EXHIBIT 2.8
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of September 29, 1998, by and among
COVENTRY INDUSTRIES, INC., a Florida corporation ("Coventry"), BSD HEALTHCARE
INDUSTRIES, INC., a Florida corporation ("BSD"), the Shareholders of BSD as set
forth on Schedule "A" attached hereto and made a part hereof (individually a
"Shareholder" and collectively, the "Shareholders"), PEOPLE FIRST STAFFING LLC,
an Ohio limited liability company ("PF"), and the Members of PF listed on
Schedule "B" attached hereto and made a part hereof (individually a "Member" and
collectively, the "Members").
WHEREAS, Coventry is a corporation organized under the laws of the
State of Florida and is responsible for filing certain reports with the
Securities and Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934;
WHEREAS, BSD operates a respiratory therapy and respiratory therapy
management business through its wholly owned subsidiaries, Respiratory Care
Services, Inc., an Indiana corporation ("RCS"), and RCS Subacute, Inc., also an
Indiana corporation ("RCSS");
WHEREAS, the Shareholders own an aggregate of 1,402,555 shares (or
80.10%) of the outstanding common stock of BSD (the "BSD Shares");
WHEREAS, at the time of the Second Closing (as hereinafter defined), PF
will be an employee leasing company which will have significant long-term
contracts for such services covering approximately six thousand (6,000)
employees;
WHEREAS, the Members own one hundred percent (100%) of the membership
interests in PF (the "PF Membership Interests");
WHEREAS, Coventry wishes to issue a number of shares equal to 19.95% of
its outstanding shares of common stock (the "BSD Consideration") to the
Shareholders in exchange for the BSD Shares, and the closing of the BSD
Consideration (the "First Closing") will occur pursuant to the terms and
conditions hereof;
WHEREAS, in exchange for the PF Membership Interests, Coventry wishes
to issue a number of shares to the Members, which, when aggregated with the
shares issued in the BSD Consideration, will equal an aggregate of 80.10% of the
issued and outstanding shares of Coventry on the date of such issuance (the "PF
Consideration") (the BSD Consideration and the PF Consideration sometimes
collectively referred to as the "Coventry Shares") and the Closing of the PF
Consideration (the "Second Closing") will occur pursuant to the terms and
conditions hereof.
WHEREAS, the parties desire both the BSD Exchange (as defined in
Section 2.2 hereof) and the PF Exchange (also as defined in Section 2.2 hereof)
(as defined in Section 2.2 hereof (the BSD Exchange and the PF Exchange
sometimes collectively referred to as the "Contemplated Transactions") to be
tax-free exchanges pursuant to Section 368 or 351 of the Internal Revenue Code;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the parties hereto hereby agree as follows:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
Article I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquired Companies"-- BSD, RCS, RCSS and PF, collectively.
"Applicable Contract"--any Contract (a) under which any Acquired
Company or Coventry has or may acquire any rights, (b) under which any Acquired
Company or Coventry has or may become subject to any obligation or liability, or
(c) by which any Acquired Company or Coventry or any of their respective assets
owned or used by it is or may become bound.
"Breach"--a " Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision.
"Closing Dates"--the dates and times as of which the First Closing and
the Second Closing actually take place.
"Consent"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contract"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Disclosure Letter"--the disclosure letter delivered by the parties to
each other prior to the First Closing and to be attached hereto and made a part
hereof, effective at the First Closing.
"Encumbrance"--any charge, claim, community property interest,
condition, encumbrance, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
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"Environmental, Health, and Safety Liabilities"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
any Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and responses,
investigative, remedial, or inspection costs and expenses arising under any
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by any applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencement of
activities, such as resource extraction or construction, that could have a
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
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(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and the regulations and rules issued pursuant to that Act or any
successor law.
"Facilities"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company or Coventry, as
the case may be, and any buildings, plants, structures or equipment (including
motor vehicles, tank cars, and rolling stock) currently or formerly owned or
operated by any Acquired Company or Coventry, as the case may be.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the balance sheet and the other
financial statements referred to in Sections 3.4, 4.4 and 5.4 were prepared.
"Governmental Authorization"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal or other government; or
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal).
"Hazardous Activity"--the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that poses an unreasonable risk of harm
to persons or property on or off the Facilities, or that may affect the value of
the Facilities or the Acquired Companies.
"Hazardous Materials"--any waste or other hazardous substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive or toxic, or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
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"IRC"--the Internal Revenue Code of 1986 or any successor law, and the
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving or has served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"Legal Requirement"--any federal, state, local, municipal, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute or treaty including, without limitation, land use and zoning
restrictions, environmental laws and regulations, OSHA laws and regulations,
health and safety codes, labor and employment practices, immigration,
anti-competitive practices, advertising and labeling rules, customs, tariff and
importation rules, the Fair Packaging and Labeling Act, the Magnuson-Moss
Warranty Act, and the Consumer Product Safety Act.
"Occupational Safety and Health Law"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"Organizational Documents"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; (e) any
organizational document of a limited liability company; and (f) any amendment to
any of the foregoing.
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"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with, such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least five
percent (5%) of the outstanding voting power of a Person or equity securities or
other equity interests representing at least five percent (5%) of the
outstanding equity securities or equity interests in a Person.
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"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act"--the Securities Act of 1933 or any successor law, and
the regulations and rules issued pursuant to that Act or any successor law.
"Subsidiary"--with respect to any Person (the "Owner"), any corporation
or other Person (x) of which securities or other interests having the power to
elect a majority of that corporation's or other Person's board of directors or
similar governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) or (y) of which fifty percent (50%) or more of any class of
securities or other equity interests, are held by the Owner or one or more of
its Subsidiaries; when used without reference to a particular Person,
"Subsidiary" means a Subsidiary of Coventry.
"Tax"--any tax imposed by any Legal Requirement.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or otherwise
pursued in the future.
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Article II
DUE DILIGENCE PERIOD; EXCHANGE OF SHARES
AND MEMBERSHIP INTERESTS FOR COMMON STOCK
1.1 DUE DILIGENCE
Each of Coventry, the Shareholders and the Members shall have a period
commencing on the date hereof and expiring at six o'clock (6:00) p.m. on the
date that is sixty (60) days following the parties' receipt of a fully-executed
copy of this Agreement (the "Due Diligence Period"), at their respective sole
cost and expense, to (a) inspect the Facilities, (b) evaluate the Contemplated
Transactions, (c) analyze and review the books, records, disclosures, documents,
agreements, assets and liabilities relating to Coventry and its Subsidiaries and
the Acquired Companies, and (d) conduct such tests, investigations, studies and
reports as they may determine to be desirable in connection therewith. If any
such review, inspections, tests, investigations or studies are unsatisfactory,
or, if there are any matters relating to Coventry or its Subsidiaries or their
businesses, assets or liabilities which are unsatisfactory, in each case in the
sole and absolute discretion of the Shareholders and Members, or if they
determine, in their sole and absolute discretion, during the Due Diligence
Period, not to proceed with the Contemplated Transactions, the Shareholders
and/or Members may terminate this Agreement by notice to Coventry not later than
six o'clock (6:00) p.m. on the last day of the Due Diligence Period. If any such
review, inspections, tests, investigations or studies are unsatisfactory, or, if
there are any matters relating to the Acquired Companies or their businesses,
assets or liabilities which are unsatisfactory, in each case in the sole and
absolute discretion of Coventry, or if it determines, in its sole and absolute
discretion, during the Due Diligence Period, not to proceed with the
Contemplated Transactions, Coventry may terminate this Agreement by notice to
the Shareholders and the Members not later than six o'clock (6:00) p.m. on the
last day of the Due Diligence Period. Upon any such termination pursuant to this
Section 2.1, neither party shall have any further liability to the other party
pursuant hereto, except for any liability that, pursuant to the provisions of
this Agreement, is expressly made to survive the termination hereof. Each party
shall cooperate with, and shall cause its Subsidiaries and Representatives to
cooperate with, the other parties in connection with the due diligence set forth
in this Section 2.1.
1.2 AGREEMENT TO EXCHANGE BSD SHARES AND MEMBERSHIP INTERESTS FOR THE
COVENTRY SHARES.
Upon the terms and subject to the conditions set forth herein, (i) the
Shareholders shall transfer the BSD Shares to Coventry and, simultaneously
therewith, Coventry shall transfer to the Shareholders the BSD Consideration
(the "BSD Exchange"); and (ii) the Members shall transfer the PF Membership
Interests to Coventry and, simultaneously therewith, Coventry shall transfer the
PF Consideration to the Members (the "PF Exchange").
1.3 CLOSING.
The closing of the BSD Exchange shall take place within ten (10) days
after the later of (x) the satisfaction, waiver or expiration of the Due
Diligence Period and (y) the conditions precedent to such Closing set forth in
Article XI hereof have been satisfied (the "First Closing"). The closing of the
PF Exchange shall take place as soon as practicable after the conditions
precedent to such closing set forth in Articles XII and XIII hereof have been
satisfied but in no event later than the Contingency Date (as defined in Article
XIII hereof) (the "Second Closing") (the First and Second Closing sometimes
collectively referred to as the "Closing"). Both the First Closing and the
Second Closing shall take place at the offices of Broad and Cassel, 7777 Glades
Road, Boca Raton, Florida 33434, or such other place as the parties shall agree.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BSD
BSD represents and warrants to Coventry, except as set forth in the
Disclosure Letter, as follows (all references in this Article III to the
delivery of documents or schedules shall mean delivery on or prior to the First
Closing Date and all representations and warranties in this Article III are made
as to BSD and all Subsidiaries thereof):
3.1 ORGANIZATION AND GOOD STANDING
(a) BSD and its subsidiaries, RCS and RCSS, are each corporations duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. As set forth on Part 3.1 of the Disclosure Letter,
BSD and its subsidiaries, RCS and RCSS, are duly qualified to do business as
foreign corporations and are in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by them, or the nature of the activities conducted by them, require such
qualification.
(b) BSD has delivered to Coventry copies of the Organizational
Documents of BSD, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of BSD, enforceable against BSD in accordance with its terms. Upon the execution
and delivery by BSD of this Agreement and all agreements contemplated herein to
which BSD are a party (collectively, the "BSD Closing Documents"), this
Agreement and the BSD Closing Documents will constitute the legal, valid, and
binding obligations of BSD, enforceable against BSD in accordance with their
respective terms except as such enforcement is limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally. BSD has the
absolute and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the BSD Closing Documents and to perform its
obligations under this Agreement and the BSD Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of BSD, or (B) any resolution adopted
by the board of directors or the shareholders of BSD;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which BSD, or any of the assets owned or
used by BSD, may be subject;
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(iii) contravene, conflict with, or result in a violation of, any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by BSD or that otherwise relates to the business of,
or any of the assets owned or used by, BSD;
(iv) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by BSD.
(c) Except as set forth in Part 3.2 of the Disclosure Letter, BSD is
not and will not be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The authorized equity securities of BSD consist of 50,000 shares of
common stock, par value $.001 per share, of which 1,751,005 shares are issued
and outstanding and the 5,000,000 shares of preferred stock, par value $.001 per
share, of which none are outstanding. The Shareholders are and will be on the
First Closing Date the record and beneficial owners of the BSD Shares. All of
the BSD Shares are free and clear of all Encumbrances. All of the BSD Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on Part 3.3 of the Disclosure Letter, there
are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of BSD. None of the outstanding equity securities
or other securities of BSD was issued in violation of the Securities Act or any
other Legal Requirement. BSD does not own, or have any Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business, except RCS and RCSS.
1.4 FINANCIAL STATEMENTS
BSD has delivered to Coventry: a balance sheet of BSD as at December
31, 1997 (including the notes thereto, the "BSD Balance Sheet"), and the related
statements of income, changes in shareholders' equity, and cash flow for the
fiscal years then ended, together with the report thereon of J.H. Cohn & Co.,
independent certified public accountants. Such financial statements and notes
fairly present the financial condition and the results of operations, changes in
the shareholders' equity, and cash flow of BSD as at the respective dates of and
for the periods referred to in such financial statements, all in accordance with
GAAP; the financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the periods
involved. No financial statements of any Person other than BSD, RCS and RCSS are
required by GAAP to be included in the financial statements of BSD.
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1.5 BOOKS AND RECORDS
The books of account, minute books and stock record books of BSD, all
of which have been made available to Coventry, are correct in all material
respects. The minute books of BSD contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors of BSD, and no meeting of
any shareholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute book. At the
Closing, all of those books and records will be in the possession of BSD.
1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 3.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by BSD. BSD
has delivered to Coventry copies of the deeds and other instruments (as
recorded) by which BSD acquired such real property and interests, and copies of
all title insurance policies, opinions, abstracts, and surveys in the possession
of BSD and relating to such property or interests. BSD owns (with good and
marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that it purports to
own located in the facilities owned or operated by BSD or reflected as owned in
the books and records of BSD, including all of the properties and assets
reflected in the BSD Balance Sheet (except for assets held under capitalized
leases disclosed in Part 3.6 of the Disclosure Letter and personal property sold
since the date of the BSD Balance Sheet, as the case may be, in the Ordinary
Course of Business), and all of the properties and assets purchased or otherwise
acquired by BSD since the date of the BSD Balance Sheet (except for personal
property acquired and sold since the date of the BSD Balance Sheet in the
Ordinary Course of Business and consistent with past practice). All properties
and assets reflected in the BSD Balance Sheet are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the BSD Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the BSD Balance Sheet (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (c) liens for current taxes
not yet due, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts from
the value or impairs the use of the property subject thereto, or impairs the
operations of BSD, and (ii) zoning laws and other land use restrictions that do
not impair the present or anticipated use of the property subject thereto.
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1.7 ACCOUNTS RECEIVABLE
All accounts receivable of BSD that are reflected on the BSD Balance
Sheet or on the accounting records of BSD as of the Closing Date (collectively,
the "BSD Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the Ordinary
Course of Business. Except as set forth in Part 3.7 of the Disclosure Letter,
all BSD Accounts Receivable are current and expected to be collectible in the
Ordinary Course of Business, net of reserves for uncollectible accounts;
provided, however, that this provision is not a guaranty of collectibility.
1.8 INVENTORY
All inventory of BSD, whether or not reflected in the BSD Balance
Sheet, consists of a quality and quantity usable and salable in the Ordinary
Course of Business, except for obsolete items and items of below-standard
quality, all of which have been written off or written down to net realizable
value in the BSD Balance Sheet or on the accounting records of BSD as of the
Closing Date, as the case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.9 of the Disclosure Letter, BSD has no
liabilities or obligations of any nature (whether known or unknown, and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the BSD Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date of the
BSD Balance Sheet.
1.10 TAXES
(a) BSD has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. BSD has delivered to Coventry copies of, and
Part 3.10 of the Disclosure Letter contains a complete and accurate list of, all
such Tax Returns filed since January 1, 1996. BSD has paid, or made provision
for the payment of, all Taxes that have or may have become due pursuant to those
Tax Returns or otherwise, or pursuant to any assessment received by BSD, except
such Taxes, if any, as are listed in Part 3.10 of the Disclosure Letter and are
being contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the BSD Balance Sheet.
(b) To the Knowledge of BSD, the charges, accruals, and reserves with
respect to Taxes on the books of BSD are adequate (determined in accordance with
GAAP) and are at least equal to BSD's liability for Taxes. There exists no
proposed tax assessment against BSD except as disclosed in the BSD Balance Sheet
or in Part 3.10 of the Disclosure Letter. All Taxes that BSD is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(c) All Tax Returns filed by BSD are true and correct in all material
respects. There is no tax sharing agreement that will require any payment by BSD
after the date of this Agreement.
(d) Except as set forth in Part 3.10 of the Disclosure Letter, BSD has
not been audited by, or received any notice of audit from, any taxing authority
since January 1, 1996.
12
1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the BSD Balance Sheet, except as set forth in Part
3.11 of the Disclosure Letter, there has not been any material adverse change in
the business, operations, properties, assets, or condition of BSD, and to the
Knowledge of BSD, no event has occurred or circumstance exists that may result
in such a material adverse change.
1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 3.12 of the Disclosure Letter, neither
BSD nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) BSD and its Subsidiaries have paid in full all wages, salaries,
commissions, bonuses, vacation pay, sick pay and other direct and indirect
compensation and benefits earned by all employees, representatives, contractors
and agents through the date of the First Closing, as well as all payroll and
withholding taxes and all payroll overheads. There are no bonuses or commissions
accrued or payable by BSD or any Subsidiaries with respect to any fiscal periods
ending on or before June 30, 1998 that remain unpaid in whole or in part, or
which are in dispute or the subject of any claim.
(c) Part 3.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of BSD and its Subsidiaries, together with job title and description
and current compensation rates (salary, bonus, commission and otherwise), and
identification of which Subsidiary is the employer of such persons.
(d) Except as set forth in Part 3.12 of the Disclosure Letter, there
are no collective bargaining agreements or union or labor agreements to which
BSD or any Subsidiary is a party or is bound or affecting the business thereof.
Except as set forth in Part 3.12 of the Disclosure Letter, there are no pending,
and during the five (5) years preceding the date of this Agreement there have
been no, disputes, strikes, work slow-downs, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of BSD or any
Subsidiary, and BSD knows of no basis for any of the foregoing. Each collective
bargaining agreement or other union contract set forth in Part 3.12 of the
Disclosure Letter (each a "BSD Union Contract") is in full force and effect; BSD
has made all payments and contributions due under such BSD Union Contract and is
otherwise in full compliance with the terms and conditions of such BSD Union
Contract, and there are no defaults under the BSD Union Contract or claims
thereof by the union, any employees or any governmental or labor relations
agency. There are no disputes or grievances pending or Threatened with respect
to any BSD Union Contract or any employees covered thereby, and BSD knows of no
basis for any of the foregoing.
13
(e) Except as set forth on Part 3.12 of the Disclosure Letter, BSD and
its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and BSD and its Subsidiaries have not been required to contribute to
any employee benefit plan which is a multi-employer plan (within the meaning of
Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. BSD and its Subsidiaries have no responsibility for and have not assumed
any pension-related or employee benefit plan-related liabilities (including,
without limitation, withdrawal liability) of any other predecessor business or
person. With respect to each and every employee benefit plan of BSD and its
Subsidiaries identified on Part 3.12 of the Disclosure Letter (each, a "BSD
Benefit Plan"), each BSD Benefit Plan conforms to, and its administration is in
compliance with, applicable federal laws, including, but not limited to, ERISA
and the IRC. There are no pending, or Threatened or anticipated, audits,
assessments, disputes or claims by, on behalf of, or against, any BSD Benefit
Plan, BSD or any Subsidiary by any participant or beneficiary thereunder or any
governmental agency.
(f) BSD and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 3.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, BSD or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.13 of the Disclosure Letter:
(i) BSD is in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by BSD of, or a material failure on the part of BSD to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of BSD to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) BSD has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
BSD to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
14
(b) Part 3.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by BSD or that
otherwise relates to the business of, or to any of the assets owned or used by,
BSD. Each material Governmental Authorization listed or required to be listed in
Part 3.13 of the Disclosure Letter is valid and in full force and effect. Except
as set forth in Part 3.13 of the Disclosure Letter:
(i) BSD is in compliance in all material respects with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in Part 3.13 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 3.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 3.13 of the Disclosure
Letter;
(iii) BSD has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 3.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit BSD to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
BSD to own and use its assets in the manner in which it currently owns and uses
such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against BSD or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
BSD; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
15
To the Knowledge of BSD, (1) no such Proceeding has been Threatened,
and (2) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. BSD has delivered
to Coventry copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.14 of the Disclosure Letter. The
Proceedings listed in Part 3.14 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of BSD.
(b) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) there is no Order to which BSD, or any of the assets owned or
used by BSD, is subject; and
(ii) no officer, director, agent, or key employee of BSD is subject
to any Order that prohibits such officer, director, agent, or key employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of BSD.
(c) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) BSD is in compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) No event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which BSD, or any of the assets owned or used by BSD, is subject; and
(iii) BSD has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which BSD, or
any of the assets owned or used by BSD, is or has been subject.
1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.15 of the Disclosure Letter, since the
date of the BSD Balance Sheet, BSD has conducted its business only in the
Ordinary Course of Business and there has not been any:
(a) change in BSD's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of BSD; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by BSD of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of BSD;
16
(c) payment or increase by BSD of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of BSD;
(e) damage to or destruction or loss of any asset or property of BSD,
whether or not adequately covered by insurance.
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to BSD of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of BSD or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of BSD;
(h) cancellation or waiver of any claims or rights with a value to BSD
in excess of $25,000;
(i) material change in the accounting methods used by BSD;
(j) agreement, whether oral or written, by BSD to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth on Part 3.15 of the Disclosure Letter.
1.16 CONTRACTS; NO DEFAULTS
(a) Part 3.16 of the Disclosure Letter contains a complete and accurate
list, and BSD has delivered to Coventry true and complete copies, of: (i) all
agreements and other commitments for the purchase of any materials or supplies
that involve an expenditure by BSD of more than $10,000; (ii) all notes and
agreements relating to any indebtedness of BSD for borrowed money; (iii) all
leases or other rental agreements under which BSD is either lessor or lessee;
(iv) all other agreements (including, but not limited to, employment
agreements), commitments and understandings (written or oral) to which BSD is a
party or by which it is bound that require payment by BSD of more than $10,000
and that cannot be terminated by BSD on fewer than thirty (30) days' notice
without liability; and (v) all patents, trademarks (including service marks),
trade mark registrations, and applications for registering patents or
trademarks, owned by BSD (none of which is subject to a licensing or other
agreement with any other person). True and complete copies of all written
leases, agreements, commitments and understandings (collectively, the "BSD
Agreements") referred to in Part 3.16 of the Disclosure Letter have been
delivered to Coventry. Each BSD Agreement is, and at the First Closing will be,
in full force and effect, except for those that expire by their own terms or
which are terminated upon the request of BSD with the written consent of
Coventry. There is no existing default by BSD under any BSD Agreement, and, to
the Knowledge of BSD, there is no existing default under any BSD Agreement by
any other party to any BSD Agreement.
17
(b) BSD and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 3.16 of the Disclosure Letter,
BSD and its Subsidiaries have not subcontracted or sublicensed to or from anyone
the performance of any of its contractual responsibilities with respect to any
Applicable Contract.
(c) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries are not a party to any loan, promissory note, credit agreement,
working capital line, factoring arrangement, security interest, pledge, or
mortgage with any bank, financial institution or other entity or person.
(d) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of BSD or any Subsidiary, or to
any other person or entity.
(e) Except as set forth in Part 3.16 of the Disclosure Letter, BSD and
its Subsidiaries (i) do not have any power of attorney outstanding and (ii) do
not have any obligations or liabilities (whether absolute, accrued, contingent
or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of any obligation of any other person or entity
(including without limitation, any director, officer, shareholder, employee,
consultant or contractor of BSD or any Subsidiary). Part 3.16 of the Disclosure
Letter sets forth any cross-guarantees or indemnities provided by or among BSD
or any Subsidiary to or for the benefit of BSD or any other Subsidiary.
(f) BSD and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) BSD and its Subsidiaries are not a party to (i) any contract,
pledge or commitment for charitable contributions, (ii) any contract with the
United States Government or any state or local government or public authority or
any agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
(h) BSD and its Subsidiaries are not, by non-competition agreement,
restrictive covenant, court order, injunction, or otherwise, restricted from
carrying on any business whatsoever anywhere in the world.
(i) BSD and its Subsidiaries are not required to provide any letters of
credit, bonding or financial security arrangements in connection with any of
their businesses, customers or suppliers and none are issued or outstanding.
18
1.17 INSURANCE
Part 3.17 of the Disclosure Letter includes an insurance schedule
prepared by BSD's insurance broker identifying all insurance policies maintained
by BSD, the insurance carrier, type of coverage, amount of coverage, premium,
policy expiration dates, and loss experience. BSD has delivered to Coventry true
and complete copies of all policies of insurance to which BSD is a party or
under which BSD, or any director of BSD, is or has been covered at any time
within the three (3) years preceding the date of this Agreement, as set forth on
Part 3.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.18 of the Disclosure Letter:
(a) BSD is, and at all times has been, in material compliance with, and
has not been and is not in violation of or liable under, any Environmental Law.
BSD has not received any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which BSD has or had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by BSD, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which BSD has or had an interest.
(c) BSD has no Knowledge of any basis to expect, and has not received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which BSD has or had an interest, or with respect
to any property or facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by BSD, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) BSD has no Environmental, Health, and Safety Liabilities with
respect to the Facilities, or with respect to any other properties and assets
(whether real, personal, or mixed) in which BSD (or any predecessor), has or had
an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. BSD
has not permitted or conducted, and is not aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which BSD has or had an interest.
19
(f) There has been no Release or Threat of Release of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which BSD
has or had an interest, or to the Knowledge of BSD, any geologically or
hydrologically adjoining property, whether by BSD or any other Person.
(g) BSD has delivered to Coventry true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by BSD pertaining to Hazardous Materials or Hazardous Activities in, on, or
under the Facilities, or concerning compliance by BSD with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
BSD owns or possesses adequate licenses or other rights to use all
computer software, software programs, patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, trade names, copyrights,
inventions, drawings, designs, customer lists, proprietary know-how or
information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. BSD's operations do not conflict with or infringe, and
no one has asserted that those operations conflict with or infringe, any rights
of any third party. Part 3.19 of the Disclosure Letter sets forth the status of
BSD's compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither BSD nor any director, officer, agent, or employee of BSD, nor
any other Person associated with or acting for or on behalf of BSD, has directly
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain special
concessions or for special concessions already obtained, for or in respect of
BSD or any Subsidiary of BSD, or (ii) in violation of any Legal Requirement, or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of BSD.
1.21 DISCLOSURE
No representation or warranty of BSD in this Agreement and no statement
by BSD in the Disclosure Letter omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
20
1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 3.22 of the Disclosure Letter, no Related
Person of BSD has had any interest in any property (whether real, personal, or
mixed and whether tangible or intangible) used in or pertaining to BSD's
business. Except as set forth in Part 3.22 of the Disclosure Letter, no Related
Person of BSD is or has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with BSD;
or (ii) engaged in competition with BSD with respect to any line of the products
or services of BSD (a "Competing Business") in any market presently served by
BSD. Except as set forth in Part 3.22 of the Disclosure Letter, no Related
Person of BSD is a party to any Contract with, or has any claim or right
against, BSD.
1.23 BROKERS OR FINDERS
BSD has incurred no obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PF
As of the Second Closing Date, PF represents and warrants to Coventry,
except as set forth in the Disclosure Letter, as follows (all references in this
Article IV to the delivery of documents or schedules shall mean delivery on or
prior to the Second Closing Date and all representations and warranties in this
Article IV are made as to PF and all Subsidiaries thereof):
4.1 ORGANIZATION AND GOOD STANDING
(a) PF is a limited liability company duly organized, validly existing,
and in good standing under the laws of its jurisdiction of formation, with full
power and authority to conduct its business as it is now being conducted, to own
or use the properties and assets that it purports to own or use, and to perform
all its obligations under Applicable Contracts. As set forth on Part 4.1 of the
Disclosure Letter, PF and its subsidiaries are duly qualified to do business and
are in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by them, or the
nature of the activities conducted by them, require such qualification.
(b) PF has delivered to Coventry copies of the Organizational Documents
of PF, as currently in effect.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of PF enforceable against PF in accordance with its terms. Upon the execution
and delivery by PF of this Agreement and all agreements contemplated herein to
which PF is a party (the "PF Closing Documents"), the PF Closing Documents will
constitute the legal, valid, and binding obligations of PF enforceable against
PF in accordance with their respective terms except as such enforcement is
limited by bankruptcy, insolvency, or other laws affecting creditors' rights
generally. PF has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the PF Closing Documents and
to perform its obligations under this Agreement and the PF Closing Documents.
21
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of PF, or (B) any resolution adopted
by the Members of PF;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which PF, or any of the assets owned or
used by PF, may be subject;
(iii) contravene, conflict with, or result in a violation of, any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by PF or that otherwise relates to the business of,
or any of the assets owned or used by, PF;
(iv) cause PF to become subject to, or to become liable for the
payment of, any Tax;
(v) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by PF.
(c) Except as set forth in Part 4.2 of the Disclosure Letter, PF is not
and will not be required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The Members will on the Second Closing Date be the record and
beneficial owners of all of the PF Membership Interests. All of the PF
Membership Interests have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth on Part 4.3 of the Disclosure
Letter, there are no Contracts relating to the issuance, sale, or transfer of
any equity securities or other securities of PF. None of the outstanding equity
securities or other securities of PF was issued in violation of the Securities
Act or any other Legal Requirement. PF does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
22
1.4 FINANCIAL STATEMENTS
PF has delivered to Coventry: a balance sheet of PF as at [to be filled
in on Second Closing Date] (including the notes thereto, the "PF Balance
Sheet"), and the related statements of income and cash flow for the fiscal year
then ended, together with the report thereon of [to be filled in on Second
Closing Date], independent certified public accountants. Such financial
statements and notes fairly present the financial condition and the results of
operations and cash flow of PF as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP; the
financial statements referred to in this Section 4.4 reflect the consistent
application of such accounting principles throughout the periods involved. No
financial statements of any Person other than PF are required by GAAP to be
included in the financial statements of PF.
1.5 BOOKS AND RECORDS
The books of account of PF, all of which have been made available to
Coventry, are correct in all material respects. Such documents contain accurate
and complete records of all meetings held of, and action taken by, the Members
of PF, and no meeting of any Members or managers of PF has been held for which
written records have not been prepared and are not contained in such books. At
the Closing, all of those books and records will be in the possession of PF.
1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 4.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by PF. PF has
delivered to Coventry copies of the deeds and other instruments (as recorded) by
which PF acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of PF and
relating to such property or interests. PF owns (with good and marketable title
in the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that it purports to own located in the
facilities owned or operated by or reflected as owned in the books and records
of PF, including all of the properties and assets reflected in the PF Balance
Sheet (except for assets held under capitalized leases disclosed in Part 4.6 of
the Disclosure Letter and personal property sold since the date of the PF
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by PF since the
date of the PF Balance Sheet (except for personal property acquired and sold
since the date of the PF Balance Sheet in the Ordinary Course of Business and
consistent with past practice). All properties and assets reflected in the PF
Balance Sheet are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the PF Balance Sheet as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the PF Balance Sheet (such mortgages and security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(c) liens for current taxes not yet due, and (d) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of PF, and (ii) zoning laws and other
land use restrictions that do not impair the present or anticipated use of the
property subject thereto.
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1.7 ACCOUNTS RECEIVABLE
All accounts receivable of PF that are reflected on the PF Balance
Sheet or on the accounting records of PF as of the Closing Date (collectively,
"PF Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Except as set forth in Part 4.7 of the Disclosure Letter, all PF
Accounts Receivable are current and expected to be collectible in the Ordinary
Course of Business, net of reserves for uncollectible accounts; provided,
however, that this provision is not a guaranty of collectibility.
1.8 INVENTORY
All inventory of PF, whether or not reflected in the PF Balance Sheet,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the PF
Balance Sheet or on the accounting records of PF as of the Closing Date, as the
case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 4.9 of the Disclosure Letter, PF has no
liabilities or obligations of any nature (whether known or unknown, or whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the PF Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date of the PF
Balance Sheet.
1.10 TAXES
(a) PF has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. PF has delivered to Coventry copies of, and
Part 4.10 of the Disclosure Letter contains a complete and accurate list of, all
such Tax Returns filed since the date of PF's formation. PF has paid, or made
provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by PF, except such Taxes, if any, as are listed in Part 4.10 of the
Disclosure Letter and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the PF
Balance Sheet.
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(b) To the Knowledge of PF, the charges, accruals, and reserves with
respect to Taxes on the books of PF are adequate (determined in accordance with
GAAP) and are at least equal to PF's liability for Taxes. There exists no
proposed tax assessment against PF except as disclosed in the PF Balance Sheet
or in Part 4.10 of the Disclosure Letter. All Taxes that PF is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(c) All Tax Returns filed by PF are true and correct in all material
respects. There is no tax sharing agreement that will require any payment by PF
after the date of this Agreement.
(d) Except as set forth in Part 4.10 of the Disclosure Letter, PF has
not been audited by, or received any notice of audit from, any taxing authority
since the date of PF's formation.
1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the PF Balance Sheet, except as set forth in Part
4.11 of the Disclosure Letter, there has not been any material adverse change in
the business, operations, properties, assets, or condition of PF, and to the
Knowledge of PF, no event has occurred or circumstance exists that may result in
such a material adverse change.
1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 4.12 of the Disclosure Letter, neither
PF nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) PF and its Subsidiaries have paid in full all wages, salaries,
commissions, bonuses, vacation pay, sick pay and other direct and indirect
compensation and benefits earned by all employees, representatives, contractors
and agents through the date of the Second Closing, as well as all payroll and
withholding taxes and all payroll overheads. There are no bonuses or commissions
accrued or payable by PF or any Subsidiaries with respect to any fiscal periods
ending on or before June 30, 1998 that remain unpaid in whole or in part, or
which are in dispute or the subject of any claim.
(c) Part 4.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of PF and its Subsidiaries, together with job title and description
and current compensation rates (salary, bonus, commission and otherwise), and
identification of which Subsidiary is the employer of such persons.
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(d) Except as set forth in Part 4.12 of the Disclosure Letter, there
are no collective bargaining agreements or union or labor agreements to which PF
or any Subsidiary is a party or is bound or affecting the business thereof.
Except as set forth in Part 4.12 of the Disclosure Letter, there are no pending,
and during the five (5) years preceding the date of this Agreement there have
been no, disputes, strikes, work slow-downs, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of PF or any
Subsidiary, and PF knows of no basis for any of the foregoing. Each collective
bargaining agreement or other union contract set forth in Part 4.12 of the
Disclosure Letter (each a "PF Union Contract") is in full force and effect; PF
has made all payments and contributions due under such PF Union Contract and is
otherwise in full compliance with the terms and conditions of such PF Union
Contract, and there are no defaults under the PF Union Contract or claims
thereof by the union, any employees or any governmental or labor relations
agency. There are no disputes or grievances pending or Threatened with respect
to any PF Union Contract or any employees covered thereby, and PF knows of no
basis for any of the foregoing.
(e) Except as set forth on Part 4.12 of the Disclosure Letter, PF and
its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and PF and its Subsidiaries have not been required to contribute to any
employee benefit plan which is a multi-employer plan (within the meaning of
Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. PF and its Subsidiaries have no responsibility for and have not assumed
any pension-related or employee benefit plan-related liabilities (including,
without limitation, withdrawal liability) of any other predecessor business or
person. With respect to each and every employee benefit plan of PF and its
Subsidiaries identified on Part 4.12 of the Disclosure Letter (each, a "PF
Benefit Plan"), each PF Benefit Plan conforms to, and its administration is in
compliance with, applicable federal laws, including, but not limited to, ERISA
and the IRC. There are no pending, or Threatened or anticipated, audits,
assessments, disputes or claims by, on behalf of, or against, any PF Benefit
Plan, PF or any Subsidiary by any participant or beneficiary thereunder or any
governmental agency.
(f) PF and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 4.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, PF or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 4.13 of the Disclosure Letter:
(i) PF is in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
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(ii) No event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by PF of, or a material failure on the part of PF to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of PF to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) PF has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
PF to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
(b) Part 4.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by PF or that
otherwise relates to the business of, or to any of the assets owned or used by,
PF. Each material Governmental Authorization listed or required to be listed in
Part 4.13 of the Disclosure Letter is valid and in full force and effect. Except
as set forth in Part 4.13 of the Disclosure Letter:
(i) PF is in compliance in all material respects with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in Part 4.13 of the Disclosure Letter;
(ii) No event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 4.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 4.13 of the Disclosure
Letter;
(iii) PF has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 4.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
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The Governmental Authorizations listed in Part 4.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit PF to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
PF to own and use its assets in the manner in which it currently owns and uses
such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 4.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against PF or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
PF; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of PF, (1) no such Proceeding has been Threatened, and
(2) no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such Proceeding. PF has delivered to
Coventry copies of all pleadings, correspondence, and other documents relating
to each Proceeding listed in Part 4.14 of the Disclosure Letter. The Proceedings
listed in Part 4.14 of the Disclosure Letter will not have a material adverse
effect on the business, operations, assets, condition, or prospects of PF.
(b) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) there is no Order to which PF, or any of the assets owned or
used by PF, is subject; and
(ii) no officer, director, agent or key employee of PF is subject
to any Order that prohibits such officer, director, agent or key employee from
engaging in or continuing any conduct, activity or practice relating to the
business of PF.
(c) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) PF is in material compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) No event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which PF, or any of the assets owned or used by PF, is subject; and
(iii) PF has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which PF, or
any of the assets owned or used by PF, is or has been subject.
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1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 4.15 of the Disclosure Letter, since the
date of the PF Balance Sheet, PF has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) change in PF's authorized or issued Membership Interests; grant of
any right to purchase such Membership Interests; or purchase of such Membership
Interests;
(b) amendment to the Organizational Documents of PF;
(c) payment or increase by PF of any bonuses, salaries, or other
compensation to any Member, manager, officer, or (except in the Ordinary Course
of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of PF;
(e) damage to or destruction or loss of any asset or property of PF,
whether or not adequately covered by insurance;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to PF of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of PF or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of PF;
(h) cancellation or waiver of any claims or rights with a value to PF
in excess of $25,000;
(i) material change in the accounting methods used by PF;
(j) agreement, whether oral or written, by PF to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth in Part 4.15 of the Disclosure Letter.
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1.16 CONTRACTS; NO DEFAULTS
(a) (Part 4.16 of the Disclosure Letter contains a complete and
accurate list, and PF has delivered to Coventry true and complete copies, of:
(i) all agreements and other commitments for the purchase of any materials or
supplies that involve an expenditure by PF of more than $10,000; (ii) all notes
and agreements relating to any indebtedness of PF for borrowed money; (iii) all
leases or other rental agreements under which PF is either lessor or lessee;
(iv) all other agreements (including, but not limited to, employment
agreements), commitments and understandings (written or oral) to which PF is a
party or by which it is bound that require payment by PF of more than $10,000
and that cannot be terminated by PF on fewer than thirty (30) days' notice
without liability; and (v) all patents, trademarks (including service marks),
trade mark registrations, and applications for registering patents or
trademarks, owned by PF (none of which is subject to a licensing or other
agreement with any other person). True and complete copies of all written
leases, agreements, commitments and understandings (collectively, the "PF
Agreements") referred to in Part 4.16 of the Disclosure Letter have been
delivered to Coventry. Each PF Agreement, at the Second Closing, will be in full
force and effect, except for those that expire by their own terms or which are
terminated upon the request of PF with the written consent of Coventry. There is
no existing default by PF under any PF Agreement, and, to the Knowledge of PF,
there is no existing default under any PF Agreement by any other party to any PF
Agreement.
(b) PF and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 4.16 of the Disclosure Letter,
PF and its Subsidiaries have not subcontracted or sublicensed to or from anyone
the performance of any of its contractual responsibilities with respect to any
Applicable Contract.
(c) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries are not a party to any loan, promissory note, credit agreement,
working capital line, factoring arrangement, security interest, pledge, or
mortgage with any bank, financial institution or other entity or person.
(d) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of PF or any Subsidiary, or to
any other person or entity.
(e) Except as set forth in Part 4.16 of the Disclosure Letter, PF and
its Subsidiaries (i) do not have any power of attorney outstanding and (ii) do
not have any obligations or liabilities (whether absolute, accrued, contingent
or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of any obligation of any other person or
entity(including without limitation, any director, officer, shareholder,
employee, consultant or contractor of PF or any Subsidiary). Part 4.16 of the
Disclosure Letter sets forth any cross-guarantees or indemnities provided by or
among PF or any Subsidiary to or for the benefit of PF or any other Subsidiary.
(f) PF and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) PF and its Subsidiaries are not a party to (i) any contract, pledge
or commitment for charitable contributions, (ii) any contract with the United
States Government or any state or local government or public authority or any
agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
30
(h) PF and its Subsidiaries are not, by non-competition agreement,
restrictive covenant, court order, injunction, or otherwise, restricted from
carrying on any business whatsoever anywhere in the world.
(i) PF and its Subsidiaries are not required to provide any letters of
credit, bonding or financial security arrangements in connection with any of
their businesses, customers or suppliers and none are issued or outstanding.
1.17 INSURANCE
Part 4.17 of the Disclosure Letter includes an insurance schedule
prepared by PF's insurance broker identifying all insurance policies maintained
by PF, the insurance carrier, type of coverage, amount of coverage, premium,
policy expiration dates and loss experience. PF has delivered to Coventry true
and complete copies of all policies of insurance to which PF is a party or under
which PF, or any member or manager of PF, is or has been covered at any time
within the three (3) years preceding the date of this Agreement, as set forth in
Part 4.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 4.18 of the Disclosure Letter:
(a) PF is, and at all times has been, in material compliance with, and
has not been and is not in violation of or liable under, any Environmental Law.
PF has not received any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which PF has or had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by PF, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which PF has or had an interest.
(c) PF has no Knowledge of any basis to expect, and has not received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which PF has or had an interest, or with respect to
any property or facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by PF, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
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(d) PF has no Environmental, Health, and Safety Liabilities with
respect to the Facilities, or with respect to any other properties and assets
(whether real, personal, or mixed) in which PF (or any predecessor), has or had
an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. PF
has not permitted or conducted, and is not aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which PF has or had an interest.
(f) There has been no Release or Threat of Release, of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which PF
has or had an interest, or to the Knowledge of PF, any geologically or
hydrologically adjoining property, whether by PF or any other Person.
(g) PF has delivered to Coventry true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by PF pertaining to Hazardous Materials or Hazardous Activities in, on, or under
the Facilities, or concerning compliance by PF with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
PF owns or possesses adequate licenses or other rights to use all
computer software, software programs, patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, trade names, copyrights,
inventions, drawings, designs, customer lists, proprietary know-how or
information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. PF's operations do not conflict with or infringe, and
no one has asserted that those operations conflict with or infringe, any rights
of any third party. Part 4.19 of the Disclosure Letter sets forth the status of
PF's compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither PF nor any manager, officer, agent, or employee of PF, nor any
other Person associated with or acting for or on behalf of PF, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain special
concessions or for special concessions already obtained, for or in respect of PF
or any Subsidiary of PF, or (ii) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of PF.
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1.21 DISCLOSURE
No representation or warranty of PF in this Agreement and no statement
by PF in the Disclosure Letter omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 4.22 of the Disclosure Letter, no Related
Person of PF has had any interest in any property (whether real, personal, or
mixed and whether tangible or intangible), used in or pertaining to PF's
business. Except as set forth in Part 4.22 of the Disclosure Schedule, no
Related Person of PF is or has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with PF; or (ii) engaged in competition with PF with respect to any line of the
products or services of PF (a "Competing Business") in any market presently
served by PF. Except as set forth in Part 4.22 of the Disclosure Letter, no
Related Person of PF is a party to any Contract with, or has any claim or right
against, PF.
1.23 BROKERS OR FINDERS
PF has incurred no obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COVENTRY
Coventry represents and warrants to the Shareholders and Members,
except as set forth in the Disclosure Letter, as follows (all references in this
Article V to the delivery of documents or schedules shall mean delivery on or
prior to the First Closing Date and all representations and warranties in this
Article V are made as to Coventry and all Subsidiaries thereof):
5.1 ORGANIZATION AND GOOD STANDING
(a) Coventry and its Subsidiaries are each corporations duly organized,
validly existing, and in good standing under the laws of their jurisdiction of
incorporation, with full corporate power and authority to conduct their business
as it is now being conducted, to own or use the properties and assets that they
purport to own or use, and to perform all of their obligations under Applicable
Contracts. As set forth on Part 5.1 of the Disclosure Letter, Coventry and its
Subsidiaries are duly qualified to do business as foreign corporations and are
in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by them, or the
nature of the activities conducted by them, require such qualification.
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(b) Coventry has delivered to the Shareholders and Members copies of
the Organizational Documents of Coventry and all of its Subsidiaries, as
currently in effect.
5.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of Coventry, enforceable against Coventry in accordance with its terms. Upon the
execution and delivery by Coventry of this Agreement and all agreements
contemplated herein to which Coventry is a party (the "Coventry Closing
Documents"), the Coventry Closing Documents will constitute the legal, valid,
and binding obligations of Coventry, enforceable against Coventry in accordance
with their respective terms except as such enforcement is limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally. Coventry has
the absolute and unrestricted right, power, authority, and capacity to execute
and deliver this Agreement and the Coventry Closing Documents and to perform its
obligations under this Agreement and the Coventry Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Coventry or its Subsidiaries, or
(B) any resolution adopted by the board of directors or the shareholders of
Coventry or its Subsidiaries;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Coventry or its Subsidiaries, or any
of the assets owned or used by Coventry or its Subsidiaries, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Coventry or its Subsidiaries or that otherwise relates to the
business of Coventry or its Subsidiaries, or any of the assets owned or used by,
Coventry or its Subsidiaries;
(iv) cause Coventry or its Subsidiaries to become subject to, or to
become liable for the payment of, any Tax;
(v) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by Coventry .
34
(c) Except as set forth in Part 5.2 of the Disclosure Letter, Coventry
is not and will not be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
1.3 CAPITALIZATION
The authorized equity securities of Coventry consist of 25,000,000
shares of Common Stock, par value $.001 per share, of which 3,385,485 shares are
issued and outstanding, plus 2,000,000 shares of Preferred Stock, par value
$.001 per share issued in series as set forth in Part 5.3 of the Disclosure
Letter. Part 5.3 of the Disclosure Letter sets forth the number of issued and
outstanding shares of Coventry Common and Preferred Stock and each series
thereof. The authorized equity securities of all Subsidiaries of Coventry,
together with the number of shares, par value, and number of issued and
outstanding shares, are set forth on Part 5.3 of the Disclosure Letter. All of
the outstanding equity securities of Coventry and its Subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth on Part 5.3 of the Disclosure Letter, there are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of Coventry and its Subsidiaries. None of the outstanding equity
securities or other securities of Coventry and its Subsidiaries were issued in
violation of the Securities Act or any other Legal Requirement. Except for
transactions contemplated by this Agreement, neither Coventry nor its
Subsidiaries own, or have any Contract to acquire, any equity securities or
other securities of any Person or any direct or indirect equity or ownership
interest in any other business.
1.4 FINANCIAL STATEMENTS
Coventry has delivered to the Shareholders and Members: an audited
balance sheet of Coventry as at June 30, 1998 (including the notes thereto, the
"Coventry Balance Sheet"), and the related statements of income, changes in
shareholders' equity, and cash flow for the fiscal years then ended, together
with the report thereon of Sweeney Gates & Co., independent certified public
accountants. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in shareholders' equity, and
cash flow of Coventry as at the respective dates of and for the periods referred
to in such financial statements, all in accordance with GAAP; the financial
statements referred to in this Section 5.4 reflect the consistent application of
such accounting principles throughout the periods involved. No financial
statements of any Person other than Coventry and the Subsidiaries identified in
Part 5.3 of the Disclosure Letter are required by GAAP to be included in the
financial statements of Coventry.
1.5 BOOKS AND RECORDS
The books of account, minute books and stock record books of Coventry,
all of which have been made available to the Shareholders and Members, are
correct in all material respects. The minute books of Coventry contain accurate
and complete records of all meetings held of, and corporate action taken by, the
shareholders, the Board of Directors, and committees of the Board of Directors
of Coventry, and no meeting of any shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute book. At the Closing, all of those books and records
will be in the possession of Coventry.
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1.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 5.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by Coventry.
Coventry has delivered to the Shareholders and Members copies of the deeds and
other instruments (as recorded) by which Coventry acquired such real property
and interests, and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Coventry and relating to such property or
interests. Coventry owns (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that it purports to own located in the facilities owned or
operated by Coventry or reflected as owned in the books and records of Coventry,
including all of the properties and assets reflected in the Coventry Balance
Sheet (except for assets held under capitalized leases disclosed in Part 5.6 of
the Disclosure Letter and personal property sold since the date of the Coventry
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by Coventry since
the date of the Coventry Balance Sheet (except for personal property acquired
and sold since the date of the Coventry Balance Sheet in the Ordinary Course of
Business and consistent with past practice). All properties and assets reflected
in the Coventry Balance Sheet are free and clear of all Encumbrances and are
not, in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Coventry Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Coventry Balance Sheet (such mortgages
and security interests being limited to the property or assets so acquired),
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (c) liens for current taxes not yet
due, and (d) with respect to real property, (i) minor imperfections of title, if
any, none of which is substantial in amount, materially detracts from the value
or impairs the use of the property subject thereto, or impairs the operations of
Coventry, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto.
1.7 ACCOUNTS RECEIVABLE
All accounts receivable of Coventry that are reflected on the Coventry
Balance Sheet or on the accounting records of Coventry as of the Closing Dates
(collectively, the "Coventry Accounts Receivable") represent or will represent
valid obligations arising from sales actually made or services actually
performed in the Ordinary Course of Business. Except as set forth in Part 5.7 of
the Disclosure Letter, all Coventry Accounts Receivable are current and expected
to be collectible in the Ordinary Court of Business, net of reserves for
uncollectible accounts; provided, however, that this provision is not a guaranty
of collectibility.
36
1.8 INVENTORY
All inventory of Coventry, whether or not reflected in the Coventry
Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Coventry Balance Sheet or on the accounting records
of Coventry as of the Closing Date, as the case may be.
1.9 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 5.9 of the Disclosure Letter, Coventry has
no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Coventry Balance Sheet and
current liabilities incurred in the Ordinary Course of Business since the date
of the Coventry Balance Sheet.
1.10 TAXES
(a) Coventry has filed or caused to be filed on a timely basis all Tax
Returns that are or were required to be filed by or with respect to it, pursuant
to applicable Legal Requirements. Coventry has delivered to the Shareholders and
Members copies of, and Part 5.10 of the Disclosure Letter contains a complete
and accurate list of, all such Tax Returns filed since January 1, 1996. Coventry
has paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Coventry, except such Taxes, if any, as are listed in
Part 5.10 of the Disclosure Letter and are being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
provided in the Coventry Balance Sheet.
(b) To Coventry's Knowledge, the charges, accruals, and reserves with
respect to Taxes on the books of Coventry are adequate (determined in accordance
with GAAP) and are at least equal to Coventry's liability for Taxes. There
exists no proposed tax assessment against Coventry except as disclosed in the
Coventry Balance Sheet or in Part 5.10 of the Disclosure Letter. All Taxes that
Coventry is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(c) All Tax Returns filed by Coventry are true and correct in all
material respects. There is no tax sharing agreement that will require any
payment by Coventry after the date of this Agreement.
(d) Except as set forth in Part 5.10 of the Disclosure Letter, Coventry
has not been audited by, or received any notice of audit from, any taxing
authority since January 1, 1996.
1.11 NO MATERIAL ADVERSE CHANGE
Since the date of the Coventry Balance Sheet, except as set forth in
Part 5.11 of the Disclosure Letter, there has not been any material adverse
change in the business, operations, properties, assets, or condition of
Coventry, and to the Knowledge of Coventry, no event has occurred or
circumstance exists that may result in such a material adverse change.
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1.12 EMPLOYEES, EMPLOYMENT AGREEMENTS, LABOR MATTERS, BENEFIT PLANS,
ETC.
(a) Except as set forth on Part 5.12 of the Disclosure Letter, neither
Coventry nor any Subsidiary has, or is bound by, any oral or written employment,
bonus, performance, compensation, commission, management, pension, retirement,
stock purchase, savings, profit-sharing, retainer, group insurance, termination,
severance, consulting, sales representative, distributor or similar incentive or
benefit agreements, contracts, understandings or arrangements with any of its
personnel.
(b) Coventry and its Subsidiaries have paid in full all wages,
salaries, commissions, bonuses, vacation pay, sick pay and other direct and
indirect compensation and benefits earned by all employees, representatives,
contractors and agents through the dates of the First Closing and the Second
Closing, respectively, as well as all payroll and withholding taxes and all
payroll overheads. There are no bonuses or commissions accrued or payable by
Coventry or any Subsidiaries with respect to any fiscal periods ending on or
before June 30, 1998 that remain unpaid in whole or in part, or which are in
dispute or the subject of any claim.
(c) Part 5.12 of the Disclosure Letter contains a true and complete
list of all current employees, consultants, representatives, agents, and
contractors of Coventry and its Subsidiaries, together with job title and
description and current compensation rates (salary, bonus, commission and
otherwise), and identification of which Subsidiary is the employer of such
persons.
(d) Except as set forth in Part 5.12 of the Disclosure Letter, there
are no collective bargaining agreements or union agreements to which Coventry or
any Subsidiary is a party or is bound or affecting the business thereof. Except
as set forth in Part 5.12 of the Disclosure Letter, there are no pending, and
during the five (5) years preceding the date of this Agreement there have been
no, disputes, strikes, work slowdowns, walkouts, disturbances, slowdowns,
grievances, arbitrations, or filings of any actions, claims, litigation,
proceedings, investigations or complaints of unfair labor practices, harassment,
discrimination, wrongful termination, wage or back pay demands or other
employment-related difficulties with respect to any employees of Coventry or any
Subsidiary, and Coventry knows of no basis for any of the foregoing. Each
collective bargaining agreement or other union contract set forth in Part 5.12
of the Disclosure Letter (each a "Coventry Union Contract") is in full force and
effect; Coventry has made all payments and contributions due under such Coventry
Union Contract and is otherwise in full compliance with the terms and conditions
of such Coventry Union Contract, and there are no defaults under the Coventry
Union Contract or claims thereof by the union, any employees or any governmental
or labor relations agency. There are no disputes or grievances pending or
Threatened with respect to any Coventry Union Contract or any employees covered
thereby, and Coventry knows of no basis for any of the foregoing.
38
(e) Except as set forth on Part 5.12 of the Disclosure Letter, Coventry
and its Subsidiaries are not covered by and do not maintain, participate in,
contribute to, or operate any pension, retirement, profit-sharing, 401(k) or
other employee benefit plan, do not maintain or contribute to and are not
required to contribute to any employee benefit plan (within the meaning of
Section 3(2) of ERISA), which is intended to qualify under paragraph 401(a) of
the IRC, and Coventry and its Subsidiaries have not been required to contribute
to any employee benefit plan which is a multi-employer plan (within the meaning
of Section 3(37) of ERISA) in the five (5) years immediately preceding the date
hereof. Coventry and its Subsidiaries have no responsibility for and have not
assumed any pension-related or employee benefit plan-related liabilities
(including, without limitation, withdrawal liability) of any other predecessor
business or person. With respect to each and every employee benefit plan of
Coventry and its Subsidiaries identified on Part 5.12 of the Disclosure Letter
(each, a "Coventry Benefit Plan"), each Coventry Benefit Plan conforms to, and
its administration is in compliance with, applicable federal laws, including,
but not limited to, ERISA and the IRC. There are no pending, or Threatened or
anticipated, audits, assessments, disputes or claims by, on behalf of, or
against, any Coventry Benefit Plan, Coventry or any Subsidiary by any
participant or beneficiary thereunder or any governmental agency.
(f) Coventry and its Subsidiaries have fully paid and performed all
liabilities and obligations whatsoever relating to their participation in the
multi-employer pension plans set forth in Part 5.12 of the Disclosure Letter,
including, without limitation, payment of all contributions and assessments,
whether imposed by such plan or the trustees thereof or ERISA, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, or otherwise. There are no
pending, or Threatened or anticipated, audits, assessments, disputes or claims
by, on behalf of, or against, Coventry or any Subsidiary by any such plan, the
trustees thereof, any related union, any participant or beneficiary thereunder
or any governmental agency.
1.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 5.13 of the Disclosure Letter:
(i) Coventry is in compliance in all material respects with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (A) may constitute or result in a
material violation by Coventry of, or a material failure on the part of Coventry
to comply with, any Legal Requirement, or (B) may give rise to any obligation on
the part of Coventry to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) Coventry has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or material failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential material obligation on the part of
Coventry to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Part 5.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by Coventry or
that otherwise relates to the business of, or to any of the assets owned or used
by, Coventry. Each material Governmental Authorization listed or required to be
listed in Part 5.13 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 5.13 of the Disclosure Letter:
39
(i) Coventry is in compliance in all material respects with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Part 5.13 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time or both) (A) constitute or result directly or
indirectly in a material violation of or a material failure to comply with any
term or requirement of any material Governmental Authorization listed or
required to be listed in Part 5.13 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any material Governmental
Authorization listed or required to be listed in Part 5.13 of the Disclosure
Letter;
(iii) Coventry has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential material violation of
or material failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any material Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the material Governmental Authorizations listed or required to be listed in
Part 5.13 of the Disclosure Letter have been duly filed on a timely basis with
the appropriate Governmental Bodies, and all other filings required to have been
made with respect to such material Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 5.13 of the Disclosure
Letter collectively constitute all of the material Governmental Authorizations
necessary to permit Coventry to lawfully conduct and operate its business in the
manner in which it currently conducts and operates such business and to permit
Coventry to own and use its assets in the manner in which it currently owns and
uses such assets.
1.14 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 5.14 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against Coventry or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by Coventry; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Coventry, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding.
Coventry has delivered to the Shareholders and Members copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
5.14 of the Disclosure Letter. The Proceedings listed in Part 5.14 of the
Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of Coventry.
40
(b) Except as set forth in Part 5.14 of the Disclosure Letter:
(i) there is no Order to which Coventry, or any of the assets owned
or used by Coventry, is subject; and
(ii) Coventry is not subject to any Order that relates to the
business of, or any of the assets owned or used by, Coventry.
(iii) no officer, director, agent, or employee of Coventry is
subject to any Order that prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity, or practice relating to
the business of Coventry.
(c) Except as set forth in Part 5.14 of the Disclosure Letter:
(i) Coventry is in compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time or both) a
violation of or failure to comply with any term or requirement of any Order to
which Coventry, or any of the assets owned or used by Coventry, is subject; and
(iii) Coventry has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any material term or requirement of any Order to which Coventry,
or any of the assets owned or used by Coventry, is or has been subject.
1.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 5.15 of the Disclosure Letter, since the
date of the Coventry Balance Sheet, Coventry and its Subsidiaries have conducted
their business only in the Ordinary Course of Business and there has not been
any:
(a) change in Coventry's or its Subsidiaries' authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of Coventry or its Subsidiaries; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by Coventry or its Subsidiaries of any shares
of any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of Coventry or its
Subsidiaries;
41
(c) payment or increase by Coventry or its Subsidiaries of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of Coventry
or its Subsidiaries;
(e) damage to or destruction or loss of any asset or property of
Coventry or its Subsidiaries, whether or not adequately covered by insurance;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, loan or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to Coventry of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of Coventry or
mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of Coventry;
(h) cancellation or waiver of any claims or rights with a value to
Coventry in excess of $25,000;
(i) material change in the accounting methods used by Coventry;
(j) agreement, whether oral or written, by Coventry to do any of the
foregoing; or
(k) incurrence of indebtedness for borrowed money, except pursuant to
existing credit lines set forth on Part 5.15 of the Disclosure Letter.
1.16 CONTRACTS; NO DEFAULTS
(a) (Part 5.16 of the Disclosure Letter contains a complete and
accurate list, and Coventry has delivered to the Shareholders and Members true
and complete copies, of: (i) all agreements and other commitments for the
purchase of any materials or supplies that involve an expenditure by Coventry or
its Subsidiaries of more than $10,000; (ii) all notes and agreements relating to
any indebtedness of Coventry or its Subsidiaries for borrowed money; (iii) all
leases or other rental agreements under which Coventry or its Subsidiaries is
either lessor or lessee; (iv) all other agreements (including, but not limited
to, employment agreements), commitments and understandings (written or oral) to
which Coventry or its Subsidiaries is a party or by which it is bound that
require payment by Coventry or its Subsidiaries of more than $10,000 and that
cannot be terminated by Coventry or its Subsidiaries on fewer than thirty (30)
days' notice without liability; and (v) all patents, trademarks (including
service marks), trade mark registrations, and applications for registering
patents or trademarks, owned by Coventry or its Subsidiaries (none of which is
subject to a licensing or other agreement with any other person). True and
complete copies of all written leases, agreements, commitments and
understandings (collectively, the "Coventry Agreements") referred to in Part
5.16 of the Disclosure Letter have been delivered to the Shareholders and
Members. Each Coventry Agreement is, and at the First Closing and the Second
Closing will be, in full force and effect, except for those that expire by their
own terms or which are terminated upon the request of Coventry with the written
consent of the Shareholders and Members. There is no existing default by
Coventry or its Subsidiaries under any Coventry Agreement, and, to the Knowledge
of Coventry, there is no existing default under any Coventry Agreement by any
other party to any Coventry Agreement.
42
(b) Coventry and its Subsidiaries have fully performed all of their
contractual obligations to all contracting parties with respect to all
Applicable Contracts that have been required to be performed prior to the date
hereof, and there are no pending claims, offsets or disputes with respect to any
Applicable Contracts. Except as set forth in Part 5.16 of the Disclosure Letter,
Coventry and its Subsidiaries have not subcontracted or sublicensed to or from
anyone the performance of any of its contractual responsibilities with respect
to any Applicable Contract.
(c) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries are not a party to any loan, promissory note, credit
agreement, working capital line, factoring arrangement, security interest,
pledge, or mortgage with any bank, financial institution or other entity or
person.
(d) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries do not have any outstanding loan to any director, officer,
shareholder, employee, consultant or contractor of Coventry or any Subsidiary,
or to any other person or entity.
(e) Except as set forth in Part 5.16 of the Disclosure Letter, Coventry
and its Subsidiaries (i) do not have any power of attorney outstanding and (ii)
do not have any obligations or liabilities (whether absolute, accrued,
contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of any obligation of any other person or
entity (including without limitation, any director, officer, shareholder,
employee, consultant or contractor of Coventry or any Subsidiary). Part 5.16 of
the Disclosure Letter sets forth any cross-guarantees or indemnities provided by
or among Coventry or any Subsidiary to or for the benefit of Coventry or any
other Subsidiary.
(f) Coventry and its Subsidiaries are not a party to any contract or
commitment for capital expenditures involving more than $10,000 in any instance.
(g) Coventry and its Subsidiaries are not a party to (i) any contract,
pledge or commitment for charitable contributions, (ii) any contract with the
United States Government or any state or local government or public authority or
any agency thereof, or (iii) any contract with any foreign government or foreign
authority or any agency thereof.
(h) Coventry and its Subsidiaries are not, by non-competition
agreement, restrictive covenant, court order, injunction, or otherwise,
restricted from carrying on any business whatsoever anywhere in the world.
(i) Coventry and its Subsidiaries are not required to provide any
letters of credit, bonding or financial security arrangements in connection with
any of their businesses, customers or suppliers, and none are issued or
outstanding.
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1.17 INSURANCE
Part 5.17 of the Disclosure Letter includes an insurance schedule
prepared by Coventry's insurance broker identifying all insurance policies
maintained by Coventry and its Subsidiaries, the insurance carrier, type of
coverage, amount of coverage, premium, policy expiration dates and loss
experience. Coventry has delivered to the Shareholders and Members true and
complete copies of all policies of insurance to which Coventry is a party or
under which Coventry, or any director of Coventry, is or has been covered at any
time within the three (3) years preceding the date of this Agreement, as set
forth on Part 5.17 of the Disclosure Letter.
1.18 ENVIRONMENTAL MATTERS
Except as set forth in Part 5.18 of the Disclosure Letter:
(a) Coventry is, and at all times has been, in material compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. Coventry has no basis to expect, nor has it or any other
Person for whose conduct it is or may be held to be responsible received, any
actual or Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which Coventry
has or had an interest, or with respect to any property or Facility at or to
which Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by Coventry, or any other Person for whose conduct
it is or may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which Coventry has or had an interest.
(c) Coventry has no Knowledge of any basis to expect, nor has it or any
other Person for whose conduct it is or may be held responsible, received, any
citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Coventry has or had an interest, or with
respect to any property or facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Coventry or any other Person for whose conduct it is or may be held responsible,
or from which Hazardous Materials have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.
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(d) Neither Coventry nor or any other Person for whose conduct it is or
may be held responsible, has any Environmental, Health, and Safety Liabilities
with respect to the Facilities, or with respect to any other properties and
assets (whether real, personal, or mixed) in which Coventry (or any
predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither Coventry, nor any other Person for whose conduct it is or may be held
responsible, or any other Person, has permitted or conducted, or is aware of,
any Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Coventry has or
had an interest.
(f) There has been no Release or Threat of Release of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which
Coventry has or had an interest, or to the Knowledge of Coventry, any
geologically or hydrologically adjoining property, whether by Coventry or any
other Person.
(g) Coventry has delivered to the Shareholders and Members true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Coventry pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Coventry, or any other Person for whose conduct it is or may be
held responsible, with Environmental Laws.
1.19 INTELLECTUAL PROPERTY
(a) Coventry owns or possesses adequate licenses or other rights to use
all computer software, software programs, patents, patent applications,
trademarks, trademark applications, trade secrets, service marks, trade names,
copyrights, inventions, drawings, designs, customer lists, proprietary know-how
or information or other rights which are material to its business, and those
licenses or rights are sufficient to conduct its business as they have been and
are now being conducted. Coventry's operations do not conflict with or infringe,
and no one has asserted that those operations conflict with or infringe, any
rights of any third party.
(b) All licenses, agreements, registrations, applications and other
documentation of such intellectual property are listed and set forth on Part
5.19 of the Disclosure Letter, and Coventry has delivered to the Shareholders
and Members true and accurate copies thereof. Part 5.19 of the Disclosure Letter
identifies all such intellectual property which is (i) owned by Coventry or its
Subsidiaries, (ii) licensed from third parties (together with identification of
the license or other agreements relating to intellectual property licensed from
third parties), and (iii) licensed or sublicensed by Coventry or its
Subsidiaries to third parties. Except for the intellectual property licenses set
forth on Part 5.19 of the Disclosure Letter, neither Coventry nor any Subsidiary
is a party or subject to any trademark, copyright, patent, license, royalty or
proprietary rights agreements, and neither Coventry nor any Subsidiary pay any
license or royalty fees to any party in connection therewith.
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(c) No product made or sold by Coventry or its Subsidiaries infringes
any trademark, trade name, copyright, patent, know-how, trade secret or
proprietary right of any other party. No notifications, claims, actions, suits,
arbitrations, inquiries, proceedings or investigations of any kind have been
made or asserted or are pending or Threatened either (i) contesting Coventry's
or its Subsidiaries' right to sell, market and distribute the products utilizing
any intellectual property, (ii) based upon or challenging or seeking to deny or
restrict the use by Coventry or its Subsidiaries of any intellectual property,
or (iii) alleging that any products are being manufactured, sold, provided,
licensed or used by Coventry or its Subsidiaries in violation of any proprietary
rights of any third party.
(d) Part 5.19 of the Disclosure Letter sets forth the status of
Coventry's and its Subsidiaries' compliance with Year 2000 computer issues.
1.20 CERTAIN PAYMENTS
Neither Coventry nor any director, officer, agent, or employee of
Coventry, nor any other Person associated with or acting for or on behalf of
Coventry, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain special concessions or for special concessions already obtained,
for or in respect of Coventry or any Subsidiary of Coventry, or (ii) in
violation of any Legal Requirement, or (b) established or maintained any fund or
asset that has not been recorded in the books and records of Coventry.
1.21 DISCLOSURE
No representation or warranty of Coventry in this Agreement and no
statement by Coventry in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
1.22 RELATIONSHIPS WITH RELATED PERSONS
Except as disclosed on Part 5.22 of the Disclosure Letter, no Related
Person of Coventry has had any interest in any property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to
Coventry's business. Except as disclosed in Part 5.22 of the Disclosure
Schedule, no Related Person of Coventry is or has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with Coventry; or (ii) engaged in competition with Coventry
with respect to any line of the products or services of Coventry (a "Competing
Business") in any market presently served by Coventry. Except as set forth in
Part 5.22 of the Disclosure Letter, no Related Person of Coventry is a party to
any Contract with, or has any claim or right against, Coventry.
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1.23 BROKERS OR FINDERS
Coventry has incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
1.24 SEC DOCUMENTS
Coventry has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities and Exchange Act of 1934 (all of the foregoing,
including all exhibits filed therewith and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being hereinafter collectively referred to herein as the "Coventry SEC
Documents"). Coventry has delivered to the Shareholders and Members true and
complete copies of the Coventry SEC Documents. As of their respective dates, the
Coventry SEC Documents complied in all material respects with the requirements
of the Securities and Exchange Act of 1934 and the rules and regulations of the
SEC promulgated thereunder applicable to such Coventry SEC Documents, and none
of the Coventry SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
1.25 ACQUISITIONS AND DIVESTITURES
(a) Part 5.25 of the Disclosure Letter lists and identifies all
acquisitions or investments in the business, assets, capital stock, partnership
interests or membership interests in any other entity or division thereof
conducted at any time by Coventry, whether by purchase, merger, consolidation,
or any other form of transaction, as well as all divestitures or sales of any
business, Subsidiary, or division of Coventry or the assets, capital stock,
partnership interests or membership interests therein conducted at any time by
Coventry(such transactions referred to as "Acquisitions and Divestitures"); and
for each Acquisition or Divestiture, sets forth the date of the transaction, the
interests acquired or sold, the parties to the transaction and the consideration
therefor, and identifies all parties which have retained interests in any
business acquired by Coventry.
(b) Part 5.25 of the Disclosure Letter sets forth a listing of all
asset purchase, stock purchase, merger, consolidation, or other primary
agreement relating to each Acquisition and Divestiture as well as all promissory
notes, guarantees, security agreements, pledge agreements, preferred stock
designations, and other operative agreements relating to each Acquisition and
Divestiture; copies of all such documents have been delivered to the
Shareholders and Members.
(c) Part 5.25 of the Disclosure Letter sets forth a listing of all
agreements, reports, audits, and documentation relating to purchase price
adjustments, post-closing audits, post-closing amendments, revaluations or
reappraisals relating to all Acquisitions and Divestitures; copies of all such
documents have been delivered to the Shareholders and Members.
(d) Part 5.25 of the Disclosure Letter sets forth a listing of all
earnout agreements or other agreements relating to the payment of additional
purchase price or compensation, whether stock, cash or otherwise, based on
post-closing performance of businesses which are the subject of Acquisitions or
Divestitures, together with calculations, reports and statements of any amounts
paid thereunder; copies of all such documentation have been delivered to the
Shareholders and the Members.
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(e) Except as specifically described in Part 5.25 of the Disclosure
Letter, there are no claims for indemnification, adjustment, recission,
disputes, arbitration, accounting or breach or default, by Coventry or any other
party, under any agreement relating to any Acquisition or Divestiture. All
agreements relating to Acquisitions or Divestitures are in full force and
effect; there is no existing default by Coventry under any such agreement, and
to the actual Knowledge of Coventry, there is no existing default under any such
agreement by any other party thereto. Coventry has made all payments required to
be made to date (whether in cash, stock or property) under all Acquisitions, and
Coventry has received all payments required to be made to date (whether in cash,
stock or property) under all Divestitures.
(f) Part 5.25 of the Disclosure Letters identifies any Acquisition or
Divestiture involving a company or affiliate thereof which was the subject of
any bankruptcy, insolvency or reorganization proceedings; copies of the final
court orders approving the transaction(and the plan of reorganization if the
transaction was pursuant to such plan) have been delivered to the Shareholders
and Members.
1.26 CORPORATE STRUCTURE AND SUBSIDIARIES
(a) Part 5.26 of the Disclosure Letter sets forth an identification of
all subsidiaries, corporations, partnerships, limited liability companies or
other entities and affiliates in which Coventry has an interest, including
states of incorporation or organization and foreign qualification, sets forth
the exact authorized and outstanding shares and share ownership of all
subsidiaries and minority shareholdings, contains a chart of corporate
organization showing direct and indirect subsidiaries and chain of ownership,
and sets forth for each subsidiary or other entity, a brief description of the
business thereof and the directors and officers thereof.
(b) Except as set forth in Part 5.26 of the Disclosure Letter, neither
Coventry nor any Subsidiary has any legal or beneficial interest in any
subsidiary, corporation, partnership, joint venture or limited liability company
or other business entity. Coventry's business and assets are owned and operated
by the corporate entities of Coventry and the subsidiaries set forth in Part
5.26 of the Disclosure Letter directly and exclusively, and not through any
other affiliate or entity of any kind.
(c) Except as set forth in Part 5.26 of the Disclosure Letter, each
Subsidiary and other entity set forth in Part 5.26 is fully consolidated in the
federal tax returns filed by Coventry and fully consolidated in the Balance
Sheet of Coventry referred to in Section 5.4 hereof.
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1.27 COVENTRY STOCK ISSUED TO BSD AND PF
(a) The Coventry Shares to be delivered to BSD at the First Closing and
PF at the Second Closing will be duly authorized and issued, fully paid and
non-assessable. The shares of Coventry common stock to be delivered to BSD at
the First Closing, i.e. the BSD Consideration, shall aggregate 19.95% of the
Fully Diluted Capitalization(as defined below) of Coventry on the date of the
First Closing. The shares of Coventry common stock to be delivered to PF at the
Second Closing, i.e. the PF Consideration, shall be equal to the amount that,
when aggregated with the shares of Coventry common stock to be delivered to BSD
at the First Closing, shall total 80.1% of the Fully Diluted Capitalization of
Coventry on the date of the Second Closing. "Fully Diluted Capitalization" shall
mean the total number of outstanding shares of common stock of Coventry,
assuming that all options, warrants, convertible preferred stock, convertible
debt and other convertible securities or rights to acquire common stock of
Coventry have been fully exercised, converted and exchanged for, shares of
common stock of Coventry immediately prior to the applicable Closing. Part 5.27
of the Disclosure Letter sets forth a detailed calculation of the Fully Diluted
Capitalization of Coventry as of the dates of the First Closing and Second
Closing, respectively, giving effect to the issuance of shares to BSD and PF.
(b) All shares of Coventry common stock to be issued to BSD and PF in
accordance with this Agreement will be offered, issued, sold and delivered by
Coventry in compliance with all applicable state and federal laws and
regulations concerning the issuance of securities and none of such shares was or
will be issued in violation of the pre-emptive rights of any stockholder of
Coventry.
1.28 OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, OTHER MATTERS RELATING
TO SECURITIES OF COVENTRY
(a) Part 5.28 of the Disclosure Letter sets forth a table of all
outstanding options, warrants, convertible preferred stock, convertible
securities, convertible debt and other rights or arrangements for acquisition,
exercise, conversion or exchange into shares of common stock or other securities
of Coventry(or requiring Coventry to issue any shares of common stock or other
securities of Coventry), identifying the holders thereof, date of grant, vesting
requirements, exercise price, and number of underlying shares of common stock or
other securities of Coventry. Such table also identifies any vesting or
acceleration of such rights on any sale, transfer, merger or change of control
of Coventry or any Subsidiary thereof. Copies of all agreements relating to such
rights to acquire securities of Coventry have been delivered to the Shareholders
and Members.
(b) Part 5.28 of the Disclosure Letter sets forth a table of all stock
compensation agreements of Coventry (including marketing, advisory, consulting
or other agreements providing for payment or compensation in stock of Coventry
or rights thereto), identifying the holders thereof, date of grant, the number
of shares covered, and whether they remain outstanding, have been exercised or
have expired. Copies of all agreements relating to stock compensation have been
delivered to the Shareholders and Members.
(c) Except as set forth in Part 5.28 of the Disclosure Letter, no
present or former director, officer, employee or contractor of Coventry, or the
sellers or principals of any business which was the subject of any Acquisition
by Coventry, has the right to or has been promised a participation in any sale,
transfer, merger, change in control, Acquisition or Divestiture of Coventry or
any Subsidiary or business which was the subject of any Acquisition by Coventry.
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(d) Except as set forth in Part 5.28 of the Disclosure Letter, there
are no voting agreements, voting trusts, proxies, powers of attorney,
shareholder agreements, buy-sell agreements, put/call agreements, standstill
agreements, rights of first refusal, stock purchase, repurchase and redemption
agreements, stock restriction agreements, or other agreements relating to the
voting, transfer, or disposition of any class of securities of Coventry or any
Subsidiary.
(e) Part 5.28 of the Disclosure Letter sets forth an identification of
all stock option plans, stock incentive plans, stock appreciation rights plans,
"phantom stock" or similar incentive plans, together with evidence of Board and
shareholder approval thereof, where applicable. Copies of all such plans have
been provided to the Shareholders and Members.
(f) Except as set forth in Part 5.28 of the Disclosure Letter, no
holder of any securities of Coventry or any Subsidiary, or rights to obtain any
securities of Coventry or any Subsidiary, has any agreement or other rights
requiring Coventry or any Subsidiary thereof to register securities of any class
of Coventry or any Subsidiary at any time.
(g) The shares of common stock of Coventry are duly authorized for
trading on the NASDAQ Small Cap Market. On the date hereof and on the First
Closing and the Second Closing, Coventry will continue to meet all NASD
qualification requirements for continued trading on the NASDAQ Small Cap Market.
Coventry has not received any notices, warnings or actions from NASD or NASDAQ
relating to any delisting, suspension, removal, or failure to meet qualification
requirements of the NASDAQ Small Cap Market.
(h) Except as disclosed in Part 5.28 of the Disclosure Letter, Coventry
has not received any correspondence, notices, warnings, comment letters, or
actions from the United States Securities & Exchange Commission (the "SEC")or
any state securities regulator regarding any failure or potential failure to
comply with federal or state securities laws or regulations, or requiring
amendment or restatement of filings with the SEC or financial statements
included therein, or requiring any other corrective action on the part of
Coventry, or regarding any investigation, proceeding or audit of Coventry or its
Subsidiaries.
(i) All shares of capital stock of Coventry, and rights to acquire such
shares, since the formation of Coventry, have been offered, issued, sold and
delivered by Coventry in compliance with all applicable state and federal laws
and regulations concerning the issuance of securities. There has never been any
suit, claim or investigation by any shareholder of Coventry or any Subsidiary,
or by any purchaser, offeree or holder of any securities of Coventry or rights
to acquire such shares, or by the SEC or any state securities regulator, that
any securities of Coventry were offered, issued, sold or delivered in violation
of state or federal laws and regulations concerning the issuance of securities,
or requesting recission thereof, or damages in connection therewith.
(j) Except as set forth in Part 5.28 of the Disclosure Letter, neither
Coventry nor any Subsidiary is a party to any contract or understanding, oral or
written, with any underwriter, broker-dealer, placement agent, broker, finder,
agent, investment banker, investment advisor, bank, insurance company or other
Person or entity whereby any such party (i) has any rights or obligations to
conduct the offering, sale, underwriting, or placement of securities of Coventry
or any Subsidiary or to act as investment banker or investment advisor to
Coventry or any Subsidiary, or (ii) is entitled to any compensation or payments,
whether in the form of cash, stock, warrants, options or otherwise, with respect
to any offering, issuance, underwriting, sale or placement of securities of
Coventry or any Subsidiary.
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1.29 FACILITIES; LEASES; OWNED REAL PROPERTY
(a) Coventry and its Subsidiaries conduct business only at or from the
Facilities identified on Part 5.29 of the Disclosure Letter, which sets forth
the address of each location, the county in which it is located, whether such
Facility is owned or leased, the name of the Subsidiary which is the tenant or
owner of such Facility, and a general description of the use of the premises.
Except as set forth on Part 5.29 of the Disclosure Letter, all Facilities which
are owned by Coventry or its Subsidiaries ("Owned Real Property") are utilized
entirely by Coventry or its Subsidiaries and are not leased or subleased to
third parties. All Facilities which are leased by Coventry or its Subsidiaries
(collectively referred to as the "Real Property Leases") are leased from third
parties unaffiliated with Coventry, its Subsidiaries, or the officers,
directors, employees or shareholders thereof. Except as set forth on Part 5.29
of the Disclosure Letter, no consent or approval from any landlord under any of
the Real Property Leases is necessary in connection with the transactions
contemplated by this Agreement. At or prior to the First Closing and the Second
Closing, as applicable, and as a condition thereto, Coventry and its
Subsidiaries shall have received from the landlords of the Real Property Leases
identified on Part 5.29 of the Disclosure Letter as requiring such consent, a
written consent to the transactions contemplated by this Agreement and an
estoppel certificate in form and substance reasonably satisfactory to the
Shareholders and Members. Coventry shall bear all expenses of obtaining such
landlord consents. Coventry and its Subsidiaries have made all rental payments
due under the Real Property Leases to date (and through the dates of the First
Closing and the Second Closing) and are otherwise in full compliance with the
terms and conditions of such Real Property Leases.
(b) Coventry and its Subsidiaries do not share any space under the Real
Property Leases with any other person or entity; the Real Property Leases have
never been sublet or assigned by Coventry or its Subsidiaries; on the dates of
the First Closing and the Second Closing, the Real Property Leases shall be in
full force and effect; there are and will be no defaults under any Real Property
Leases or claims by the landlords thereof; and all rents under the Real Property
Leases have been paid and shall be paid in full through the dates of the First
Closing and the Second Closing. On the dates of the First Closing and the Second
Closing, the premises covered by the Real Property Leases shall not have been
damaged or otherwise adversely affected by any fire or casualty or the exercise
of the powers of eminent domain.
(c) All improvements, fixtures, machinery, equipment, structures,
heating, ventilation, air conditioning, lighting, security and other building
systems, plumbing and waste distribution systems relating to the Owned Real
Property are in good operating condition, working order and repair and are
adequate for the uses to which they are being put. The Owned Real Property and
all improvements thereon conform in all material respects with all applicable
building, zoning, environmental and other land use laws, ordinances, rules and
regulations and do not encroach in any respect on property of others. All
necessary occupancy, facility and other certificates and permits for the
occupancy and lawful use of the Owned Real Property for its current uses have
been issued and are presently in full force and effect. Except as set forth on
Part 5.29 of the Disclosure Letter, Coventry and its Subsidiaries have not
received any notices of violations of any Legal Requirements issued by any
state, county, municipal or local department having jurisdiction against or
affecting any of such Owned Real Property. Except to the extent set forth on
Part 5.29 of the Disclosure Letter, no use of the Owned Real Property is
dependent upon the continuance of a non-conforming use or special permit or
license. All service and maintenance contracts relating to the Owned Real
Property are set forth on Part 5.29 of the Disclosure Letter. There is no tax
assessment, revaluation or similar proceeding pending with respect to the Owned
Real Property. On the dates of the First Closing and the Second Closing, the
premises covered by the Owned Real Property shall not have been damaged or
otherwise adversely affected by any fire or casualty or the exercise of the
powers of eminent domain.
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(d) The transactions contemplated by this Agreement shall not, with
respect to the Facilities, require the consent or approval of or notification to
any federal, state or local agency under any environmental, industrial, labor,
plant closing, factory registration, or other laws or regulations.
(e) Coventry and its Subsidiaries have delivered to the Shareholders
and Members copies of all OSHA inspection reports, audits and surveys with
respect to the Facilities comprising the Owned Real Property and the Real
Property Leases within the past five (5) years. None of such Facilities have
been rated a high risk or high hazard facility or operation, nor are they
subject to or participate in any OSHA Cooperative Compliance Program or any
other remedial, corrective or compliance program imposed by OSHA.
1.30 FIXED ASSETS
(a) Certain of Coventry's and its Subsidiaries' Fixed Assets(as defined
below) are leased in accordance with the equipment leases described on Part 5.30
of the Disclosure Letter (the "Equipment Leases"). Coventry and its Subsidiaries
have made all rental payments due under such leases to date (and through the
dates of the First Closing and the Second Closing) and are otherwise in full
compliance with the terms and conditions of such leases.
(b) Coventry's and its Subsidiaries' Fixed Assets are in good operating
condition, working order and repair and are adequate for the uses to which they
are being put. Part 5.30 of the Disclosure Letter sets forth a schedule of
Coventry's and its Subsidiaries' Fixed Assets and identifies any Fixed Assets
which are not actually owned by them but are leased. "Fixed Assets" shall be
defined as fixtures, leasehold improvements, structures, machinery, equipment,
tools, furniture, pallets, telephones and systems, computer systems (including
software), and all other items of material personal property used or useful in
the business of Coventry and its Subsidiaries.
1.31 PRODUCT LINES
(a) Part 5.31 of the Disclosure Letter contains a complete and correct
list of all product types and product lines comprising the businesses of
Coventry and its Subsidiaries, identified by the specific Subsidiary or division
thereof. Coventry and its Subsidiaries have never been the subject of any
product liability, safety, or false, deceptive or misleading advertising claims
and have never been the subject of any investigation, proceeding, warning,
citation or other claim by any federal, state, foreign or local governmental
agency. Coventry and its Subsidiaries have not initiated any recall of any items
products or taken any similar action, and Coventry does not know of any basis
for any such action which should have been taken or may have to be taken in the
future. Coventry and its Subsidiaries have not engaged in any advertising
practices which are deceptive, misleading, or otherwise in violation of any
Legal Requirements.
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(b) Each item of merchandise included in the inventory of Coventry and
its Subsidiaries or which has been sold or shipped by Coventry and its
Subsidiaries is safe for its intended uses and conforms with all Legal
Requirements and product safety and testing codes and standards, and contains
all required labels, disclosures and warnings, including without limitation,
compliance with the requirements of the Magnuson-Moss Warranty Act and the
Consumer Product Safety Act. With regard to items of merchandise included in the
inventory of Coventry and its Subsidiaries or which has been sold or shipped by
Coventry or its Subsidiaries as to which safety or flammability standards have
been issued, Coventry and its Subsidiaries have performed the necessary tests to
demonstrate compliance of its products with such standards and maintains proper
documentation thereof.
1.32 BANK ACCOUNTS
Part 5.32 of the Disclosure Letter sets forth the name, account number,
signatories, financial institution (with branch, address and contact person) of
all banking or financial institution accounts, deposit or concentration
accounts, safety deposit boxes, money market accounts, brokerage accounts and
investment accounts maintained by Coventry and its Subsidiaries.
1.33 PURCHASE FOR INVESTMENT
All of the BSD Shares and the PF Membership Interests delivered
pursuant to this Agreement shall be acquired by Coventry for investment and not
with a view toward, or for sale in connection with, any distribution thereof;
provided, however, that the foregoing shall not constitute a restriction on
Coventry from transferring such BSD Shares and PF Membership Interests in
compliance with applicable Legal Requirements.
Article VI
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder individually represents and warrants to Coventry, as
to himself, except as set forth in the Disclosure Letter, as follows:
6.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding obligation
of such Shareholder, enforceable against the Shareholder in accordance with its
terms, to the extent applicable thereto. Upon the execution and delivery by the
Shareholder of this Agreement and all Agreements contemplated herein to which
the Shareholder is a party (collectively, the "Shareholder Closing Documents"),
this Agreement and the Shareholder Closing Documents will constitute the legal,
valid and binding obligations of the Shareholder enforceable against such
Shareholder in accordance with their respective terms except as such enforcement
is limited by bankruptcy, insolvency or other laws affecting creditor's rights
generally. The Shareholder has the absolute and unrestricted right, power,
authority and capacity to execute and deliver this Agreement and the Shareholder
Closing Documents and to perform his obligations under this Agreement and the
Shareholder Closing Documents.
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(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or directly (with or without notice or lapse of time or both);
(i) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any legal requirement or any order to which such Shareholder may be subject;
(ii) to the knowledge of the Shareholder, contravene, conflict
with, or result in a violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate or modify, any contract
to which such Shareholder is a party;
(c) Except as set forth in Part 6.1 of the Disclosure Letter, the
Shareholder is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement by such Shareholder or the consummation and performance of any of the
Contemplated Transactions by such Shareholder.
1.2 BSD SHARE OWNERSHIP
The Shareholder is and will be on the First Closing Date the record and
beneficial owner and holder of all of the BSD Shares identified on Part 6.2 of
the Disclosure Letter, free and clear of all Encumbrances.
1.3 PURCHASE FOR INVESTMENT
All shares of Coventry common stock delivered pursuant to this
Agreement shall be acquired by the Shareholders for investment and not with a
view toward, or for sale in connection with, any distribution thereof; provided,
however, that the foregoing shall not constitute a restriction on the
Shareholders from transferring such shares of Coventry in compliance with
applicable Legal Requirements.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF MEMBERS
As of the Second Closing Date, each Member individually represents and
warrants to Coventry, as to himself, except as set forth in the Disclosure
Letter, as follows:
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7.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding obligation
of such Member, enforceable against the Member in accordance with its terms, to
the extent applicable thereto. Upon the execution and delivery by the Member of
this Agreement and all Agreements contemplated herein to which the Member is a
party (collectively, the "Member Closing Documents"), this Agreement and the
Member Closing Documents will constitute the legal, valid and binding
obligations of the Member enforceable against such Member in accordance with
their respective terms except as such enforcement is limited by bankruptcy,
insolvency or other laws affecting creditor's rights generally. The Member has
the absolute and unrestricted right, power, authority and capacity to execute
and deliver this Agreement and the Member Closing Documents and to perform his
obligations under this Agreement and the Member Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or directly (with or without notice or lapse of time or both);
(i) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any legal requirement or any order to which such Member may be subject;
(ii) to the knowledge of the Member, contravene, conflict with, or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify, any contract to
which such Member is a party;
(c) Except as set forth in Part 7.1 of the Disclosure Letter, the
Member is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement by such Member or the consummation and performance of any of the
Contemplated Transactions by such Member.
1.2 PF MEMBERSHIP INTEREST OWNERSHIP
The Member will be on the Second Closing Date the record and beneficial
owner and holder of all of the PF Membership Interests identified on Part 7.2 of
the Disclosure Letter, free and clear of all Encumbrances.
1.3 PURCHASE FOR INVESTMENT
All shares of Coventry common stock delivered pursuant to this
Agreement shall be acquired by the Members for investment and not with a view
toward, or for sale in connection with, any distribution thereof; provided,
however, that the foregoing shall not constitute a restriction on the Members
from transferring such shares of Coventry in compliance with applicable Legal
Requirements.
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ARTICLE VIII
COVENANTS OF BSD PRIOR TO DATE OF FIRST CLOSING
8.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the First Closing Date, BSD
will, and will cause its Representatives to, (a) afford Coventry and its
Representatives and prospective lenders and their Representatives (collectively,
"Coventry's Advisors") full and free access to BSD personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Coventry and Coventry's Advisors with copies of
all such contracts, books and records, and other existing documents and data as
Coventry may reasonably request, and (c) furnish Coventry and Coventry's
Advisors with such additional financial, operating, and other data and
information as Coventry may reasonably request.
8.2 OPERATION OF BSD BUSINESSES
Between the date of this Agreement and the First Closing Date, BSD
will:
(a) conduct the business of BSD only in the Ordinary Course of
Business;
(b) use its best efforts to: preserve intact the current business
organization of BSD, keep available the services of the current officers,
employees, and agents of BSD, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with BSD;
(c) confer with Coventry concerning operational matters of a material
nature; and
(d) otherwise report periodically to Coventry concerning the status of
the business, operations, and finances of BSD.
8.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the First Closing Date, BSD will not, without the
prior consent of Coventry, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 3.15 is likely to occur.
8.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, BSD will
make all filings required by Legal Requirements to be made by it in order to
consummate the Contemplated Transactions. Between the date of this Agreement and
the First Closing Date, BSD will (a) cooperate with Coventry with respect to all
filings that Coventry elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b) cooperate with
Coventry in obtaining all consents identified in Part 5.2 of Coventry's
Disclosure Letter.
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1.5 NOTIFICATION
Between the date of this Agreement and the First Closing Date, BSD will
promptly notify Coventry in writing if BSD becomes aware of any fact or
condition that causes or constitutes a Breach of any of BSD's representations
and warranties as of the date of this Agreement, or if BSD becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, BSD will promptly deliver to
Coventry a supplement to the Disclosure Letter specifying such change. During
the same period, BSD will promptly notify Coventry of the occurrence of any
Breach of any covenant of BSD in this Agreement or of the occurrence of any
event that may make the satisfaction of the conditions in Article XI impossible
or unlikely.
1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, the Shareholders will not, and will cause BSD and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Coventry) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of BSD, or any of the stock or equity security interests of BSD, or
any merger, consolidation, business combination, or similar transaction
involving BSD
1.7 BEST EFFORTS
Between the date of this Agreement and the First Closing Date, BSD will
use its best efforts to cause the conditions in Article XI to be satisfied.
1.8 SUBSIDIARIES
All references to "BSD" in this Article VIII shall include BSD and all
its Subsidiaries.
ARTICLE IX
COVENANTS OF PF PRIOR TO DATE OF SECOND CLOSING
9.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Second Closing Date, PF
will, and will cause its Representatives to, (a) afford Coventry and Coventry's
Advisors full and free access to PF personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data, (b)
furnish Coventry and Coventry's Advisors with copies of all such contracts,
books and records, and other existing documents and data as Coventry may
reasonably request, and (c) furnish Coventry and Coventry's Advisors with such
additional financial, operating, and other data and information as Coventry may
reasonably request.
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1.2 OPERATION OF PF BUSINESSES
From and after the inception of its business and until the Second
Closing Date, PF will:
(a) conduct the business of PF only in the Ordinary Course of Business;
(b) use its best efforts to: preserve intact the business organization
to be developed by PF, keep available the services of the officers, employees,
and agents to be appointed by PF, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others which
will have business relationships with PF;
(c) confer with Coventry concerning the acquisition and development of
its business and operational matters of a material nature; and
(d) otherwise report periodically to Coventry concerning the status of
the business, operations, and finances of PF;
provided, however, that Coventry recognizes and acknowledges that PF will be
acquiring and developing its business during the period prior to the Second
Closing Date.
1.3 INTENTIONALLY DELETED
1.4 REQUIRED APPROVALS
Prior to the Second Closing Date, PF will make all filings required by
Legal Requirements to be made by it in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Second Closing Date, PF
will (a) cooperate with Coventry with respect to all filings that Coventry
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Coventry in obtaining all
consents identified in Part 5.2 of Coventry's Disclosure Letter
1.5 NOTIFICATION
Between the date of this Agreement and the Second Closing Date, PF will
promptly notify Coventry in writing if PF becomes aware of any fact or condition
that causes or constitutes a Breach of any of PF's representations and
warranties as of the date of this Agreement, or if PF becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, PF will promptly deliver to Coventry
a supplement to the Disclosure Letter specifying such change. During the same
period, PF will promptly notify Coventry of the occurrence of any Breach of any
covenant of PF in this Agreement or of the occurrence of any event that may make
the satisfaction of the conditions in Article XII impossible or unlikely.
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1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, the Members will not, and will cause PF and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Coventry) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of PF, or any of the membership interests of PF, or any merger,
consolidation, business combination, or similar transaction involving PF,
provided, however, that Coventry recognizes and acknowledges that PF will be
acquiring and developing its business during the period prior to the Second
Closing Date.
1.7 BEST EFFORTS
Between the date of this Agreement and the Second Closing Date, PF will
use its best efforts to cause the conditions in Article XII to be satisfied.
1.8 SUBSIDIARIES
All references to "PF" in this Article IX shall include PF and all its
Subsidiaries.
ARTICLE X
COVENANTS OF COVENTRY
10.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Second Closing Date,
Coventry will, and will cause its Representatives to, (a) afford the
Shareholders, the Members and their Representatives and prospective lenders and
their Representatives (collectively, "Advisors") full and free access to
Coventry's personnel, properties (including subsurface testing), contracts,
books and records, and other documents and data, (b) furnish the Shareholders,
the Members and their Advisors with copies of all such contracts, books and
records, and other existing documents and data as they may reasonably request,
and (c) furnish the Shareholders, the Members and their Advisors with such
additional financial, operating, and other data and information as they may
reasonably request.
1.2 OPERATION OF COVENTRY'S BUSINESSES
Between the date of this Agreement and the Second Closing Date,
Coventry will:
(a) conduct the business of Coventry only in the Ordinary Course of
Business;
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(b) use its best efforts to: preserve intact the current business
organization of Coventry, keep available the services of the current officers,
employees, and agents of Coventry, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with Coventry;
(c) confer with the Shareholders and Members concerning operational
matters of a material nature; and
(d) otherwise report periodically to the Shareholders and Members
concerning the status of the business, operations, and finances of Coventry.
1.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Second Closing Date, Coventry will not, without
the prior consent of the Shareholders and Members, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 5.15 is likely to occur.
1.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Coventry
will make all filings required by Legal Requirements to be made by it in order
to consummate the Contemplated Transactions. Between the date of this Agreement
and the Second Closing Date, Coventry will (a) cooperate with BSD, PF, the
Shareholders and the Members with respect to all filings that they elect to make
or are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) cooperate with BSD, PF, the Shareholders and
Members in obtaining all consents identified in Part 3.2 of BSD's Disclosure
Letter or Part 4.2 of PF's Disclosure Letter.
1.5 NOTIFICATION
Between the date of this Agreement and the Second Closing Date,
Coventry will promptly notify the Shareholders and Members in writing if
Coventry becomes aware of any fact or condition that causes or constitutes a
Breach of any of Coventry's representations and warranties as of the date of
this Agreement, or if Coventry becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Disclosure Letter if the Disclosure
Letter were dated the date of the occurrence or discovery of any such fact or
condition, Coventry will promptly deliver to the Shareholders and Members a
supplement to the Disclosure Letter specifying such change. During the same
period, Coventry will promptly notify the Shareholders and Members of the
occurrence of any Breach of any covenant of Coventry in this Agreement, or of
the occurrence of any event that may make the satisfaction of the conditions in
Articles XI and XII impossible or unlikely.
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1.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Article XV, Coventry will not, and will cause each of its Representatives not
to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than the Shareholders and Members) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of Coventry, or any acquisition of the business or assets of any
Person by Coventry or any of the stock or equity security interests of Coventry,
or any merger, consolidation, business combination, or similar transaction
involving Coventry.
1.7 BEST EFFORTS
Between the date of this Agreement and the Second Closing Date,
Coventry will use its best efforts to cause the conditions in Articles XI and
XII to be satisfied.
1.8 SUBSIDIARIES
All references in this Article X to "Coventry" shall include Coventry
and all its Subsidiaries.
1.9 SEC FILINGS AND SHAREHOLDER COMMUNICATIONS
From and after the date of this Agreement and until the completion of
the Second Closing, all of Coventry's SEC filings, communications with its
shareholders, proxy statements, prospectuses, and similar communications shall
be subject to the prior review and reasonable approval of the Shareholders and
Members.
1.10 SPECIAL RIGHTS OF SHAREHOLDERS/MEMBERS
From and after the First Closing, the Board of Directors of Coventry
shall consist of eight (8) members, of which four (4) shall be designated by the
Shareholders. On the First Closing and as a condition thereof, the Board of
Directors of Coventry shall appoint such four (4) designees of the Shareholders
to the Board of Directors of Coventry, and a sufficient number of existing
Directors of Coventry shall resign so as to accommodate such appointments. From
and after the First Closing, Stephen Rosedale shall be elected and shall serve
as the Chairman of the Board of Coventry, and Robert Hausman shall be elected
and shall serve as Chief Executive Officer of Coventry. From and after the
Second Closing and until the next annual meeting of shareholders of Coventry,
the Board of Directors of Coventry shall consist of nine (9) members, of which
five (5) shall be designated by the Shareholders and the Members. On the Second
Closing and as a condition thereof, the Board of Directors of Coventry shall
appoint such five (5) designees of the Shareholders and Members to the Board of
Directors of Coventry, and a sufficient number of existing Directors of Coventry
shall resign so as to accommodate such appointments.
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ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BSD,
SHAREHOLDERS AND COVENTRY AT FIRST CLOSING
BSD's, the Shareholders' and Coventry's (BSD, the Shareholders and
Coventry collectively referred to as the "Parties" in this Article XI)
obligations to consummate the transactions contemplated at the First Closing and
to take the other actions required to be taken by the Parties at the First
Closing are subject to the satisfaction, at or prior to the First Closing, of
each of the following conditions to be performed by Coventry in favor of the
Shareholders and BSD (any of which may be waived by the Shareholders, in whole
or in part) and to be performed by BSD or the Shareholders in favor of Coventry
(any of which may be waived by Coventry in whole or in part):
1.1 ACCURACY OF REPRESENTATIONS
All of the Parties' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the First Closing Date as if made on the First Closing Date, without giving
effect to any supplement (delivered after the First Closing Date) to the
Disclosure Letter.
1.2 PARTIES' PERFORMANCE
(a) All of the covenants and obligations that the Parties are required
to perform or to comply with pursuant to this Agreement at or prior to the First
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered by the Parties pursuant to
this Agreement must have been delivered, and each of the other covenants and
obligations to be performed by the Parties under this Agreement must have been
performed and complied with in all respects.
1.3 CONSENTS
Each of the Consents identified in the Disclosure Letter or otherwise
required by this Agreement to be obtained by a Party, must have been obtained
and must be in full force and effect.
1.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to the
opposite Party:
(a) an opinion of such Parties' counsel, identified in Section 16.4,
dated the First Closing Date;
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(b) such other documents as the other Party may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 11.4(a), (ii) evidencing the accuracy of any of the Party's
representations and warranties, (iii) evidencing the performance by the Party of
any covenant or obligation required to be performed or complied with by the
Party, (iv) evidencing the satisfaction of any condition referred to in this
Article XI, or (v) otherwise facilitating the consummation or performance of any
of the Contemplated Transactions.
1.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Party, or against any Person affiliated with the Party,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
1.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock or
membership interest, or any other voting, equity, or ownership interest in
Coventry or BSD, or (b) is entitled to all or any portion of the BSD
Consideration.
1.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time or both), materially contravene, or conflict with, or result in a material
violation of, or cause each respective Party or any Person affiliated therewith
to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
1.8 DUE DILIGENCE
All of the inspections, investigations, evaluations, due diligence and
other matters set forth in Section 2.1 hereof shall have been satisfactory to,
or waived by, Coventry, the Shareholders and the Members in accordance with
Section 2.1 hereof.
1.9 PRO FUTURES AGREEMENT
Coventry, the Shareholders, the Members and Pro Futures Fund shall have
entered into an agreement, satisfactory to the Shareholders and the Members,
whereby Pro Futures Fund agrees that prior to the Second Closing, it will
convert all shares of preferred stock of Coventry held or owned by Pro Futures
Fund to shares of common stock of Coventry.
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1.10 AGREEMENTS WITH CERTAIN COVENTRY SECURITY/OPTION HOLDERS
Each of certain Persons who are security holders of Coventry, or who
have stock compensation or stock option agreements, or other similar
arrangements, with Coventry, as specified by the Shareholders, shall have
entered into agreements in favor of Coventry, the Shareholders and the Members,
in each case satisfactory to the Shareholders and the Members, whereby such
Persons will confirm their specific arrangements as to Coventry securities and
will release Coventry, the Shareholders and the Members from any other rights to
securities of Coventry or liabilities in connection therewith.
1.11 NASDAQ COMPLIANCE.
Coventry shall be in full compliance with the requirements of Section
5.28(g) of this Agreement relating to NASDAQ qualification and compliance, and
accordingly, on the date of the First Closing, Coventry shall continue to be
fully qualified for NASDAQ Small Cap Market listing and trading, and all
necessary filings and registrations to maintain such qualification shall have
been made.
ARTICLE XII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PF,
MEMBERS AND COVENTRY AT SECOND CLOSING
PF's, the Members' and Coventry's (PF, the Members and Coventry
collectively referred to as the "Parties" in this Article XII) obligations to
consummate the transactions contemplated at the Second Closing and to take the
other actions required to be taken by the Parties at the Second Closing are
subject to the satisfaction, at or prior to the Second Closing, of each of the
following conditions to be performed by Coventry in favor of the Members and PF
(any of which may be waived by the Members, in whole or in part) and to be
performed by PF or the Members in favor of Coventry (any of which may be waived
by Coventry, in whole or in part):
1.1 ACCURACY OF REPRESENTATIONS
All of the Parties' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Second Closing Date as if made on the Second Closing Date, without giving
effect to any supplement to the Disclosure Letter.
1.2 PARTIES' PERFORMANCE
(a) All of the covenants and obligations that the Parties are required
to perform or to comply with pursuant to this Agreement at or prior to the
Second Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
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(b) Each document required to be delivered by the Parties pursuant to
this Agreement must have been delivered, and each of the other covenants and
obligations to be performed by the Parties pursuant to this Agreement must have
been performed and complied with in all respects.
1.3 CONSENTS
Each of the Consents identified in the Disclosure Letter or otherwise
required by this Agreement, must have been obtained and must be in full force
and effect.
1.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to the
opposite Party:
(a) an opinion of such Parties' counsel, identified in Section 16.4,
dated the Second Closing Date;
(b) such other documents as the other Party may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 12.4(a), (ii) evidencing the accuracy of any of the Party's
representations and warranties, (iii) evidencing the performance by the Party of
any covenant or obligation required to be performed or complied with by the
Party, (iv) evidencing the satisfaction of any condition referred to in this
Article XII, or (v) otherwise facilitating the consummation or performance of
any of the Contemplated Transactions.
1.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Party, or against any Person affiliated with the Party,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
1.6 NO CLAIM REGARDING STOCK OWNERSHIP OR MEMBERSHIP INTEREST OR SALE
PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock or
membership interest, or any other voting, equity, or ownership interest in
Coventry or PF, or (b) is entitled to all or any portion of the PF
Consideration.
1.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time or both), materially contravene, or conflict with, or result in a material
violation of, or cause each respective Party or any Person affiliated therewith
to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
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1.8 PRO FUTURES CONVERSION
The conversion of all shares of preferred stock of Coventry held or
owned by Pro Futures Fund to shares of common stock of Coventry shall have been
completed prior to the Second Closing Date, such that the representations and
warranties of Coventry set forth in Section 5.27 hereof shall be true and
accurate on the Second Closing Date.
1.9 NASDAQ COMPLIANCE
As provided in Section 5.28(g) of this Agreement, Coventry shall
continue to be fully qualified for NASDAQ Small Cap listing and trading on the
Second Closing Date, and all necessary filings and registrations to maintain
such qualification shall have been made.
ARTICLE XIII
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF MEMBERS AND
COVENTRY AT THE SECOND CLOSING; RECISSION.
In addition to the conditions set forth in Article XII hereof, the
obligations of each Member and Coventry to consummate the transactions
contemplated at the Second Closing shall be subject to: (i) the consummation of
the transactions contemplated at the First Closing; (ii) Coventry obtaining the
requisite approval of its shareholders to issue the PF Consideration; and (iii)
the transaction contemplated by the Second Closing qualifying as a tax free
transaction under the IRC. In the event that the Second Closing is not
consummated within one hundred eighty (180) days after consummation of the First
Closing (the "Contingency Date"), which Contingency Date may be extended by
either party for an additional ninety (90) days in order to obtain any necessary
approvals from the SEC, and extended thereafter only by mutual consent of the
parties hereto, or if Coventry has not satisfied any condition precedent set
forth in Article XII hereof or in this Article XIII on or before the Contingency
Date, as so extended, then, in addition to the rights and remedies set forth in
Articles XIV and XV hereof, the parties agree that, upon the written request of
a majority of the Shareholders and the Members, they shall take all actions
necessary to rescind this Agreement and to unwind the transactions consummated
at the First Closing in such a manner as will place the parties hereto in as
close to the same position as possible as such party was in on the date hereof
without unreasonable effort, expense or delay.
ARTICLE XIV
INDEMNIFICATION
14.1 INDEMNIFICATION BY COVENTRY
Coventry covenants and agrees as follows:
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(a) Coventry and its Subsidiaries shall, jointly and severally,
indemnify the Shareholders and the Members and their affiliates and the members,
officers and directors thereof and defend and hold each of them and their
respective successors, assigns, heirs and personal representatives
(collectively, the "Indemnitees") harmless of and from: (i) any breach of any
representations or warranties of Coventry contained herein; (ii) any breach of
any other covenants or obligations of Coventry contained herein; (iii) any and
all claims, suits and causes of action arising out of or by reason of any matter
or cause whatsoever, relating to or in connection with or arising out of the
business conducted by Coventry and its Subsidiaries prior to the First Closing
Date; (iv) any and all claims, suits and causes of action arising out of or by
reason of any matter or cause whatsoever, relating to or in connection with or
arising out of the business conducted by BSD from and after the First Closing
Date, except for claims, suits and causes of action arising out of or by reason
of any acts or omissions of the Shareholders after the First Closing Date
(provided, however, that this exception shall not limit the Shareholders' rights
to be indemnified by Coventry under other agreements and by applicable law); (v)
any and all claims, suits and causes of action arising out of or by reason of
any matter or cause whatsoever, relating to or in connection with or arising out
of the business conducted by PF from and after the Second Closing Date, except
for claims, suits and causes of action arising out of or by reason of any acts
or omissions of the Members after the Second Closing Date (provided, however,
that this exception shall not limit the Members' rights to be indemnified by
Coventry under other agreements and by applicable law); (vi) any and all
liabilities, claims, suits, or causes of action by or through any shareholders
(or holders of rights to acquire securities) of Coventry or its Subsidiaries, or
by any Governmental Body, or by any other Person, contesting, challenging,
objecting to, delaying, or otherwise interfering with, the Contemplated
Transactions or alleging that any such transactions are in violation of law or
contract or seeking damages, dissenter's rights, appraisal rights, recission or
other remedies in connection therewith; and (vii) any and all liabilities,
claims, suits, causes of action relating to, or in connection with, the existing
claims against Coventry and its Subsidiaries identified in Part 5.14 of the
Disclosure Letter. Such indemnity shall only cover all damages, losses, costs
and expenses of the Indemnitees, including, without limitation, amounts paid in
settlement or satisfaction of claims; judgments; fines; penalties; and
reasonable attorneys' fees and disbursements.
(b) In the event that Coventry shall have breached any of its
obligations, representations, warranties or covenants contained in this
Agreement, or Coventry and its Subsidiaries are obligated to make any
indemnification as provided herein, the Indemnitees shall notify Coventry in
writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.1, Coventry and its Subsidiaries shall
have the obligation to defend any such claim at their own expense and with
counsel reasonably acceptable to the Indemnitees; provided, however, that if
Coventry and its Subsidiaries fail to undertake such defense or procure a
settlement releasing the Indemnitees by written notification to the Indemnitees
within twenty (20) days after the date of the Indemnitees' notification of
indemnification claim, or if thereafter, Coventry and its Subsidiaries fail to
maintain such defense to the reasonable satisfaction of the Indemnitees, then
the Indemnitees shall have the option, but not the obligation, to defend such
claim with any counsel of their choosing, all at the joint and several expense
of Coventry and its Subsidiaries, provided that Coventry shall not be liable for
the fees and expenses of more than one firm. Notwithstanding the foregoing, the
Indemnitees may elect to defend any such third party claim which is the subject
of indemnification with their own counsel, all at the joint and several expense
of Coventry and its Subsidiaries. Neither Coventry or its Subsidiaries, on one
hand, nor the Indemnitees, on the other hand, shall enter into a settlement of
any such third party claim without the other party's written consent, which will
not be unreasonably withheld or delayed; provided, however, that the Indemnitees
shall have no obligation to consent to any settlement unless it provides for a
complete release of the Indemnitees with respect to such third party claim.
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(d) If any Indemnitee is entitled to be indemnified by Coventry and its
Subsidiaries pursuant to this Agreement, then, promptly following the final
determination of the amount thereof, at the election of the Indemnitee in its
sole discretion, (i) Coventry or its Subsidiaries shall pay to the Indemnitee
the Adjusted Indemnification Amount (as defined below) in cash, or (ii) Coventry
shall pay to the Indemnitee the Adjusted Indemnification Amount by issuing to
Indemnitee that number of shares of common stock of Coventry (which shall be
duly issued, fully paid and non-assessable) computed by dividing the Adjusted
Indemnification Amount by the fair market value of Coventry common stock on the
date of the final determination. For example, if the Adjusted Indemnification
Amount were $100,000, and Coventry common stock's fair market value on the final
determination date was $2.00 per share, then Coventry would issue an additional
50,000 shares of its common stock to the Indemnitee. The "Adjusted
Indemnification Amount" is one hundred thirty-five percent (135%) of the final
determination of the amount of indemnification to be provided to Indemnitee
pursuant to this Agreement.
(e) The representations, warranties and covenants made by Coventry
herein shall be deemed and construed to be continuing representations,
warranties and covenants and shall survive the execution and delivery of this
Agreement and the First Closing and the Second Closing for a period of two (2)
years thereafter.
(f) Notwithstanding anything to the contrary in this Section 14.1, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
1.2 INDEMNIFICATION BY BSD
BSD covenants and agrees as follows:
(a) BSD and its Subsidiaries shall, jointly and severally, indemnify
Coventry and its affiliates and the officers and directors thereof and defend
and hold each of them and their respective successors, assigns, heirs and
personal representatives (collectively, the "Coventry Indemnitees") harmless of
and from: (i) any breach of any representations or warranties of BSD contained
herein; (ii) any breach of any other covenants or obligations of BSD contained
herein; (iii) any and all claims, suits and causes of action arising out of or
by reason of any matter or cause whatsoever, relating to or in connection with
or arising out of the business conducted by BSD and its Subsidiaries prior to
the First Closing Date; (iv) any and all liabilities, claims, suits, or causes
of action by or through any shareholders (or holders of rights to acquire
securities) of BSD or its Subsidiaries, or by any Governmental Body, or by any
other Person, contesting, challenging, objecting to, delaying, or otherwise
interfering with, the Contemplated Transactions or alleging that any such
transactions are in violation of law or contract or seeking damages, dissenter's
rights, appraisal rights, recission or other remedies in connection therewith;
and (v) any and all liabilities, claims, suits, causes of action relating to, or
in connection with, the existing claims against BSD and its Subsidiaries
identified in Part 3.14 of the Disclosure Letter. Such indemnity shall only
cover all damages, losses, costs and expenses of the Coventry Indemnitees,
including, without limitation, amounts paid in settlement or satisfaction of
claims; judgments; fines; penalties; and reasonable attorneys' fees and
disbursements.
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(b) In the event that BSD shall have breached any of its obligations,
representations, warranties or covenants contained in this Agreement, or BSD and
its Subsidiaries are obligated to make any indemnification as provided herein,
the Coventry Indemnitees shall notify BSD in writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.2, BSD and its Subsidiaries shall have the
obligation to defend any such claim at their own expense and with counsel
reasonably acceptable to the Coventry Indemnitees; provided, however, that if
BSD and its Subsidiaries fail to undertake such defense or procure a settlement
releasing the Coventry Indemnitees by written notification to the Coventry
Indemnitees within twenty (20) days after the date of the Coventry Indemnitees'
notification of indemnification claim, or if thereafter, BSD and its
Subsidiaries fail to maintain such defense to the reasonable satisfaction of the
Coventry Indemnitees, then the Coventry Indemnitees shall have the option, but
not the obligation, to defend such claim with any counsel of their choosing, all
at the joint and several expense of BSD and its Subsidiaries, provided that BSD
shall not be liable for the fees and expenses of more than one firm.
Notwithstanding the foregoing, the Coventry Indemnitees may elect to defend any
such third party claim which is the subject of indemnification with their own
counsel, all at the joint and several expense of BSD and its Subsidiaries.
Neither BSD or its Subsidiaries, on one hand, nor the Coventry Indemnitees, on
the other hand, shall enter into a settlement of any such third party claim
without the other party's written consent, which will not be unreasonably
withheld or delayed; provided, however, that the Coventry Indemnitees shall have
no obligation to consent to any settlement unless it provides for a complete
release of the Coventry Indemnitees with respect to such third party claim.
(d) The representations, warranties and covenants made by BSD herein
shall be deemed and construed to be continuing representations, warranties and
covenants and shall survive the execution and delivery of this Agreement and the
First Closing and the Second Closing for a period of two (2) years thereafter.
(e) Notwithstanding anything to the contrary in this Section 14.2, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
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1.3 INDEMNIFICATION BY PF
PF covenants and agrees as follows:
(a) PF shall indemnify Coventry and its affiliates and the officers and
directors thereof and defend and hold each of them and their respective
successors, assigns, heirs and personal representatives (collectively, the
"Coventry Indemnitees") harmless of and from: (i) any breach of any
representations or warranties of PF contained herein; (ii) any breach of any
other covenants or obligations of PF contained herein; (iii) any and all claims,
suits and causes of action arising out of or by reason of any matter or cause
whatsoever, relating to or in connection with or arising out of the business
conducted by PF and its Subsidiaries prior to the Second Closing Date; (iv) any
and all liabilities, claims, suits, or causes of action by or through any
members (or holders of rights to acquire securities) of PF, or by any
Governmental Body, or by any other Person, contesting, challenging, objecting
to, delaying, or otherwise interfering with, the Contemplated Transactions or
alleging that any such transactions are in violation of law or contract or
seeking damages, dissenter's rights, appraisal rights, recission or other
remedies in connection therewith; and (v) any and all liabilities, claims,
suits, causes of action relating to, or in connection with, the existing claims
against PF identified in Part 4.14 of the Disclosure Letter. Such indemnity
shall only cover all damages, losses, costs and expenses of the Coventry
Indemnitees, including, without limitation, amounts paid in settlement or
satisfaction of claims; judgments; fines; penalties; and reasonable attorneys'
fees and disbursements.
(b) In the event that PF shall have breached any of its obligations,
representations, warranties or covenants contained in this Agreement, or PF is
obligated to make any indemnification as provided herein, the Coventry
Indemnitees shall notify PF in writing of any such claim.
(c) With respect to third party claims which are the subject of
indemnification under this Section 14.3, PF shall have the obligation to defend
any such claim at its own expense and with counsel reasonably acceptable to the
Coventry Indemnitees; provided, however, that if PF fails to undertake such
defense or procure a settlement releasing the Coventry Indemnitees by written
notification to the Coventry Indemnitees within twenty (20) days after the date
of the Coventry Indemnitees' notification of indemnification claim, or if
thereafter, PF fails to maintain such defense to the reasonable satisfaction of
the Coventry Indemnitees, then the Coventry Indemnitees shall have the option,
but not the obligation, to defend such claim with any counsel of their choosing,
all at the expense of PF, provided that PF shall not be liable for the fees and
expenses of more than one firm. Notwithstanding the foregoing, the Coventry
Indemnitees may elect to defend any such third party claim which is the subject
of indemnification with their own counsel, all at the expense of PF. Neither PF,
on one hand, nor the Coventry Indemnitees, on the other hand, shall enter into a
settlement of any such third party claim without the other party's written
consent, which will not be unreasonably withheld or delayed; provided, however,
that the Coventry Indemnitees shall have no obligation to consent to any
settlement unless it provides for a complete release of the Coventry Indemnitees
with respect to such third party claim.
(d) The representations, warranties and covenants made by PF herein
shall be deemed and construed to be continuing representations, warranties and
covenants and shall survive the execution and delivery of this Agreement and the
First Closing and the Second Closing for a period of two (2) years thereafter.
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(e) Notwithstanding anything to the contrary in this Section 14.3, the
first Twenty Five Thousand and 00/100 ($25,000.00) Dollars, in the aggregate, of
claims for indemnification hereunder shall be exempted from payment unless and
until such threshold is exceeded; provided, however, that if such threshold is
exceeded, the first Twenty Five Thousand and 00/100 ($25,000.00) Dollars of such
indemnification claims shall no longer be exempted and shall be included in the
aggregate amount of such indemnification claims due and payable hereunder.
ARTICLE XV
TERMINATION
15.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at either the First or
Second Closing, be terminated:
(a) by any party if a Material Breach of any provision of this
Agreement has been committed by the other party and such Material Breach has not
been waived after notice of such Material Breach has been provided and such
breaching party has been given an opportunity to be heard. As used herein, a
"Material Breach" shall mean a Breach which substantially interferes with the
ability of any party to comply with the closing conditions to this Agreement or
to consummate the Contemplated Transactions;
(b) (i) by Coventry, if any of the conditions in Articles XI or XII to
be performed by BSD, PF, the Shareholders or the Members, as the case may be,
has not been satisfied as of the Closing Dates applicable thereto or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Coventry to comply with its obligations under this Agreement) and
Coventry has not waived such condition on or before the Closing Dates applicable
thereto;
(ii) by the Shareholders or Members, if any of the conditions in
Articles XI or XII to be performed by Coventry has not been satisfied as of the
Closing Dates applicable thereto or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Shareholders or
Members to comply with their obligations under this Agreement) and the
Shareholders or Members have not waived such condition on or before the Closing
Dates applicable thereto;
(c) by mutual consent of the parties hereto;
(d) by either Coventry, the Shareholders or the Members if the First
Closing has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under this
Agreement) on or before the date set forth in the first sentence of Section 2.3
hereof, or such later date as the parties may agree upon;
(e) by either Coventry, the Shareholders or the Members if the Second
Closing has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under this
Agreement) on or before the Contingency Date, as defined in, and as may be
extended pursuant to, Article XIII hereof, or such later date as the parties
agree upon; or
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(f) by Coventry, the Shareholders and/or the Members at any time on or
before the expiration of the Due Diligence Period, pursuant to Section 2.1.
1.2 EFFECT OF TERMINATION
Each party's right of termination under Section 15.1 is in addition to
any other rights that it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 15.1, all further obligations of the
parties under this Agreement will terminate, except that the obligations in
Articles XIII, XIV and XVI will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE XVI
GENERAL PROVISIONS
16.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a Breach of this Agreement by another party.
16.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Coventry, the Shareholders and the Members shall
determine. Unless consented to by all parties hereto in advance or required by
Legal Requirements, prior to the Closing, all parties hereto shall keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person, except as required by law. The parties hereto will
consult with each other concerning the means by which the employees, customers,
and suppliers and others having dealings with them will be informed of the
Contemplated Transactions.
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16.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, BSD, PF,
Coventry, the Shareholders and the Members will maintain in confidence, and will
cause the directors, officers, employees, agents and advisors of Coventry and
the Acquired Companies to maintain in confidence, and not use to the detriment
of another party or an Acquired Company, any written, oral, or other information
obtained in confidence from another party or an Acquired Company in connection
with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is required by, or necessary or appropriate in connection with,
legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
16.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
SHAREHOLDERS:
Ronald Wilheim
Steven Rosedale
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
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MEMBERS:
Ronald Wilheim
Steven Rosedale
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
BSD:
BSD Healthcare Industries, Inc.
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Attention: Ronald Wilheim, Secretary
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
PF:
People First Staffing, LLC
c/o CommuniCare Health Services, Inc.
4700 Ashwood Drive, Suite 200
Cincinnati, Ohio 45241
Attention: Ronald Wilheim, Secretary
Facsimile No.: (513) 530-1698
with a copy to: Lawrence M. Levinson, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
COVENTRY:
Coventry Industries, Inc.
7777 Glades Road
Boca Raton, Florida 33434
Attention: Robert Hausman, CEO
Facsimile No.: 561-488-3419
with a copy to: Michael Karsch, Esq.
Broad and Cassel
Suite 3000
201 South Biscayne Boulevard
Miami, Florida 33131
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16.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Florida, Palm Beach County, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Southern District of Florida, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
16.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
16.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
16.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
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16.9 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any
supplement thereto, relate only to the representations and warranties in the
Section of the Agreement to which they expressly refer and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
16.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
16.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
16.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
16.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
16.14 0GOVERNING LAW
This Agreement will be governed by the laws of the [State of Florida]
without regard to conflicts of laws principles.
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16.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
COVENTRY INDUSTRIES, INC. SHAREHOLDERS:
By: /s/ Robert Hausman /s/ Ronald Wilheim
----------------------- --------------------
Robert Hausman, CEO Ronald Wilheim
/s/ Steven Rosedale
--------------------
Steven Rosedale
MEMBERS:
/s/ Ronald Wilheim
- ------------------
Ronald Wilheim
/s/ Steven Rosedale
- -------------------
Steven Rosedale
BSD HEALTHCARE INDUSTRIES, INC.
By: /s/ Steven Rosedale
- -----------------------
Name: Steven Rosedale
Title: President
PEOPLE FIRST STAFFING, LLC
By: /s/ Steven Rosedale
- -----------------------
Name: Steven Rosedale
Title: Member
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