hand, and the Parent and Purchaser, on the
other hand.
42
Section 9.04. Expenses.
Except with respect to those costs and expenses that the Parties agree
shall be divided equally or otherwise allocated, the Sellers and the Purchaser
shall bear such Party's own costs and expenses (including, without limitation,
fees and expenses of attorneys, brokers, outside auditors and consultants) in
negotiating this Agreement and otherwise in connection with the transactions
contemplated hereby. The Sellers shall be responsible for all such costs and
expenses incurred by the Company and the Sellers (which shall not be borne by
the Company).
Section 9.05. Counterparts; Section Headings.
This Agreement may be executed in any number of counterparts, and each
when so executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument. The section headings and
Table of Contents are inserted for convenience only and are not to be construed
as part of this Agreement.
Section 9.06. Entire Agreement.
This Agreement and the documents expressly contemplated hereby
collectively constitute the entire agreement and understanding between the
parties hereto relating to the transactions contemplated hereby and supersede
and take the place of all other agreements and understandings, written or oral,
of the parties hereto relating to the transactions contemplated hereby.
Section 9.07. Governing Law.
This Agreement shall be governed by and construed in accordance with
the Laws of the State of New York, applicable to contracts executed in and to be
performed entirely within that State.
Section 9.08. Severability.
The invalidity or unenforceability of any one or more phrases,
sentences, clauses, or Sections contained herein in any jurisdiction shall not
affect the validity or enforceability of the remaining provisions of this
Agreement or affect the validity or enforceability of such provisions in any
other jurisdiction.
Section 9.09. Good Faith.
The Purchaser, the Parent, the Company, the Sellers and the Designated
Seller covenant and agree promptly and in good faith to make all necessary
filings with, and seek all required approvals from, all applicable Governmental
Authorities, as necessary, for the consummation of the transactions contemplated
by this Agreement.
Section 9.10. Public Announcement.
Neither Party shall make any press release or other written public
statement concerning this Agreement or the transactions contemplated hereby
without the approval of the other Parties
43
hereto; provided, however, that any Party may, without such approval, make such
press release or other written public statement required by law, or by the
principal stock exchange or securities market on which its securities are
listed, and shall consult with the other Parties with respect to the form and
substance of such statements.
THE NEXT PAGE IS THE SIGNATURE PAGE
44
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
AMERICAN DISEASE MANAGEMENT
ASSOCIATES, L.L.C.
By: /s/ Bruce Blake
------------------------------
Name: Bruce Blake
Title: President
THE SELLERS
RADIX CAPITAL INVESTMENT GROUP, LLC
By: /s/ George Brown
------------------------------
Name: George Brown
Title: Member
/s/ John Chay
------------------------------
John Chay
Member
Radix Capital
Investment Group, LLC
/s/ George Brown
------------------------------
George Brown
Member
Radix Capital
Investment Group, LLC
/s/ Elizabeth Williams
------------------------------
Elizabeth Williams
Member
American Disease
Management Associates, L.L.C.
/s/ Bruce Blake
------------------------------
Bruce Blake
Member
American Disease
Management Associates, L.L.C.
/s/ Sal Rafanelli
------------------------------
Sal Rafanelli
Member
American Disease
Management Associates, L.L.C.
THE DESIGNATED SELLER
LIVINGSTON GROUP LLC
/s/ John Chay
------------------------------
Name: John Chay
Title: Manager
MIM HEALTH PLANS, INC.
/s/ Barry Posner
------------------------------
Name: Barry Posner
Title: Vice President
MIM CORPORATION
By: /s/ Barry Posner
------------------------------
Name: Barry Posner
Title: Vice President
8/01/00
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of August 3, 2000, by and between MIM Corporation, a Delaware
corporation (the "Company"), and Livingston Group LLC, a Maryland limited
liability company (the "Stockholder").
WHEREAS, the Company and MIM Health Plans, Inc., a wholly owned
subsidiary of the Company ("MIM Subsidiary") on the one hand, and Radix Capital
Investment Group, LLC, Elizabeth Williams, Bruce Blake, Sal Rafanelli, John Chay
and George Brown, on the other hand (collectively, the "Sellers"), are entering
into a Purchase Agreement, dated as of August 3, 2000 (the "Purchase
Agreement"), pursuant to which MIM Subsidiary has agreed to purchase all of the
outstanding membership interests in American Disease Management Associates,
L.L.C., a Delaware limited liability company, from the Sellers, for $19 million
in cash and an aggregate of 2,697,947 shares of the Company's common stock, par
value $0.0001 per share (the "Common Stock") of which 2,181,818 shares will
initially be delivered to First Union National Bank, as Escrow Agent, pursuant
to the Escrow Agreement, dated August 3, 2000, between the Stockholder and First
Union National Bank and 516,129 shares will be delivered to the Stockholder;
WHEREAS, to induce the Stockholder to enter into the Purchase
Agreement, the Company has agreed to provide to the Stockholder the registration
rights provided herein with respect to the Eligible Common Stock (as defined
below).
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth herein, intending to be legally bound, the parties
hereto hereby agree as follows:
SECTION 1. Certain Definitions:
"Affiliate" shall mean, with respect to a specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person and, with respect to any fund
or trust, any Person which is a participant in or beneficiary of such fund or
trust. For purposes of this definition, "control" means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Common Stock" shall mean the common stock of the Company and its
successors in interest, whether by operation of law or otherwise, as well as any
stock or securities into which or for which the common stock may be changed,
converted or exchanged and any stock (or security exchangeable, convertible or
exercisable into common stock) issued or distributed to Holders (as hereafter
defined) upon any stock split, dividend, merger or similar transactions.
"Company" shall mean MIM Corporation, a Delaware corporation, and its
successors in interest, whether by operation of law or otherwise.
"Current Market Price" shall mean, on the date of any determination
thereof, the average of the last sale prices per share of the Common Stock
reported on the Nasdaq Stock Market's Small Cap Market (or the principal trading
market or stock exchange for the Common Stock if other than the Nasdaq Stock
Market's Small Cap Market) for the 10 business days preceding the date of such
determination.
"Demand" shall have the meaning set forth in Section 2(a).
"Distribution Period" shall mean, with respect to a distribution of
Eligible Common Stock in a firm commitment underwritten public offering, the
period extending until, but not beyond, such time as each underwriter has
completed its initial distribution of all securities purchased by it, and with
respect to any other distribution of Eligible Common Stock in any other
registration, the period extending until, but not beyond, the earlier of the
sale of all Eligible Common Stock covered thereby or 90 days following the
effective date of the registration statement utilized in connection with such
registration under the Securities Act.
"Eligible Common Stock" shall mean shares of Common Stock acquired by
the Stockholder pursuant to the Purchase Agreement or held by its Permitted
Transferees pursuant to Section 10(d) hereof on the date of determination;
provided, however, that shares of Common Stock will cease to be Eligible Common
Stock when (i) a Registration Statement covering such shares of Eligible Common
Stock has been declared effective by the SEC and such shares have been sold
pursuant to the registration statement, (ii) such shares have been sold pursuant
to Rule 144 (or any similar provision then in force) under the Securities Act,
or (iii) such shares have been otherwise transferred (other than to a Permitted
Transferee) and may be resold by such transferee without registration under the
Securities Act and without restriction under Rule 144.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Holder" means any person who holds Eligible Common Stock.
"Lockout Period" means the period commencing on the Closing Date (as
defined in the Purchase Agreement) and ending on the first anniversary of the
Closing Date.
"Majority Holders" means Holders collectively holding more than 50% of
the Eligible Common Stock.
"Permitted Transferee" shall mean a Person to whom the Stockholder has
transferred Common Stock which is either (i) a spouse, parent, grandparent,
child or grandchild of the Stockholder or (ii) a trust, the grantor and sole
beneficiaries of which are either a spouse, parent, grandparent, child or
grandchild of the Stockholder.
2
"Person" shall mean any individual, partnership, corporation, trust,
limited liability company, banking association or unincorporated organization,
or a government or agency or political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a).
"Piggyback Registration Request" has the meaning set forth in Section
3(a).
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of Common Stock covered by the Registration Statement, and by
all other amendments and supplements to such Prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"Purchase Agreement" has the meaning specified in the preliminary
statements.
"Registration Expenses" has the meaning set forth in Section 6.
"Registration Statement" shall mean any registration statement of the
Company, on an appropriate form under the Securities Act (other than any
registration statement filed on a Form S-4 or S-8 or any other forms prescribed
for the same or similar purposes) and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all materials incorporated by
reference therein and all exhibits thereto (including those incorporated by
reference).
"Rule 144" means Rule 144 promulgated under the Securities Act (or any
successor provision), as the same shall be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Selling Expenses" has the meaning set forth in Section 6.
"Stockholder" has the meaning specified in the preliminary statements.
"underwritten registration" or "underwritten offering" shall mean an
offering of the Common Stock pursuant to a Registration Statement in which
Common Stock of the Company is sold to the public by one or more underwriters.
3
SECTION 2. Demand Registration.
(a) At any time commencing on the date that is the nine month
anniversary of the Closing Date and ending on the sixth anniversary of the
Closing Date, upon the request of the Majority Holders (each such request, a
"Demand"), the Company shall use its reasonable best efforts to file, within 30
days (if the Company is eligible to use Form S-3) or 90 days (in the event the
Company is not eligible to use Form S-3) after receiving written notice of such
Demand, and cause to be declared effective (which effectiveness shall in no
event occur on or before the date that is the one year anniversary of the
Closing Date) a Registration Statement with respect to all or a part of the
Eligible Common Stock held by the electing Holders and requested to be
registered, provided that no such demand may be made unless it relates to at
least 400,000 shares of Eligible Common Stock or such lesser amount if all the
remaining shares of Eligible Common Stock held by the Holders are to be
registered; provided further that the electing Holders shall use their
reasonable best efforts to sell such Eligible Common Stock requested to be
registered. All registrations requested pursuant to this Section 2(a) are
referred to herein as "Demand Registrations".
(b) The Demand will set forth the number of shares of Eligible Common
Stock proposed to be sold by the electing Holders and the intended method of
distribution of such shares. If the Majority Holders so elect, the offering of
such Eligible Common Stock pursuant to such Demand Registration may be in the
form of an underwritten offering.
(c) The Company shall not be required to effect more than three Demand
Registrations of Eligible Common Stock pursuant to this Section 2.
Notwithstanding anything to the contrary contained herein, a registration shall
count as a Demand Registration only when (i) a Registration Statement covering
all Eligible Common Stock as to which registration has been requested shall have
become effective and the Company has maintained the effectiveness of such
registration statement for the applicable Distribution Period (unless such
Registration Statement ceases to remain effective as a result of some act or
omission by an electing Holder), or (ii) a registration statement filed by the
Company pursuant to a request for a Demand Registration shall be abandoned or
withdrawn upon the request of an electing Holder, unless the electing Holders
pay (or reimburse) all Registration Expenses and Selling Expenses (if any)
incurred by the Company in connection therewith.
(d) The Company shall be entitled to include in any Demand Registration
referred to in this Section 2, shares of Common Stock or other securities of the
Company to be sold by the Company for its account or by other stockholders of
the Company for their own accounts, except that if, in the case of an
underwritten offering, the managing underwriter(s) advise the Company in writing
that in their opinion the number of shares of Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering without having a material adverse effect on the offering, then the
Company will include in such registration
4
(i) first, Eligible Common Stock requested to be registered by the electing
Holders, (ii) second, Common Stock or other securities proposed to be sold by
the Company and (iii) third, all other securities of the Company requested to be
included in such registration statement.
(e) Notwithstanding anything in this Section 2 to the contrary, the
Company shall not be required to file a registration statement in connection
with a Demand Registration (i) within six months after the effective date of a
registration statement filed in connection with any other Demand Registration;
provided that the Stockholder shall have been afforded the opportunity to sell
Eligible Common Stock included in such prior registration statement, (ii) the
Company elects within 15 days after receiving a request for a Demand
Registration to purchase all but not less than all of the Eligible Common Stock
as to which registration has been requested at a price per share equal to the
Current Market Price, and the Company closes such purchase within 90 days after
delivery of written notice to the electing Holders that the Company has elected
to purchase such Eligible Common Stock, or (iii) the Board of Directors of the
Company makes a good faith determination that filing a registration statement is
not in the best interests of the Company or its stockholders and delivers
written notice to the electing Holders whose shares are to be registered
pursuant to such registration statement certifying that the Board of Directors
has made such good faith determination; provided, however, that any such
deferral of the filing of the registration statement shall not exceed a period
equal to 90 days after the date of the Demand.
SECTION 3. Piggyback Registration.
(a) At any time commencing on the date that is the one year anniversary
of the Closing Date and ending on the sixth anniversary of the Closing Date,
whenever the Company proposes to file a Registration Statement for the
registration of shares of Common Stock in connection with an underwritten public
offering on behalf of the Company or an underwritten secondary public offering
on behalf of other Persons (except with respect to registration statements on
Form S-4 or Form S-8 or another form not available for registering the Eligible
Common Stock for sale to the public) (a "Piggyback Registration"), the Company
shall in each case give written notice to the Stockholder at least 20 days
before the anticipated filing date of its intention to effect such registration.
Upon the written request of any Holder given within 10 days after receipt of
such notice from the Company to register any of such electing Holders' Eligible
Common Stock (a "Piggyback Registration Request"), the Company shall use its
reasonable best efforts to cause the Eligible Common Stock as to which
registration has been requested to be included in the registration statement on
the same terms and conditions as the Common Stock otherwise being sold in such
registration.
(b) If a Piggyback Registration is an underwritten registration and the
managing underwriter(s) determines and advises the Company in writing that the
inclusion in the Registration Statement of all securities proposed to be
included would adversely affect the success of the proposed underwritten
offering, the Company shall include in such registration (i) first, the
securities, if any, the Company proposes to sell, (ii) second, all securities of
the Company to be sold by any other stockholder who has exercised his demand or
similar right to
5
require the Company to file a registration statement with respect to all or a
portion of the securities of the Company held by such stockholder and (iii)
third, all other Common Stock proposed to be included in such Piggyback
Registration allocated pro rata among the electing Holders entitled to
participate in the Piggyback Registration on the basis of the number of shares
of Eligible Common Stock requested to be registered by each such Holder. The
rights set forth in this Section 3(b) shall be exercisable in connection with
any Registration Statement covering Common Stock.
(c) In connection with any offering by the Company to which the
Stockholder has Piggyback Registration rights (and notwithstanding anything in
Section 5 to the contrary), the Company, in its sole discretion, shall determine
(i) whether to initiate, proceed with or terminate such registration, (ii) the
pricing (including underwriting discounts and commissions) for such offering and
(iii) the timing of such offering. The Company may withdraw any Registration
Statement and abandon any proposed sale of Common Stock without the consent of
the Holders, notwithstanding the request of any Holder to participate therein in
accordance with this Agreement, if the Company determines in its sole discretion
to so withdraw and abandon such proposed sale. Any Holder may withdraw some or
all of such Holder's shares from such proposed sale (subject to any restrictions
imposed by the underwriters, in the event of an underwritten offering) if, in
such Holder's sole discretion, the net per share proceeds to the Holder in such
offering will be inadequate.
SECTION 4. Holdback Agreements.
The Stockholder agrees, and any Permitted Transferee of the
Stockholder, by acceptance of any Eligible Common Stock, agrees that, if so
requested by the managing underwriter(s) in an underwritten offering, it will
not effect any public or private sale or distribution of securities of the
Company of the same class as the securities included in the Registration
Statement during the 14 day period prior to, and during the 90 day period (or
such longer period requested by the managing underwriter(s), but not to exceed
180 days) beginning on the effective date of such Registration Statement,
including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, to
the extent notified in writing by the Company or the managing underwriter(s),
provided that each officer or director of the Company who owns beneficially and
of record in excess of 750,000 shares of Common Stock enters into similar
agreements.
6
SECTION 5. Registration Procedures.
In connection with the Company's registration obligations pursuant to
Section 2 and 3 hereof, the Company will use its reasonable best efforts to
effect the registration of the Eligible Common Stock in accordance with the
intended method or methods of distribution thereof, and pursuant thereto the
Company shall:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the Securities Act, which form shall be available for the
sale of the Eligible Common Stock in accordance with the intended method or
methods of distribution thereof and use its reasonable efforts to cause such
Registration Statement to become effective;
(b) prepare and file with the SEC such amendments to the Registration
Statement as may be necessary to keep the Registration Statement effective for
the Distribution Period; cause the Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement;
(c) notify each Holder of Eligible Common Stock covered by the
Registration Statement and the managing underwriter(s), if any, promptly, and
(if requested by any such Person) confirm such advice in writing, (i) when the
Registration Statement has become effective and when any post-effective
amendment or supplements thereto become effective, (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for the purpose, (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Eligible Common Stock for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (iv) at any
time when a Prospectus is required to be delivered under the Securities Act, of
the happening of any event which makes any statement made in the Registration
Statement or the Prospectus or any document incorporated therein by reference
untrue or misleading or which requires the making of any changes in the
Registration Statement or the Prospectus or any document incorporated therein by
reference to make the statements therein not misleading;
(d) upon request, furnish to each managing underwriter, if any, and
each Holder of Eligible Common Stock covered by the Registration Statement,
without charge, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
7
(e) deliver to each Holder of Eligible Common Stock covered by the
Registration Statement, and each underwriter, if any, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as the each Holder of Eligible Common Stock
covered by the Registration Statement and each underwriter, if any, may
reasonably request;
(f) use its reasonable best efforts to register or qualify or cooperate
with the underwriters, if any, and their respective counsel in connection with
the registration or qualification of such shares of Eligible Common Stock for
offer and sale under the securities or blue sky laws of such jurisdictions as a
majority in interests of the electing Holders or any underwriter reasonably
requests in writing, and do any and all other reasonable acts or things
necessary to enable the underwriters or each Holder of Eligible Common Stock
covered by the Registration Statement, to consummate the disposition in such
jurisdictions of the Eligible Common Stock covered by the Registration
Statement; provided that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it is not then so qualified,
(ii) subject itself to taxation in any such jurisdiction; or (iii) take any
action, other than filing a consent to service of process with a state
securities regulatory authority, to the extent required, which would subject it
to general service of process in any such jurisdiction where it is not then so
subject;
(g) cooperate with each Holder of Eligible Common Stock covered by the
Registration Statement, and the managing underwriter(s), if any, to facilitate
the timely preparation and delivery of certificates representing the Eligible
Common Stock to be sold and not bearing any restrictive legends; and enable such
shares of Eligible Common Stock to be in such denominations and registered in
such names as the managing underwriters or each Holder of Eligible Common Stock
covered by the Registration Statement, may request at least two business days
prior to any sale of the Eligible Common Stock;
(h) use its reasonable best efforts to cause all the Eligible Common
Stock covered by the Registration Statement to be listed on the primary
securities exchange or automated quotation system, if any, on which similar
securities issued by the Company are then listed; and
(i) if the offering is underwritten, use its reasonable best efforts to
obtain any customary opinions of counsel or customary accountants' "cold
comfort" letters in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders participating in such registration and enter into such
other customary agreements and take all such other reasonable actions in
connection with such registration to expedite or facilitate the disposition of
the Eligible Common Stock as contemplated by the Registration Statement.
The Company may require each electing Holder of Eligible Common Stock
covered by the Registration Statement (i) to furnish to the Company such
information regarding such Holder and the distribution of the Eligible Common
Stock as the Company may from time to time reasonably request in writing and
(ii) to enter into an underwriting agreement providing for the
8
sale of such Eligible Common Stock which shall be customary in form, substance
and scope and shall contain customary requirements for representations,
warranties, covenants and opinions of counsel. Reasonable compliance with the
foregoing obligations shall be a condition to the rights afforded the Holders
hereunder.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(c)(iv) hereof,
such Holder will forthwith discontinue the offering and disposition of any
Eligible Common Stock included in such offering (i) until the Holder receives
copies of the supplemented or amended Prospectus or (ii) until it is advised in
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the Prospectus, and, if so directed by the
Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Eligible Common Stock current at the time of receipt of such
notice. In the event the Company shall give any such notice to suspend the
offering and disposition of the Eligible Common Stock, the time periods
regarding the maintenance of the applicable Registration Statement shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 5(c) hereof to and including the
date when the Holders shall have received the copies of the supplemented or
amended Prospectus.
Notwithstanding the foregoing and in addition to the provisions of
Section 2(e), (a) the Company may delay for up to 90 days the filing or
effectiveness of any Registration Statement or any amendment thereof or any
supplement to the related Prospectus, and (b) in the case of an effective
Registration Statement, upon the request of the Company, the Holders of Eligible
Common Stock participating in such registration shall refrain from selling any
shares pursuant to such Registration Statement, if (i) the Company determines in
good faith that such registration or sale would (A) interfere with or adversely
affect the negotiation or completion of any material transaction that is being
contemplated by the Company at the time the right to delay is exercised or a
request is made or (B) involve initial or continuing disclosure obligations not
otherwise required by law or the rules and regulations of the SEC or the
principal exchange on which the Common Stock is traded, which disclosure would
have an adverse effect on the Company, provided that the Company delivers
written notice to the electing Holders whose shares are to be registered
pursuant to such registration statement certifying that the Board of Directors
has made such good faith determination or (ii) in the written opinion of an
investment bank delivered to the Company and electing Holders, that the Company
is unable to consummate an underwritten offering on reasonable terms due to then
currently prevailing market conditions.
9
SECTION 6. Registration and Selling Expenses.
In connection with any Demand Registration or Piggyback Registration,
the Company shall pay the following expenses incurred in connection with such
registration (the "Registration Expenses"): (i) all filing fees with the SEC,
state and foreign registration and filing fees and fees with respect to filings
required to be made with the National Association of Securities Dealers, Inc.,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications), (iii) printing expenses, (iv) the fees and expenses incurred in
connection with the listing of the Eligible Common Stock on the principal
exchange on which shares of Common Stock are then listed, (v) fees and expenses
of counsel and independent certified public accountants for the Company
(including the expenses of any comfort letters pursuant to Section 5(i) hereof),
(vi) the fees of transfer agents, and (vii) the reasonable fees and expenses of
any additional experts retained by the Company in connection with such
registration. The Holders of Eligible Common Stock so registered shall pay any
underwriting fees, discounts or commissions attributable to the sale of such
Eligible Common Stock, and any out-of-pocket expenses of the Holders of Eligible
Common Stock so registered (including such expenses of any underwriter) (the
"Selling Expenses"), pro rata with all other shares offered in the registration.
The Holders of Eligible Common Stock also shall pay the fees and expenses of
such Holders' counsel.
SECTION 7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless each Holder, if applicable, and each Person who controls such
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act with respect to each registration which has been effected
pursuant to Section 2 or 3 against any losses, claims, damages or liabilities,
joint or several, to which such Holder or such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) ("Losses") arise out of
or are based upon an untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement under which such Eligible Common
Stock held by such Holder was registered under the Securities Act, or any
Prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Company such reimburse such Holders and controlling persons
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable to any such
Holder in any such case (i) to the extent that any such Loss arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, or amendment
or supplement, in reliance upon and in conformity with information
10
furnished to the Company by any Holder; or (ii) to the extent any such Loss
arises out of or is based on any untrue or alleged untrue statement or omission
or alleged omission made in any preliminary prospectus if either (A) such Holder
failed to deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale by such Holder to the Person asserting the
claim and the Prospectus would have corrected such untrue statement or alleged
untrue statement or omission or alleged omission, (B) such untrue statement or
alleged untrue statement or omission or alleged omission is corrected in an
amendment or supplement to the Prospectus previously furnished or (C) such
Holder uses a prospectus following delivery by the Company of a notice described
in clause (iii) or (iv) of Section 5(c).
(b) Indemnification by the Holders and any Agents and Underwriters.
Each Holder agrees, severally and not jointly, if Eligible Common Stock held by
it is included in the securities as to which such registration, qualification or
compliance is being effected, to (i) indemnify and hold harmless the Company,
its directors, officers who sign any Registration Statement, and each Person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any Loss to which the
Company or such controlling Person may become subject, under the Securities Act
or otherwise, insofar as such Losses arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or any Prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Holder and such Holder has
at least 5 business days to review and comment on such registration statement
and (ii) reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that each
Holder's obligations under this paragraph 7(b) and 7(d) shall, cumulatively, be
limited to the proceeds received by such Holder in connection with the sale of
Eligible Common Stock in such offering.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against an indemnifying party under
this Section 7, notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party other than
under this Section 7. In case any such action shall be brought against any
indemnified party and it shall notify an indemnifying party of the commencement
thereof, such indemnifying party shall be entitled to participate therein and,
in its discretion, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party
11
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party under this Section 7 for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. It is understood that the indemnifying
party shall not, in connection with any action or related actions in the same
jurisdiction, be liable for the fees and disbursements of more than one separate
firm qualified in such jurisdiction to act as counsel for the indemnified party.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there shall be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or 7(b) above in respect of Losses referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such Losses, as well as any other relevant equitable considerations;
provided, that a Holder shall not be required to contribute any amount greater
than the proceeds received by such Holder with respect to the sale of Eligible
Common Stock in the offering(s) that is the subject or basis of the claim for
contribution. The relative fault of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Holders or any underwriters, selling agents or
other securities professionals or all of them were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 7(d). The amount
paid or payable by an indemnified party as a result of the Losses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Holders and any underwriters, selling
agents or other securities professionals in this Section 7(d) to contribute
shall be several and not joint.
(e) Cumulative Remedies. The remedies provided in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
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SECTION 8. Rule 144.
The Company covenants that it will use its reasonable best efforts to
file in a timely manner any reports required to be filed by it under the
Securities Act and the Exchange Act at any time during which the Company is
subject to such reporting obligations, and that the Company will take such
further action as the Holders may reasonably request, all to the extent required
from time to time to enable the Holders to sell Eligible Common Stock without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC.
Upon the request of one or more Holders, the Company will deliver to such
Holders a written statement as to whether it has complied with such
requirements, a copy of the most recent annual report of the Company, and such
other reports and documents of the Company as such Holders may reasonably
request in availing themselves of any rule or regulation of the SEC allowing the
Holders to sell any such securities without registration.
SECTION 9. Participation in Underwritten Registrations.
(a) The investment banker or investment bankers and manager or
managers, if any, that will administer the registration of the Eligible Common
Stock pursuant to a Demand will be selected by the Company after consultation
with, and upon the consent of, a majority in interest of the electing Holders.
(b) The Company will not permit any other Person (other than the
Company) to participate in any underwritten registration hereunder unless such
Person (x) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (y) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. Nothing in this Section 9
shall be construed to create any additional rights regarding the registration of
Eligible Common Stock in any Person otherwise than as set forth herein.
SECTION 10. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not, without the
consent of the Stockholder, on or after the date of this Agreement enter into
any agreement with respect to the Company's securities which is inconsistent
with the rights granted to the Stockholder in this Agreement or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the prior written consent of both parties.
13
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested, postage
prepaid, or delivered by reliable overnight delivery service (receipt confirmed)
or facsimile transmission (receipt confirmed), addressed:
(i) if to the Company, initially at MIM Corporation, 100 Clearbrook
Road, Elmsford, NY 10523, Attention: Barry Posner, Facsimile: 914-460-1670,
or at such other address as the Purchaser shall have furnished to the
Seller in writing, with a copy to: King & Spalding, 1185 Avenue of the
Americas, New York, New York 10036, Attention: John L. Graham, Facsimile:
(212) 556-2222, or (ii) if to the Stockholder, initially at: 16 East Willow
Avenue, Towson, Maryland, 21286, or at such other address as the
Stockholder shall have furnished in writing to the Company, with a copy to
Niles, Barton & Wilmer, Suite 1400, 111 S. Calvert Street, Baltimore,
Maryland 21202, Attention: Robert F. Scholz, Facsimile: (410) 783-6363.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
confirmation is received, if faxed; and on the next business day, if timely
delivered to any air courier guaranteeing overnight delivery.
(d) Assignment of Registration Rights. Except as otherwise provided
below, none of the parties hereto may assign this Agreement or any of the rights
and obligations of the parties hereunder without the prior written consent of
the other parties:
(i) The Stockholder may assign this Agreement and all of its rights
and obligations hereunder to a Permitted Transferee who acquires from the
Stockholder all or a portion of the shares of Eligible Common Stock owned
by the Stockholder, provided, that such assignment shall not result in any
increased costs to the Company; or
(ii) the Company may assign this Agreement and all of its rights and
obligations under this Agreement to an Affiliate of the Company.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to such
jurisdiction's conflicts of law provisions. The federal and state courts of the
State of New York shall have exclusive jurisdiction over the subject matter
hereof, and the Company and Stockholder each attorns to and agrees to accept the
jurisdiction of such courts. Each of the parties hereto submits to the
14
exclusive jurisdiction of the federal and New York state courts located in the
city of New York in connection with any dispute related to this Agreement or any
of the transactions contemplated hereby. Service of any process, summons, notice
or document by certified or registered mail, postage prepaid, addressed to a
party at the address set forth above shall be effective service of process
against such party for any suit, action or proceeding brought in any such court.
Each of the parties irrevocably and unconditionally waives any objection to the
laying of venue of any such suit, action or proceeding brought in any such court
and any claim that any such suit, action or proceeding has been brought in an
inconvenient forum.
(h) Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of such provision in
every other respect and of the remaining provisions contained herein shall not
be affected or impaired thereby.
(i) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
MIM CORPORATION
By: /s/ Barry Posner
----------------------------------
Name: Barry Posner
Title: Vice President
THE STOCKHOLDER:
LIVINGSTON GROUP, LLC
By: John Chay
----------------------------------
Name: John Chay
Title: Manager
Exhibit A
ADDITIONAL PARTY COUNTERPART
The undersigned, after having received and reviewed to its satisfaction
a copy of the Registration Rights Agreement, dated as of August 3, 2000 (the
"Registration Rights Agreement"), by and among MIM Corporation and Livingston
Group LLC, does hereby agree to become party to the Registration Rights
Agreement thereby accepting all the rights, benefits and obligations of a holder
of Eligible Common Stock thereunder. The Company may attach this page as a
counterpart to the Registration Rights Agreement and the undersigned agrees that
such attachment shall be deemed conclusive evidence of its acknowledgment and
acceptance of the terms thereof.
Defined terms used herein and not otherwise defined herein shall have
the meaning given such terms in the Registration Rights Agreement.
Dated: August 3, 2000
-----------------
[NAME]
[ADDRESS FOR NOTICES]
By: __________________________
Name:
Title:
Acknowledged and Accepted By:
MIM CORPORATION
By:________________________________
Name:
Title:
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
August 3, 2000, by and between American Disease Management Associates, L.L.C., a
Delaware limited liability company (the "Employer"), an indirect wholly owned
subsidiary of MIM Corporation ("Parent") and Bruce Blake (the "Employee").
WHEREAS Employer and the Employee, among others, have entered into a
Purchase Agreement, dated as of August 3, 2000 (the "Purchase Agreement")
pursuant to which MIM Health Plans, Inc., will purchase all of the Employee's
membership interests in the Employer for the purchase price set forth therein.
WHEREAS, it is a condition to consummation of the Purchase Agreement
that the parties enter into this Agreement.
WHEREAS, the Employer desires to employ the Employee, and Employee
desires to be employed by the Employer, in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereto mutually agree as follows:
SECTION 1. Employment. The Employer hereby employs Employee for the
Employment Period specified in Section 2 below as President of the Employer, or
in such other capacity as the Employer and the Employee may agree from time to
time. The Employee hereby accepts such employment upon the terms and conditions
set forth herein and agrees to devote his time and efforts to the performance of
his duties hereunder.
SECTION 2. Employment Period. The period of the Employee's employment
under this Agreement (the "Employment Period") shall commence on the date hereof
and shall end upon the earlier of (i) the 3rd anniversary of the Closing Date
(as defined in the Purchase Agreement) or (ii) termination of this Agreement as
contemplated by Section 7 below.
SECTION 3. Duties. Employee shall have those duties and
responsibilities which are assigned to him by the Employer during the Employment
Period. Employee agrees to perform faithfully the duties assigned to him to the
best of his ability.
SECTION 4. Compensation. (a) As compensation for all services rendered
and to be rendered pursuant to this Agreement, the Employer agrees to pay the
Employee (i) from the date hereof through December 31, 2000 an annual salary of
$122,796 (the "2000 Base Salary") and (ii) from and after January 1, 2001, an
annual salary of $225,000 (the "Ongoing Base Salary" and together with the 2000
Base Salary, the "Base Salary"). The Base Salary shall accrue and be payable in
accordance with the payroll practices of the Employer as in effect from time to
time, but not less than bi-monthly. The Employer shall have the right to deduct
from any compensation paid to Employee hereunder all taxes and other amounts
which may be required to be deducted or withheld by law (including, but not
limited to, income tax withholding, social security payments and garnishments),
whether such laws are now in effect or become effective after the date of this
Agreement.
(b) During the Employment Period, the Employee shall be entitled to
participate in the Parent's 1996 Amended and Restated Stock Incentive Plan (the
"Plan") and the 1999 Total Compensation Program for Key Employees (collectively,
the "Bonus Program"), at the participation levels set forth in Section 4(c) and
4(d) below, and at such additional participation levels as may be determined
from time to time by the Chief Executive Officer of Parent or Parent's Board of
Directors or any committee thereof.
(c) Upon execution and delivery of this Agreement and a Stock Option
Agreement between the Employee and the Parent (the "Stock Option Agreement"),
the Employee shall be granted and shall receive non-qualified stock options
("Options") to purchase 50,000 shares of common stock, par value $0.0001 per
share, of Parent ("Common Stock"), at a price per share equal to $1.9375, which
is the closing sales price per share of the Common Stock on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") on
the third business day prior to the date hereof. Subject to Section 7 hereof and
the applicable stock option award agreement (i) 16,667 of such Options shall
vest and become exercisable on each of the first and second anniversaries of the
date hereof, and (ii) the remaining 16,666 Options shall vest and become
exercisable, on the third anniversary of the date hereof. The Options shall be
subject to the terms of the Stock Option Agreement and the Plan.
(d) Upon execution and delivery of this Agreement and a Performance
Shares Agreement between the Employee and Parent (the "Performance Share
Agreement"), the Employee shall be granted and shall receive 25,000 shares of
Common Stock (the "Performance Shares") which shall be subject to certain
limitations and restrictions as set forth in the Performance Shares Agreement
and the Plan.
(e) The Company shall pay Employee $750 per month as an automobile
allowance.
SECTION 5. Expenses. The Employer shall promptly or within 30 days of
receipt of a reimbursement report from the Employee reimburse the Employee for
all reasonable expenses incurred by the Employee on behalf of the Employer or in
connection with the Employee's performance of his duties hereunder; provided,
that the Employee submits proof of such expenses, with the properly completed
forms and supporting receipts and other documentation as prescribed by the
Company, in accordance with the policies applicable to employees of the
Employer.
SECTION 6. Employment Benefits. During the Employment Period, Employee
shall be entitled to such other benefits as are customarily accorded to the
employees of the Parent, including, but not limited to, the right to participate
in employee benefit programs maintained by the Parent such as group health,
life, and disability insurance pursuant to the terms of those plans (the "New
Benefits") or, at Employee's election (to the extent available), such benefits
as Employee was entitled to receive from Employer immediately prior to the date
hereof (the "Existing Benefits"); provided such Employee pays Parent the amount
by which the cost of the Existing Benefits exceeds the cost of the New Benefits.
2
SECTION 7. Termination.
(a) This Agreement may be terminated by written notice prior to the
expiration of the Employment Period by the Employer at any time. If such
termination is with Cause (as such term is hereinafter defined), all of the
Employee's rights to compensation and benefits under Sections 4 and 6 above
shall terminate upon such termination, except amounts accrued in respect of
periods prior to such termination. If such termination is by the Employer
without Cause, the Employer shall pay Employee as severance pay, the remaining
Base Salary which would otherwise have been paid to Employee from the date of
such termination to the third anniversary of the Closing Date, less deductions
and withholdings required by law. The term "Cause" shall mean (A) if Employee is
convicted of, pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation, misrepresentation or embezzlement, (B) if Employee has engaged
in a dishonest act to the damage or prejudice of the Employer, or in conduct or
activities materially damaging to the property, business, or reputation of the
Employer or (C) if Employee fails to comply with the terms of this Agreement
(other than Section 8 hereof), and within ten (10) days after written notice
from the Company of such failure, Employee has not corrected such failure or,
having once received such notice of failure and having so corrected such
failure, Employee at any time thereafter again so fails or (D) if Employee
violates any of the provisions contained in Section 8 of this Agreement;
(b) If the Employee shall die during the Employment Period, this
Agreement shall terminate, and no further compensation shall be payable to
Employee or his estate hereunder, except unpaid accrued compensation.
(c) If the Employee is unable to discharge his duties hereunder for a
period of six consecutive months by reason of physical or mental illness,
injury, or incapacity, the Employer may, by written notice to the Employee,
terminate this Agreement and no further compensation shall be payable to
Employee hereunder.
(d) If the Employee (i) is terminated without Cause and is entitled to
severance pay pursuant to Section 7(a) of this Agreement and (ii) violates any
of the restrictive covenants set forth in Section 8 of this Agreement, the
Employer shall have no further obligations to make any severance payments to
such Employee pursuant to Section 7(a) of this Agreement; provided that
notwithstanding the foregoing, the Employee's obligations to comply with all of
the restrictive covenants set forth in Section 8 of this Agreement shall
continue in effect.
(e) Notwithstanding anything to the contrary, the consequences of
termination, death or disability, as they relate to the Options and the
Performance Shares shall be governed by the Plan, and the Stock Option Agreement
and the Performance Shares Agreement, respectively.
SECTION 8. Proprietary Information and Restrictive Covenants.
All of the provisions set forth in Section 6.04 of the Purchase
Agreement (including, without limitation, all covenants, agreements, rights and
obligations set forth therein) are incorporated by reference herein in their
entirety and shall be of full force and effect, as if stated herein in their
entirety.
3
SECTION 9. Representations by Employee. Employee hereby represents and
warrants to the Employer that (i) the Employee's execution and delivery of this
Agreement and his performance of his duties and obligations hereunder will not
conflict with, or cause a default under, or give any party a right to damages
under, or to terminate, any other agreement to which Employee is a party or by
which he is bound, and (ii) there are no agreements or understandings that would
make unlawful Employee's execution or delivery of this Agreement or his
employment hereunder.
SECTION 10. Notices. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given, made, and received only when personally
delivered, sent by electronically confirmed facsimile transmission, delivered by
Federal Express or other nationally recognized courier service, or two days
after having been deposited in the United States mail, certified mail, postage
prepaid, return receipt requested, addressed as set forth below:
in the case of the Employer at:
American Disease Management Associates, L.L.C.
c/o MIM Corporation
100 Clearbrook Road.
Elmsford, New York 10523
Facsimile (914) 460-1670
Attention: Barry Posner
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036
Facsimile (212) 556-2142
Attention: E. William Bates, II
and, in the case of the Employee, at:
Bruce Blake
c/o American Disease Management Associates, L.L.C.
5 North Regent Street, Suite 506
Livingston, New Jersey 07039
Either party may designate a different address by giving notice of change of
address in the manner provided above.
SECTION 11. Waiver. No waiver or modification in whole or in part of this
Agreement, or any term or condition hereof, shall be effective against any party
unless in writing and duly signed by the party sought to be bound. Any waiver or
any breach of any provisions hereof or any right or power by any party on one
occasion shall not be construed as a waiver of, or a bar
4
to, the exercise of such right or power on any other occasion or as a waiver of
any subsequent breach.
SECTION 12. Binding Effect, Successors. This Agreement shall be binding
upon and shall inure to the benefit of the Employer and its successors and
assigns, and shall inure to the benefit of and be binding upon the Employee and
his executors, administrators, heirs, and legal representatives. This Agreement
may not be transferred, sold or assigned; provided, however, that the Employer
may assign any of its rights and delegate any of its obligations hereunder, in
whole or in part, to an Affiliate (as defined in the Purchase Agreement) of
Employer without Employee's consent. Because the Employee's duties and services
hereunder are special, personal, and unique in nature, the Employee may not
transfer, sell or otherwise assign his rights, obligations, or benefits under
this Agreement; any purported assignment by the Employee in violation hereof
shall be null and void.
SECTION 13. Controlling Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed therein, exclusive of the conflict of laws
provisions thereof.
SECTION 14. Severability. It is the desire and intent of parties that
the terms and conditions of this agreement be enforced to the fullest extent
possible. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect or impair
the validity or enforceability of the remaining provisions of this Agreement,
which shall remain in full force and effect and the parties hereto shall
continue to be bound thereby.
SECTION 15. Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof and shall
supersede all previous agreements between the parties, whether written or oral,
with respect to the subject matter hereof. This Agreement cannot be modified,
altered, or amended except by a writing signed by each of the parties hereto.
5
IN WITNESS WHEREOF, the Employer and the Employee have executed this
Agreement as of the day and year first above written.
EMPLOYER:
American Disease Management Associates, L.L.C.
By: /s/ Barry Posner
--------------------
Name: Barry Posner
Title: Secretary
EMPLOYEE:
/s/ Bruce Blake
-----------------------
Bruce Blake
6
MIM NEWS FOR IMMEDIATE RELEASE
For further information please contact: Richard H. Friedman
Chief Executive Officer
MIM Corporation
914-460-1635
MIM CORPORATION ACQUIRES SPECIALTY INFUSION HOME
HEALTHCARE COMPANY AMERICAN DISEASE
MANAGEMENT ASSOCIATES, L.L.C.
-- Strengthens MIM's Push Into Specialty Pharmacy --
ELMSFORD, New York, August 4, 2000 - MIM Corporation (NASDAQ: MIMS), an
independent pharmacy benefit management, specialty pharmaceutical and
fulfillment/e-commerce organization, announced today that it has completed the
acquisition of all of the equity interests of American Disease Management
Associates, L.L.C., or "ADIMA", an integrated specialty pharmacy and home
healthcare provider of infusion and injectible specialty pharmaceutical products
and services. MIM Corporation acquired ADIMA for approximately $24 million, $19
million in cash and the balance in MIM Corporation common stock.
ADIMA, located in Livingston, New Jersey, provides high-tech intravenous and
injectible specialty pharmaceutical products to chronically ill patients
receiving healthcare services from home by highly trained IV certified
registered nurses, typically after a hospital discharge. ADIMA has established
itself among its managed care client base as a high quality provider of
specialty pharmaceutical infusion and injectible products. ADIMA provides these
products and services to managed care organization's plan members principally
residing in the New York and New Jersey metropolitan areas.
The transaction will be accounted for as a purchase and is anticipated to be
accretive to MIM's 2000 earnings. MIM financed the acquisition partially with
its available cash on hand and utilized a portion of its $30 million revolving
credit facility with General Electric Capital Corporation for the balance. The
Company previously disclosed that it had secured, through its principal
operating subsidiary, MIM Health Plans, Inc., a $30 million revolving credit
facility, to be used by the Company for, among other things, acquisitions.
"The acquisition of ADIMA further solidifies the strong foundation that MIM has
built over the last several months in contracting with new managed care
organizations and our existing PBM managed care and TPA clients to deliver
specialty pharmaceutical products
and services to their members who are afflicted with chronic illnesses and other
serious conditions and are required to receive costly, hard to administer oral,
injectible or infusion pharmaceutical products." said Richard H. Friedman,
Chairman and Chief Executive Officer of MIM. "We are excited to have the entire
current ADIMA management team joining us to manage and grow this exciting new
business area that focuses on the delivery and administering of specialty
pharmaceutical infusion and injectible products and services.
ADIMA and MIM anticipate opening similar facilities in MIM's existing Ohio,
Rhode Island and Tennessee facilities to provide these highly technical products
and services to plan members in those markets. ADIMA's managed care clients and
their members will benefit greatly from this arrangement; they will continue to
receive the same quality products and services they have come to expect from
ADIMA over the years. They will also receive the added value provided by MIM's
expertise in delivering highly sophisticated clinical pharmacy and technology
programs and services to its clients and their plan members," Mr. Friedman
added.
MIM Corporation is an independent pharmacy benefit management, specialty
pharmaceutical and fulfillment/ e-commerce organization that partners with
healthcare providers and sponsors to control prescription drug costs. MIM's
innovative pharmacy benefit products and services use clinically sound
guidelines to ensure cost control and quality care. MIM's specialty
pharmaceutical division specializes in serving the chronically ill affected by
life threatening diseases. MIM's fulfillment and e-commerce pharmacy specializes
in serving individuals that require long-term maintenance medications. MIM's
online pharmacy, http://www.mimrx.com/, develops private label websites to offer
groups innovative, customized, health information services and products on the
Internet for their members.
This press release may contain statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the intent, belief or current expectations
of the Company and its subsidiaries (including its newly acquired subsidiary
American Disease Management Associates, L.L.C.) and their respective directors,
officers and other members of management with respect to, among other things,
predictions of future operating performance of the Company and management's
plans and objectives. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those forward
looking statements as a result of various factors. Factors that could cause or
contribute to such differences include, but are not limited to those described
in the Company's periodic filings with the Securities and Exchange Commission,
including the Company's Form 10-K for the year ended December 31, 1999 and its
Form 10-Q for the period ended March 31, 2000.
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