EXHIBIT 1
CAPITAL CONTRIBUTION AGREEMENT
among
ACS2, INC.
"ACS2"
ADVANCED CLINICAL SYSTEMS, INC.
"Advanced"
DYNAMIC ASSOCIATES, INC.
"Dynamic"
and
ADVANCED-DYNAMIC, LLC
the "LLC"
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TABLE OF CONTENTS
ARTICLE I. THE CONTRIBUTION 1
1.1 The Capital Contribution 1
1.2 Effects of the Contribution 2
1.3 Resulting Ownership Structure of LLC 2
1.4 Closing; Effective Time of Contribution 2
1.5 Certificates of Incorporation and Bylaws 2
1.6 Managers, Directors and Officers 2
1.7 Outstanding Stock Appreciation Rights, Options and
Warrants 2
1.8 Securities Exemptions 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF ACS2 3
2.1 Organization; Authority 3
2.2 Absence of Default 3
2.3 Broker's or Finder's Fees 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ADVANCED 4
3.1 Organization, Qualification and Authority 4
3.2 Capitalization and Stock Ownership 5
3.3 Absence of Default 5
3.4 Financial Statements. 5
3.5 Operations Since June 30, 1998 6
3.6 Licenses 6
3.7 Medicare, Medicaid and Other Third-Party Payors 7
3.8 Contracts 7
3.9 Environmental Matters 7
3.10 Litigation 8
3.11 Employees 8
3.12 Insurance 8
3.13 Broker's or Finder's Fee 8
3.14 Conflicts of Interest 8
3.15 Employee Benefit Plans 9
3.16 Compliance with Healthcare and Other Laws 9
3.17 WARN Act 9
3.18 Tax Returns; Taxes 9
3.19 Tax Reorganization 10
3.20 Title to and Conditions of Assets 10
3.21 No Omissions or Misstatements 10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES REGARDING LLC 11
4.1 Organization, Qualification and Authority 11
4.2 Capitalization and Stock Ownership 11
4.3 Absence of Default 11
4.4 Broker's or Finder's Fee 12
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF DYNAMIC 12
5.1 Organization, Qualification and Authority 12
5.2 Capitalization and Stock Ownership 13
5.3 Absence of Default 14
5.4 Operations Since December 31, 1997 14
5.5 Licenses 15
5.6 Medicare, Medicaid and Other Third-Party Payors 15
5.7 Contracts 15
5.8 Environmental Matters 16
5.9 Litigation 16
5.10 Employees 17
5.11 Insurance 17
5.12 Broker's or Finder's Fee 17
5.13 Conflicts of Interest 17
5.14 Employee Benefit Plans 18
5.15 Compliance with Healthcare and Other Laws 18
5.16 WARN Act 18
5.17 Tax Returns; Taxes 18
5.18 Tax Reorganization 19
5.19 Title to and Conditions of Assets 19
5.20 SEC Information 19
5.21 Absence of Appraisal Rights 20
5.22 No Omissions or Misstatements 20
ARTICLE VI. COVENANTS OF PARTIES 20
6.1 Preservation of Business and Assets 20
6.2 Retention of Assets of LLC 21
6.3 Absence of Material Change 21
6.4 Material Transactions 21
6.5 [Omitted.] 22
6.6 Certain Tax Matters 23
6.7 Preserve Accuracy of Representations and Warranties 23
6.8 Notice of Subsequent Events 23
6.9 Medicare and Medicaid Reporting 23
6.10 Current Return Filing 24
6.11 Maintain Books and Accounting Practices 24
6.12 Compliance with Laws and Regulatory Consents 24
6.13 Maintain Insurance Coverage 24
6.14 Closing Deliveries 24
ARTICLE VII. CONDITIONS TO CLOSING 26
7.1 Conditions to Each Party's Obligation to Effect the
Merger 26
7.2 Further Conditions to Obligation of Dynamic and LLC
to Effect the Contribution 26
7.3 Further Conditions to Obligation of ACS2 to Effect
the Contribution 27
ARTICLE VIII. TERMINATION; AMENDMENT; EXTENSION AND WAIVER 28
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8.1 Termination by Mutual Consent 28
8.2 Termination by Either ACS2 or Dynamic 28
8.3 Effect of Termination and Abandonment 28
8.4 Failure to Consummate Merger 28
8.5 Extension; Waiver 28
ARTICLE IX. SURVIVAL OF PROVISIONS AND INDEMNIFICATION 29
9.1 Survival 29
9.2 Indemnification by Dynamic 29
9.3 Indemnification by ACS2 29
9.4 Indemnification by Advanced 29
9.5 Rules Regarding Indemnification 30
9.6 Exclusive Remedy 31
ARTICLE X. MISCELLANEOUS 31
10.1 Expenses 31
10.2 Notices 31
10.3 Confidentiality; Prohibition on Trading 32
10.4 Controlling Law 32
10.5 Headings 32
10.6 Benefit 32
10.7 Partial Invalidity 32
10.8 Counterparts and Facsimiles 33
10.9 Interpretation 33
10.10 Entire Agreement, Waivers 33
10.11 Legal Fees and Costs 33
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CAPITAL CONTRIBUTION AGREEMENT
THIS CAPITAL CONTRIBUTION AGREEMENT is entered into as of March
30, 1999, by and among ACS2, INC., a Delaware corporation ("ACS2"),
ADVANCED CLINICAL SYSTEMS, INC., a Delaware corporation and wholly
owned subsidiary of ACS2 ("Advanced"), DYNAMIC ASSOCIATES, INC., a
Nevada corporation ("Dynamic"), and ADVANCED-DYNAMIC, LLC, a newly-
formed Nevada limited liability company (the "LLC").
R E C I T A L S:
WHEREAS, the parties believe that a business combination
between ACS2 and Dynamic is in the best interest of the respective
corporations and their shareholders; and
WHEREAS, Dynamic has filed Articles of Organization in order
to form the LLC; and
WHEREAS, the parties intend to consummate a merger of ACS2
with and into a wholly owned Dynamic subsidiary as soon as
appropriate shareholder approval and other conditions are satisfied
(the "Merger"), as set forth in that certain Agreement and Plan of
Merger of even date herewith among the parties hereto (the "Merger
Agreement"); and
WHEREAS, the respective Boards of Directors of Dynamic and
ACS2 have approved both the transactions contemplated hereunder and
the Merger, upon the terms and conditions set forth in this
Agreement and the Merger Agreement and in accordance with the
Delaware General Corporation Law, and Chapter 78 "Private
Corporations" and Chapter 92A "Mergers and Exchanges of Interest"
of the Nevada Revised Statutes; and
WHEREAS, the parties intend the transactions contemplated
under this Agreement are to be treated as tax-free contributions
pursuant to Section 721 of the Internal Revenue Code of 1986, as
amended (the "Code"), and further, wish to adopt the Merger
Agreement and appropriate Certificates of Merger and Articles of
Merger, as a "plan of reorganization" within the meaning of Section
368(a) of the Code, and to cause the contemplated transactions to
qualify as a reorganization under the provisions of Section
368(a)(1)(A) of the Code.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby,
agree as follows:
ARTICLE I. THE CONTRIBUTION
1.1 The Capital Contribution. Prior to the date hereof, the
LLC has been formed under Nevada law and Dynamic and ACS2 are its
sole members. At the Effective Time of the Contribution (as
defined in Section 1.4 hereof) and subject to and upon the terms
and conditions of this Agreement, Dynamic will contribute to the
LLC as a capital
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contribution all issued and outstanding common
stock of the "Dynamic Subsidiaries" (as such term is defined in
Section 5.1), and ACS2 will contribute to the LLC as a capital
contribution all outstanding common stock of Advanced (the
"Advanced Stock"), (collectively, the "Contribution").
1.2 Effects of the Contribution. At the Effective Time of
Contribution, the LLC will accept the Contribution and the Dynamic
Subsidiaries and Advanced will become the direct, wholly-owned
subsidiaries of the LLC, and each will, without any other action,
continue to possess all its respective assets, rights, privileges,
powers and franchises, of a public as well as of a private nature,
and be subject to all its respective restrictions, disabilities,
liabilities and duties as existed prior to the Contribution; and
all rights, privileges, powers and franchises of each such
corporation, and all property, real, personal and mixed of each
such corporation, and all debts due to each such corporation, on
whatever account, will remain vested in each such corporation.
1.3 Resulting Ownership Structure of LLC. Immediately prior
to the Contribution, the issued and outstanding units of the LLC
(the "LLC Units") will consist of two (2) LLC Units, one of which
will be held by each of ACS2 and Dynamic. As of the Effective Time
of the Contribution, Dynamic will receive an additional ninety-nine
(99) LLC Units in consideration for its capital contribution to the
LLC and ACS2 will receive ninety-nine (99) LLC Units in
consideration for its capital contribution to the LLC.
1.4 Closing; Effective Time of Contribution. The closing of
the Contribution (the "Closing") will take place on the date of
this Agreement, subject to satisfaction or waiver of the conditions
set forth in this Agreement, at the offices of Harwell Howard Hyne
Gabbert & Manner, P.C., Nashville, Tennessee. The Contribution
will be effective as of 12:01 a.m. on the first business day
following the Closing (the "Effective Time of Contribution").
1.5 Certificates of Incorporation and Bylaws. The Operating
Agreement of the LLC as in effect prior to the Effective Time of
Contribution will remain in effect following the Contribution,
unless and until amended in accordance with the provisions of
applicable law. The "Charter" (which term as used throughout this
Agreement will mean a corporation's charter, or comparable
document, such as "Articles of Incorporation" or "Certificate of
Incorporation") and Bylaws of each of the Dynamic Subsidiaries and
of Advanced as in effect prior to the Effective Time of
Contribution will remain in effect following the Contribution,
unless and until amended in accordance with the provisions of
applicable corporate law.
1.6 Managers, Directors and Officers. At the Effective Time
of Contribution, the respective managers, directors and officers of
each of the LLC, the Dynamic Subsidiaries and Advanced will be as
noted on Exhibit 1.6 attached hereto, and will remain as such until
their successors have been duly elected and qualified in accordance
with applicable corporate law. Each party will use its best
efforts to retain its managers, directors and/or officers, as the
case may be, until the Merger is consummated.
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1.7 Outstanding Stock Appreciation Rights, Options and
Warrants. All outstanding Advanced Warrants, Advanced Options and
Advanced SARs (as each is defined in Section 3.2(b)) will be
canceled pursuant to certain cancellation agreements, the forms of
which are attached hereto as Exhibit 1.7.
1.8 Securities Exemptions. The LLC Units already issued and
to be issued in connection with the Contribution are and will be
issued pursuant to an exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Section 90.530(1) of the Nevada Uniform
Securities Act.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF ACS2
As an inducement to Dynamic and LLC to enter into this
Agreement and to consummate the transactions contemplated
hereunder, ACS2 represents and warrants to Dynamic and LLC, which
representations will be true and correct at Closing, as follows:
2.1 Organization; Authority. ACS2 is a corporation duly
organized, validly existing and in good standing in the State of
Delaware, and is not required to be duly qualified to do business
as foreign corporation in any other jurisdiction. Since the date
of its organization and incorporation, ACS2 has consistently
observed and operated within the corporate formalities of the
jurisdiction in which it is incorporated, and has consistently
observed and complied with the general corporation law of such
jurisdiction. ACS2 does not own stock or equity interest in and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or business organization
other than those entities listed on Exhibit 2.1 attached hereto
(collectively, the "ACS2 Subsidiaries"). Except for the Advanced
Options, Advanced Warrants and Advanced SARs referred to elsewhere
herein, all outstanding shares of capital stock of the entities
listed on Exhibit 2.1 consist solely of common stock and are owned
by either ACS2 or Advanced free and clear of all liens, charges and
encumbrances. Subject to obtaining certain third party consents,
ACS2 has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this
Agreement. This Agreement and all other such agreements and
documents executed in connection herewith by ACS2, upon due
execution and delivery thereof, will constitute the valid and
binding obligations of ACS2, enforceable in accordance with their
respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws effecting
creditors' rights generally and by general principles of equity.
The authorized capital stock of ACS2 consists of 10,000,000 shares
of common stock.
2.2 Absence of Default. Subject to obtaining certain third
party consents, the execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in
connection herewith, by ACS2 will not constitute a violation of, be
in conflict with, or, with or without the giving of notice or the
passage of time, or both, result in a breach of, constitute a
default under, or create (or cause the acceleration of the maturity
of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the assets of ACS2
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under (a) the Charter or Bylaws of ACS2; (b) any contract, lease,
purchase order, agreement, document or other commitment, oral
or written, to which ACS2 is a party or by which ACS2 is bound;
(c) any judgment, decree, order, writ, injunction or rule of any
court or regulatory authority; or (d) to the knowledge of ACS2,
any law, statute, rule or regulation to which ACS2 is subject.
2.3 Broker's or Finder's Fees. ACS2 has not employed, and
is not liable for the payment of any fee to, any finder, broker or
similar person in connection with the transactions contemplated
under this Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ADVANCED
As an inducement to Dynamic and LLC to enter into this
Agreement and to consummate the transactions contemplated
hereunder, Advanced represents and warrants to Dynamic and LLC,
which representations will be true and correct at Closing, as
follows. Any representation, warranty or covenant of or relating
to Advanced is hereby deemed to also be a representation, warranty
or covenant of or relating to any and all of the other ACS2
Subsidiaries, as applicable, but not of ACS2.
3.1 Organization, Qualification and Authority. Advanced is
a corporation duly organized, validly existing and in good standing
in the State of Delaware and is not required to be qualified as a
foreign corporation in any other jurisdiction. Each ACS2
Subsidiary is a corporation duly organized, validly existing, in
good standing and duly qualified as a foreign corporation in the
respective jurisdictions set forth in Exhibit 3.1 attached hereto.
Since the date of its organization and incorporation, Advanced has
consistently observed and operated within the corporate formalities
of the jurisdictions in which it is incorporated and/or conducts
its business, and has consistently observed and complied with the
general corporation law of such jurisdictions. True and complete
copies of the Charter and Bylaws, as currently in effect, of each
ACS2 Subsidiary have been previously delivered to Dynamic. No
amendments to any such Charter or Bylaws have been authorized.
Advanced has the full corporate power and authority to own, lease
and operate its properties and assets as presently owned, leased
and operated and to carry on its business as it is now being
conducted. Subject to obtaining certain third party consents,
Advanced has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all documents
and agreements necessary to give effect to the provisions of this
Agreement. Subject to obtaining certain third party consents, the
execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith by
Advanced have been duly authorized by all necessary corporate
action on the part of Advanced and no other action on the part of
Advanced or any other person or entity is necessary to authorize
the execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith.
This Agreement and all other agreements and documents executed in
connection herewith by Advanced, upon due execution and delivery
thereof, will constitute the valid and binding obligations of ACS2,
enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency,
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reorganization or similar laws affecting creditors' rights
generally and by general principles of equity.
3.2 Capitalization and Stock Ownership.
(a) Common Stock. The authorized capital stock of Advanced,
being ten million (10,000,000) shares, $0.01 par value, of common
stock, along with the securities referenced in clause (b) below,
constitutes all issued and outstanding securities of Advanced, and
is duly authorized, validly issued, fully paid and nonassessable.
The Advanced Stock is not subject to preemptive or comparable
rights. The Advanced Stock has been issued in accordance with all
applicable federal and state securities laws.
(b) Other Securities. As of the date hereof, 138,000 shares
of Advanced Stock (or shares of common stock of an ACS2 Subsidiary)
are reserved for issuance upon the exercise of outstanding warrants
(the "Advanced Warrants"), 386,000 shares of Advanced Stock are
reserved for issuance upon exercise of outstanding options (the
"Advanced Options"), and no other shares of Advanced Stock are or
need to be reserved for any other purpose. In addition, Advanced
has issued the Stock Appreciation Rights more fully described in
Exhibit 3.2(b) attached hereto (the "Advanced SARs"). Except for
the Advanced Warrants, the Advanced Options and the Advanced SARs
referenced in this clause (b), there are not any existing options,
warrants, calls, subscriptions or other rights or agreements or
commitments obligating Advanced to issue, transfer or sell any
capital stock of it or any ACS2 Subsidiary or any other security
convertible into or evidencing the right to subscribe for any such
stock.
(c) Related Agreements. There are no voting trusts, voting
agreements, shareholders' agreements or other comparable
commitments or understandings to which Advanced is a party or by
which Advanced is bound with respect to the voting of any Advanced
Stock or capital stock of any other ACS2 Subsidiary.
3.3 Absence of Default. Except as set forth on Exhibit 3.3
attached hereto, the execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in
connection herewith by Advanced will not constitute a violation of,
be in conflict with, or, with or without the giving of notice or
the passage of time, or both, result in a breach of, constitute a
default under, or create (or cause the acceleration of the maturity
of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the assets of Advanced under: (a)
any term or provision of the Charter or Bylaws of Advanced; (b) any
material contract, lease, purchase order, agreement, document or
other commitment, oral or written, to which Advanced is a party or
by which Advanced is bound (collectively, the "Advanced Contracts")
(for purposes of categorizing contracts, "material" is defined to
exclude any contract, lease, purchase order, agreement, document or
commitment which both (y) in terms of payments, costs, services or
other measure does not exceed $10,000.00 in the aggregate, and (z)
is terminable without penalty upon ninety (90) days' written notice
or less); (c) any judgment, decree, order, writ, injunction or rule
of any court or regulatory authority; or (d) to the knowledge of
Advanced, any law, statute, rule or regulation to which Advanced is
subject.
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3.4 Financial Statements. Attached hereto as Exhibit 3.4
are true and correct copies of Advanced's audited balance sheets as
of June 30, 1998, and its income statements for the year then
ending (the "Advanced Fiscal Year Financial Statements"), and the
interim unaudited balance sheet and income statement of ACS2 for
the seven (7) month period ended January 31, 1999 (the "Advanced
Interim Financial Statements" which with the Advanced Fiscal Year
Financial Statements will be the "Advanced Financial Statements").
The Advanced Financial Statements are based on the books and
records of Advanced and present fairly and accurately the assets,
liabilities and financial position of Advanced as of, and the
results of its operations for, the respective periods specified.
Such financial statements do not pertain in any way to ACS2. The
Advanced Fiscal Year Financial Statements have been prepared in
accordance with generally accepted accounting principles.
3.5 Operations Since June 30, 1998. Except as set forth on
Exhibit 3.5 attached hereto, to the knowledge of Advanced, since
June 30, 1998, there has been no:
(1) change in the assets, liabilities or financial
condition of Advanced which has a material adverse effect on
Advanced's assets or business;
(2) material loss, damage or destruction of or to any of
the assets of Advanced, whether or not covered by insurance;
(3) sale, lease, transfer or other disposition by
Advanced of, or mortgages or pledges of or the imposition of any
lien, charge or encumbrance on, any material portion of the assets
of Advanced, other than those made in the ordinary course of
business;
(4) substantial increase in the compensation payable by
Advanced to any of its employees, directors, independent
contractors or agents, or increase in, or institution of, any
bonus, insurance, pension, profit-sharing or other employee benefit
plan or arrangements made to, for or with the employees, directors,
independent contractors or agents of Advanced;
(5) payment by Advanced of any dividend or other
distribution to its stockholders other than compensation as an
employee of ACS2 or Advanced;
(6) material change in the accounting methods or
practices employed by Advanced or change in adopted depreciation or
amortization policies; or
(7) strike, work stoppage or other labor dispute by or
with Advanced employees which materially adversely affects
Advanced's operations.
3.6 Licenses. Advanced has all local, state and federal
licenses, permits, registrations, certificates, contracts,
consents, accreditations and approvals (collectively, the
"Licenses") necessary for it to occupy, operate and conduct its
business, and there do not exist any waivers or exemptions relating
thereto. To the knowledge of Advanced, there is no material
default on the part of Advanced under any of the Licenses and there
exist no grounds for revocation, suspension or limitation of any of
the Licenses. Neither the
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execution and delivery of this Agreement
nor the consummation of any of the transactions contemplated
hereunder will result in any revocation or termination of any
License.
III.7 Medicare, Medicaid and Other Third-Party Payors.
Advanced is a party to contracts with parties who participate in
and are "providers" under the Medicare and Medicaid and other third
party payor Programs (the "Programs"). Advanced has materially
complied with all rules and regulations of the Programs and with
all statutes and regulations governing the Programs in the conduct
of the business carried on by Advanced, including conduct under any
Advanced Contracts related to the Programs. Advanced, without
inquiry, is not aware of any claims, actions or appeals pending or
threatened with respect to any such providers or of any
disallowances against any such providers which disallowances, in
the aggregate, exceed Ten Thousand and No/100 Dollars ($10,000.00),
including, but not limited to, material disallowances for any fees
charged by Advanced to such providers; and Advanced is not aware of
any such providers receiving notice of any pending, threatened or
possible decertification or other loss of participation in any of
the Programs.
3.8 Contracts.
(a) Dynamic has had an opportunity to review copies of
all written Advanced Contracts, including the contracts referenced
in Section 3.7. No Advanced Contract has been modified or amended
from the form which has been provided to Dynamic for review. No
event or condition has happened or presently exists which
constitutes a default or breach or, after notice or lapse of time
or both, would constitute a default or breach by Advanced under any
Advanced Contract provided that Advanced is in default under its
credit agreement with Nations Credit and this transaction will be
a default thereunder. Except as listed in Exhibit 3.8(a) attached
hereto, no Advanced Contract has been entered into with any
affiliate of Advanced. Subject to obtaining certain third party
consents, consummation of the transactions contemplated hereunder
will not default, alternate or terminate any of Advanced Contract.
(b) To its knowledge, Advanced has no claims as of the
date hereof against Dynamic, its affiliates or representatives with
regard to that certain Interim Management Agreement dated December
7, 1998, as amended (the "Interim Management Contract") other than
as set forth in Exhibit 3.8(b) attached hereto.
3.9 Environmental Matters.
(a) Hazardous Substances. As used in this Section, the
term "Hazardous Substances" means any hazardous or toxic
substances, materials or wastes, including but not limited to those
substances, materials, and wastes defined in Paragraph 101 of the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), listed in the United States
Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to
40 CFR Part 302, or which are regulated under any other
Environmental Law (as such term is defined herein), and any of the
following: hydrocarbons, petroleum and
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petroleum products, asbestos, polychlorinated biphenyls,
formaldehyde, radioactive substances (other than naturally
occurring materials in place), flammables and explosives.
(b) Compliance with Laws and Regulations. All
operations or activities of Advanced on, and any use or occupancy
by Advanced of, the real estate necessary to operate the business
of Advanced are in material compliance with any and all laws,
regulations, orders, codes, judicial decisions, decrees, licenses,
permits and other applicable requirements of governmental
authorities with respect to Hazardous Substances, pollution or
protection of human health and safety (collectively, "Environmental
Law"), including but not limited to the release, emission,
discharge, storage and removal of Hazardous Substances. To the
knowledge of Advanced, without inquiry, all prior owners, operators
and occupants of such real estate complied with Environmental Law.
Advanced is not aware of any pending or threatened claim, lawsuit,
investigation or inquiry regarding non-compliance with
Environmental Law pertaining to the operations of, or real estate
leased by, Advanced.
3.10 Litigation. Except as set forth in Exhibit 3.10
attached hereto, there are no lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to the knowledge of Advanced, threatened
involving Advanced. Advanced believes that none of the matters
listed on Exhibit 3.10 would, singly or in the aggregate,
reasonably be expected to materially adversely affect Advanced or
its operations.
3.11 Employees.
(a) Exhibit 3.11 attached hereto sets forth a complete
list of all Advanced officers, with their rates of pay, job titles
and employment start dates.
(b) Advanced is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding,
or any other arrangement, formal or informal, with any labor union
or organization which obligates it to compensate its employees at
prevailing rates or union scale, nor are any of such employees
represented by any labor union or organization. There is no
pending or, to the knowledge of Advanced, threatened labor dispute,
work stoppage, unfair labor practice complaint, strike,
administrative or court proceeding or order between Advanced and
any of its employees. There is no pending or, to the knowledge of
Advanced, threatened suit, action, investigation or claim between
Advanced and any of its present or former employees. Advanced
knows of no labor union organizing activity at any location of
Advanced within the last three (3) years.
3.12 Insurance. Advanced has in effect and has
continuously maintained since February 22, 1998 insurance coverage
for all of its operations, personnel and assets. Exhibit 3.12
attached hereto sets forth a summary of Advanced's current
insurance coverage (listing type, carrier and limits), and includes
a list of any pending insurance claims relating to Advanced.
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3.13 Broker's or Finder's Fee. Advanced has not employed,
and is not liable for the payment of any fee to, any finder, broker
or similar person in connection with the transactions contemplated
under this Agreement.
3.14 Conflicts of Interest. To the knowledge of Advanced,
none of the following is either a supplier of goods or services to
Advanced (other than as an employee), or directly or indirectly
controls or is a director or officer of any corporation, firm,
association, partnership or other business entity that is a
supplier of goods or services to Advanced: (a) any director or
officer of Advanced or, (b) any entity under common control with
Advanced.
3.15 Employee Benefit Plans. Other than health and
comparable insurance, Advance does not maintain or contribute to,
or is required to maintain or contribute to, any "employee welfare
benefit plan" or any "employee pension benefit plan" as each is
defined in the Employee Retirement Income Security Act of 1974 as
amended. Further, no such benefit plans covered employees of
Advanced during the period of their employment with any predecessor
of Advanced, including any multi-employer pension plan as defined
under the Code. Accordingly, there are no unfunded liabilities of
Advanced under any benefit plans.
3.16 Compliance with Healthcare and Other Laws. The
business of Advanced has been and is currently operated in material
compliance with all applicable laws, rules and regulations of each
jurisdiction in which the business of Advanced is conducted.
Advanced has not made any kickback, bribe or payment to any person
or entity, directly or indirectly, for referring, recommending or
arranging business or patients with, to or for Advanced which
action could have a material adverse effect on the business of
Advanced. No bulk sales or similar statute under the laws of the
State of Tennessee applies to the transactions contemplated under
this Agreement. The transactions contemplated under this Agreement
comply with any applicable antitrust or similar laws of the State
of Tennessee. To the knowledge of Advanced, none of the Advanced
Contracts and no activity of Advanced violates Section 1877 of the
Social Security Act or any similar provision of applicable state
law in any material respect. To the knowledge of Advanced, none of
the Advanced Contracts and no activity of Advanced violates
provisions of applicable state law relating to kickbacks, self-
referrals, fee-splitting or the corporate practice of medicine in
any material respect.
3.17 WARN Act. Since ninety (90) days prior to Closing,
Advanced has not temporarily or permanently closed or shut down any
single site of employment or any facility or any operating unit,
department or service within a single site of employment, as such
terms are used in the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2102, et seq. ("WARN").
3.18 Tax Returns; Taxes.
(a) Advanced has filed all federal, state and local tax
returns and tax reports required by such authorities to be filed as
of the date hereof. Advanced has paid all taxes, assessments,
governmental charges, penalties, interest and fines due or claimed
to be due as of the time of Closing (including, without limitation,
taxes on properties,
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10
income, franchises, licenses, sales and
payrolls) by any federal, state or local authority. Additionally,
the reserves for taxes reflected in the Advanced Financial
Statements are adequate to cover all tax liabilities accrued as of
the respective dates thereof. There is no pending tax examination
or audit of, nor any action, suit, investigation or claim asserted
or, to the knowledge of Advanced, threatened against Advanced by
any federal, state or local authority; and Advanced has not
requested or been granted any extension of the limitation period
applicable to any tax claims.
(b) Advanced has complied with all applicable laws,
rules and regulations relating to the payment and withholding of
taxes and has timely withheld from employee wages and paid over to
the proper governmental authorities all amounts required to be so
withheld and paid over. No agreements have been made by Advanced
to waive the statute of limitations for the assessment or payment
of any taxes. To the knowledge of Advanced, Advanced has not
committed any violation of any federal, state or local tax laws.
3.19 Tax Reorganization. Advanced has neither taken nor
failed to take any action which would prevent the Contribution from
being treated as tax-free contributions under Section 721 of the
Code, or the Merger from constituting a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
3.20 Title to and Conditions of Assets. Advanced is the
sole legal and beneficial owner of the personal property used in
operating its business, including all personal property reflected
in the Advanced Financial Statements, and all such personal
property is owned by Advanced free and clear of all liens, security
interests, charges and encumbrances, except as disclosed in the
Advanced Financial Statements or Exhibit 3.20(a) attached hereto.
Advanced owns no real property, but is in lawful possession of the
real estate it leases. Advanced is in material compliance with
respect to all leases of real estate entered into for the conduct
of its business. All equipment owned or leased by Advanced
performs the respective functions they are supposed to perform and
are in good working order, ordinary wear and tear accepted. The
inventory of Advanced is, in the aggregate, of a quality and
quantity customarily used in the ordinary course of business. All
trademarks, service marks, trade names, inventions, patents,
processes, copyrights and applications therefor, registered or at
common law (collectively, the "Intellectual Property") owned or
used by Advanced are listed and described in Exhibit 3.20(b)
attached hereto. Advanced is the sole legal and beneficial owner
of such Intellectual Property. No proceedings have been instituted
or pending or, to the knowledge of Advanced, threatened which
challenge the validity of the ownership or use by Advanced of any
such Intellectual Property. Advanced has not licensed a third party
to use any such Intellectual Property, and Advanced has no
knowledge of the unlawful use or infringement of any such
Intellectual Property by any other person. Advanced possesses
adequate and enforceable licences to use all Intellectual Property
currently used but not owned by Advanced.
3.21 No Omissions or Misstatements. There is no fact
material to the assets, businesses, liabilities or prospects of
Advanced as a whole which has not been set forth or described in
this Agreement or in the Exhibits hereto and which is material to
the conduct, prospects, operations or financial condition of the
LLC. None of the information included in this Agreement and
Exhibits hereto, or other documents furnished or to be
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11
furnished by Advanced contains any untrue statement of a material
fact or is misleading in any material respect or omits to state any
material fact necessary in order to make any of the statements herein
or therein not misleading in light of the circumstances in which they
were made. Copies of all documents referred to in any Exhibit
hereto have been delivered or made available to Dynamic and
constitute true, correct and complete copies thereof and include
all amendments, exhibits, schedules, appendices, supplements or
modifications thereto or waivers thereunder.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES REGARDING LLC
As an inducement to ACS2 and Advanced to enter into this
Agreement and to consummate the transactions contemplated
hereunder, Dynamic hereby represents and warrants to ACS2 and
Advanced, which representations and warranties will be true and
correct on the date of Closing, as follows with respect to the LLC:
4.1 Organization, Qualification and Authority. The LLC is
a limited liability company duly organized, validly existing and in
good standing in the State of Nevada, and is not required to be
qualified to do business as a foreign corporation in any other
jurisdiction. Since the date of its formation, LLC has
consistently observed and operated within the corporate formalities
of the jurisdictions in which it is formed and/or conducts its
business, and has consistently observed and complied with the
applicable law of such jurisdictions. LLC does not own stock or
equity interests in and does not control, directly or indirectly,
any corporation, partnership, joint venture, association or
business organization prior to the Effective Time of Contribution.
LLC will conduct no operations, will enter into no agreements, and
will own no assets prior to the Closing. LLC has the full right,
power and authority to execute, deliver and carry out the terms of
this Agreement and all documents and agreements necessary to give
effect to the provisions of this Agreement, to consummate the
transactions contemplated on the part of LLC hereby, and to take
all actions necessary to permit or approve the actions LLC takes in
connection with this Agreement. The execution, delivery and
consummation of this Agreement and all other agreements and
documents executed in connection herewith by LLC has been duly
authorized by all necessary corporate action on the part of LLC.
No other action on the part of LLC or any other person or entity
is necessary to authorize the execution, delivery and consummation
of this Agreement and all other agreements and documents executed
in connection herewith. This Agreement and all other agreements
and documents executed in connection herewith by LLC, upon due
execution and delivery thereof, will constitute the valid and
binding obligations of LLC, enforceable in accordance with their
respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
4.2 Capitalization and Stock Ownership. The units of the
LLC, being two (2) units, constituted all issued and outstanding
securities of LLC. These two (2) units, along with the additional
units to be issued upon Closing of the Contribution (collectively,
the "LLC Units"), are (or will be) duly authorized, validly issued,
fully paid and nonassessable, and are (or will be ) owned free and
clear of any liens, charges, encumbrances, security
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12
interests, pledges or any other restrictions whatsoever. The LLC
Units are not, and will not be, subject to preemptive or comparable
rights. The LLC Units are and will be issued to Dynamic and ACS2 in
accordance with all applicable federal and state securities laws,
and will continue to be held solely by Dynamic and ACS2 through
Closing.
4.3 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith by LLC will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of LLC under: (a) any term or provision of the Operating Agreement
of LLC; (b) any contract, lease, purchase order, agreement,
document or other commitment, oral or written, to which LLC is a
party or by which LLC is bound; (c) any judgment, decree, order,
writ, injunction or rule of any court or regulatory authority; or
(d), to the knowledge of LLC or Dynamic, any law, statute, rule or
regulation to which LLC is subject.
4.4 Broker's or Finder's Fee. LLC has not employed, and is
not liable for the payment of any fee to, any finder, broker or
similar person in connection with the transactions contemplated
under this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF DYNAMIC
As an inducement to ACS2 and Advanced to enter into this
Agreement and to consummate the transactions contemplated
hereunder, Dynamic hereby represents and warrants to ACS2 and
Advanced, which representations and warranties will be true and
correct on the date of Closing, as follows. Any representation,
warranty or covenant of or relating to Dynamic is hereby deemed to
also be a representation, warranty or covenant of or relating to
any and all of the Dynamic Subsidiaries (as defined in Section
5.1), and the LLC, as applicable.
5.1 Organization, Qualification and Authority. Dynamic is
a corporation duly organized, validly existing and in good standing
in the State of Nevada, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction. Since
the date of its organization and incorporation, Dynamic has
consistently observed and operated within the corporate formalities
of the jurisdictions in which it is incorporated and/or conducts
its business, and has consistently observed and complied with the
general corporation law of such jurisdictions. Dynamic does not
own stock or equity interests in and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or business organization other than the LLC and the
entities set forth on Exhibit 5.1 attached hereto (collectively,
the "Dynamic Subsidiaries"). Each Dynamic Subsidiary is a
corporation duly organized, validly existing, in good standing and
duly qualified as a foreign corporation in the respective
jurisdictions set forth in Exhibit 5.1. All outstanding and
securities of the Dynamic Subsidiaries consist solely of common
stock and have been validly issued in accordance with all
applicable federal, state and foreign securities laws
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13
and are owned by Dynamic, free and clear of all liens, charges,
encumbrances, claims and options of any nature. True and complete
copies of the Charters and Bylaws, as currently in effect, of
Dynamic and each Dynamic Subsidiary have been previously delivered
to ACS2 and Advanced. Other than the amendments attached hereto as
part of Exhibit 5.1, no amendments to any such Charters or Bylaws
have been authorized since January 1, 1998. Dynamic has the full
corporate power and authority to own, lease and operate its
properties and assets as presently owned, leased and operated
and to carry on its business as it is now being conducted.
Dynamic has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give
effect to the provisions of this Agreement, to consummate the
transactions contemplated on the part of Dynamic hereby, and to
take all actions necessary to permit or approve the actions Dynamic
takes in connection with this Agreement. The execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith by Dynamic (other than
the Merger Agreement and documents related thereto, for which
requisite shareholder approval must be obtained) has been duly
authorized by all necessary corporate action on the part of
Dynamic. No other action on the part of Dynamic or any other
person or entity is necessary to authorize the execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith (other than the Merger
Agreement and documents related thereto, for which requisite
shareholder approval must be obtained). This Agreement and all
other agreements and documents executed in connection herewith by
Dynamic, upon due execution and delivery thereof, will constitute
the valid and binding obligations of Dynamic, enforceable in
accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general
principles of equity.
5.2 Capitalization and Stock Ownership.
(a) Common Stock. The authorized capital stock of
Dynamic (the "Dynamic Stock"), consists of 100,000,000 shares,
$0.001 par value, of common stock, of which 18,386,929 shares are
issued and outstanding as of the date hereof. These shares of
Dynamic Stock, along with the securities referenced in clause (b)
below and the original and replacement convertible notes referenced
in Section 6.5, constitutes all past and current issued and
outstanding securities of Dynamic, and are duly authorized, validly
issued, fully paid and nonassessable. Dynamic Stock is not subject
to preemptive or comparable rights. The Dynamic Stock and any
other currently or previously outstanding securities of Dynamic
have been issued in accordance with all applicable federal, state
and foreign securities laws.
(b) Other Securities. As of the date hereof, 8,575,000
shares of Dynamic stock are reserved for issuance upon the exercise
of outstanding warrants (the "Dynamic Warrants"), 117,500 shares of
Dynamic Stock are reserved for issuance upon exercise of
outstanding options (the "Dynamic Options"), all of which have been
granted under the 1997 Stock Option Plan, 8,325,000 shares of
Dynamic stock are reserved for issuance upon conversion of those
certain replacement 7.5% convertible subordinated notes in the
aggregate principal amount of $8,325,000 (the "Dynamic Secured
Notes") and no other
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14
shares of Dynamic Stock are or need to be
reserved for any other purpose. Dynamic has issued the Dynamic
Secured Notes in the aggregate principal amount of $8,325,000.00,
which notes are convertible into that number of shares of Dynamic
Common Stock equal to the principal amount of such notes divided by
$1.00. The redemption of the original notes and the issuance of
the Dynamic Secured Notes in replacement thereof was effected in
full compliance with law. True and correct and fully executed
copies of all documents regarding the redemption and issuance of
the convertible notes by Dynamic have been provided to ACS2 and
Advanced. Except for the Dynamic Warrants, the Dynamic Options and
the Dynamic Secured Notes referenced in this clause (b), there are
not any existing options, warrants, calls, subscriptions, stock
appreciation rights, or other rights or agreements or commitments
obligating Dynamic to issue, transfer or sell any capital stock or
other security of it or any Dynamic Subsidiary or any other
security convertible into or evidencing the right to subscribe for
any such stock or security.
(c) Related Agreements. Other than the Operating
Agreement of the LLC as currently in effect, there are no voting
trusts, voting agreements, shareholders' agreements, registration
rights agreements or other comparable commitments or
understandings, oral or written, to which Dynamic is a party or by
which Dynamic is bound with respect to the voting of any Dynamic
Stock or the capital stock or securities of any Dynamic Subsidiary.
(d) Sufficient Shares. At the Effective Time of the
Merger, Dynamic will have a sufficient number of authorized but
unissued and/or treasury shares of Dynamic Stock available for
issuance to the ACS2 Stockholders in accordance with the provisions
of the Merger Agreement. Dynamic Stock to be issued pursuant to the
Agreement will, when so delivered, be duly and validly issued in
accordance with all applicable federal and state securities laws,
will be fully paid and nonassessable, and will be free and clear of
preemptive and similar rights.
5.3 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith by Dynamic, will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of Dynamic under: (a) any term or provision of the Charter or
Bylaws of Dynamic; (b) any material contract, lease, purchase
order, agreement, document or other commitment, oral or written, to
which Dynamic is a party or by which Dynamic is bound (collectively
the "Dynamic Contracts") (for purposes of categorizing contracts,
"material" being defined to exclude any contract, lease, purchase
order, agreement, document or commitment which both (y) in terms of
payments, costs, services or other measure does not exceed
$10,000.00 in the aggregate, and (z) is terminable without penalty,
upon ninety (90) days' written notice or less); (c) any judgment,
decree, order, writ, injunction or rule of any court or regulatory
authority; or (d), to the knowledge of Dynamic, any law, statute,
rule or regulation to which Dynamic is subject.
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15
5.4 Operations Since December 31, 1997. Except as set forth
on Exhibit 5.4 attached hereto, to the knowledge of Dynamic, since
December 31, 1997, there has been no:
(1) change in the assets, liabilities or financial
condition of Dynamic which has a material adverse effect on
Dynamic' assets or business;
(2) material loss, damage or destruction of or to any of
the assets of Dynamic, whether or not covered by insurance;
(3) sale, lease, transfer or other disposition by
Dynamic of, or mortgages or pledges of or the imposition of any
lien, charge or encumbrance on, any material portion of the assets
of Dynamic, other than those made in the ordinary course of
business;
(4) substantial increase in the compensation payable by
Dynamic to any of its employees, directors, independent contractors
or agents, or increase in, or institution of, any bonus, insurance,
pension, profit-sharing or other employee benefit plan or
arrangements made to, for or with the employees, directors,
independent contractors or agents of Dynamic;
(5) payment by Dynamic of any dividend or other
distribution to its stockholders other than compensation as an
employee of Dynamic;
(6) material change in the accounting methods or
practices employed by Dynamic or change in adopted depreciation or
amortization policies; or
(7) strike, work stoppage or other labor dispute by or
with Dynamic employees which adversely affects Dynamic operations.
5.5 Licenses. Dynamic has all Licenses necessary for it to
occupy, operate and conduct its business, and there do not exist
any waivers or exemptions relating thereto. To the knowledge of
Dynamic, there is no material default on the part of Dynamic under
any of the Licenses and there exist no grounds for revocation,
suspension or limitation of any of the Licenses. Neither the
execution and delivery of this Agreement nor the consummation of
any of the transactions contemplated hereunder will result in any
revocation or termination of any License.
5.6 Medicare, Medicaid and Other Third-Party Payors. Dynamic
is a party to contracts with parties who participate in and are
"providers" under the Programs. Dynamic has materially complied
with all rules and regulations of the Programs and with all
statutes and regulations governing the Programs in the conduct of
the business carried on by Dynamic, including conduct under any
Dynamic Contracts related to the Programs. Dynamic, without
inquiry, is not aware of any claims, actions or appeals pending
with respect to any such providers or of any disallowances against
any such providers, including which disallowances, in the
aggregate, exceed Ten Thousand and No/100 Dollars ($10,000.00), but
not limited to, material disallowances for any fees charged by
Dynamic to such providers; and Dynamic is not aware of any such
providers receiving notice of any
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16
pending, threatened or possible decertification or other loss
of participation in any of the Programs.
5.7 Contracts.
(a) ACS2 and Advanced have had an opportunity to review
copies of all written Dynamic Contracts, including the contracts
referenced in Section 5.6, and a list of all written Dynamic
Contracts is attached hereof as Exhibit 5.7(a). In addition,
included in Exhibit 5.7(a) is a written synopsis of key terms of
all oral Dynamic Contracts. No Dynamic Contract has been modified
or amended from the form which has been provided to ACS2 for
review. No event or condition has happened or presently exists
which constitutes a default or breach or, after notice or lapse of
time or both, would constitute a default or breach by any party
under any Dynamic Contract. Except as listed in Exhibit 5.7(a)
attached hereto, no Dynamic Contract has been entered into with any
affiliate of Dynamic. Consummation of the Contribution will not
default, alternate or terminate any Dynamic Contracts. Neither
Dynamic nor the Dynamic Subsidiaries have issued or granted any
outstanding powers of attorney.
(b) To its knowledge, Dynamic has no claims as of the
date hereof against Advanced, its affiliates or representatives
with regard to the Interim Management Contract.
5.8 Environmental Matters.
(a) Hazardous Substances. As used in this Section, the
term "Hazardous Substances" means any hazardous or toxic
substances, materials or wastes, including but not limited to those
substances, materials, and wastes defined in Paragraph 101 of the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), listed in the United States
Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to
40 CFR Part 302, or which are regulated under any other
Environmental Law (as such term is defined herein), and any of the
following: hydrocarbons, petroleum and petroleum products,
asbestos, polychlorinated biphenyls, formaldehyde, radioactive
substances (other than naturally occurring materials in place),
flammables and explosives.
(b) Compliance with Laws and Regulations. All
operations or activities of Dynamic on, and any use or occupancy by
Dynamic of, the real estate necessary to operate the business of
Dynamic are in material compliance with any and all laws,
regulations, orders, codes, judicial decisions, decrees, licenses,
permits and other applicable requirements of governmental
authorities with respect to Hazardous Substances, pollution or
protection of human health and safety (collectively, "Environmental
Law"), including but not limited to the release, emission,
discharge, storage and removal of Hazardous Substances. To the
knowledge of Dynamic, without inquiry, all prior owners, operators
and occupants of such real estate complied with Environmental Law.
Dynamic is not aware of any pending or threatened claim, lawsuit,
investigation or inquiry regarding non-compliance with
Environmental Law pertaining to the operations of, or real estate
leased by, Dynamic.
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17
5.9 Litigation. Except as set forth in Exhibit 5.9(a)
attached hereto, there are no lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to the knowledge of Dynamic, threatened
involving Dynamic. Except as set forth in Exhibit 5.9(b), Dynamic
knows of no basis for any lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or
proceedings involving Dynamic. Dynamic believes that none of the
matters listed in Exhibit 5.9(a) or Exhibit 5.9(b) would, singly or
in the aggregate, reasonably be expected to materially adversely
affect Dynamic or its operations. Except as set forth on Exhibit
5.9(c) attached hereto, neither Dynamic nor the Dynamic
Subsidiaries have any outstanding liabilities or obligations,
contingent or otherwise, that individually exceed $5,000 or exceed
$20,000 in the aggregate.
5.10 Employees.
(a) Exhibit 5.10 attached hereto sets forth: (i) a
complete list of all of Dynamic's employees, and rates of pay, (ii)
the employment dates and job titles of each such person, and (iii)
categorization of each such person as a full-time or part-time
employee of Dynamic. For purposes of this Section, "part-time
employee" means an employee who is employed for an average of fewer
than twenty (20) hours per week or who has been employed for fewer
than six (6) of the twelve (12) months preceding the date on which
notice is required pursuant to the WARN.
(b) Dynamic is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding,
or any other arrangement, formal or informal, with any labor union
or organization which obligates it to compensate its employees at
prevailing rates or union scale, nor are any of such employees
represented by any labor union or organization. There is no
pending or, to the knowledge of Dynamic, threatened labor dispute,
work stoppage, unfair labor practice complaint, strike,
administrative or court proceeding or order between Dynamic and any
of its employees. There is no pending or, to the knowledge of
Dynamic, threatened suit, action, investigation or claim between
Dynamic and any of its present or former employees. Dynamic knows
of no labor union organizing activity at any location of Dynamic
within the last three (3) years.
5.11 Insurance. Dynamic has in effect and has continuously
maintained since December 21, 1997 insurance coverage for all of
its operations, personnel and assets. Exhibit 5.11 attached hereto
sets forth a summary of Dynamic's current insurance coverage
(listing type, carrier and limits), and includes a list of any
pending insurance claims relating to Dynamic. Dynamic has complied
with all provisions of its insurance policies, including but not
limited to obligations to inform carriers of possible claims under
such insurance coverage.
5.12 Broker's or Finder's Fee. Dynamic has not employed, and
is not liable for the payment of any fee to, any finder, or similar
person in connection with the transactions contemplated under this
Agreement other than Genesis Merchant Group Securities LLC whose
fees and expenses shall be paid by Dynamic.
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18
5.13 Conflicts of Interest. Except as described in Exhibit
5.13, to the knowledge of Dynamic, none of the following is either
a supplier of goods or services to Dynamic, or directly or
indirectly controls or is a director or officer of any
corporation, firm, association, partnership or other business
entity that is a supplier of goods or services to Dynamic: (a) any
director, officer, consultant or shareholder (indirect or direct)
of Dynamic, or (b) any entity under common control with Dynamic.
5.14 Employee Benefit Plans. Other than health and
comparable insurance, Dynamic does not maintain or contribute to,
or is required to maintain or contribute to, any "employee welfare
benefit plan" or any "employee pension benefit plan" as each is
defined in the Employee Retirement Income Security Act of 1974 as
amended. Further, no such benefit plans covered employees of
Dynamic during the period of their employment with any predecessor
of Dynamic, including any multi-employer pension plan as defined
under the Code. Accordingly, there are no unfunded liabilities of
Dynamic under any benefit plans.
5.15 Compliance with Healthcare and Other Laws. The business
of Dynamic has been and is currently operated in material
compliance with all applicable laws, rules and regulations of each
jurisdiction in which the business of Dynamic is conducted.
Dynamic has not made any kickback, bribe or payment to any person
or entity, directly or indirectly, for referring, recommending or
arranging business or patients with, to or for Dynamic which action
could have a material adverse effect on the business of Dynamic.
No bulk sales or similar statute under the laws of the States of
Nevada or Delaware applies to the transactions contemplated under
this Agreement. The transactions contemplated under this Agreement
comply with any applicable antitrust or similar laws of the States
of Nevada and Delaware. To the knowledge of Dynamic, none of the
Dynamic Contracts and no activity of Dynamic violates Section 1877
of the Social Security Act or any similar provision of applicable
state law in any material respect. To the knowledge of Dynamic,
none of the Dynamic Contracts and no activity of Dynamic violates
provisions of applicable state law relating to kickbacks, self-
referrals, fee-splitting or the corporate practice of medicine in
any material respect.
5.16 WARN Act. Since ninety (90) days prior to Closing,
Dynamic has not temporarily or permanently closed or shut down any
single site of employment or any facility or any operating unit,
department or service within a single site of employment, as such
terms are used in WARN.
5.17 Tax Returns; Taxes.
(a) Dynamic has filed all federal, state and local tax
returns and tax reports required by such authorities to be filed as
of the date hereof. Dynamic has paid all taxes, assessments,
governmental charges, penalties, interest and fines due or claimed
to be due as of the time of Closing (including, without limitation,
taxes on properties, income, franchises, licenses, sales and
payrolls) by any federal, state, local or other authority.
Additionally, the reserves for taxes reflected in the "Dynamic
Financial Statements" (as defined in Section 5.20) are adequate to
cover all tax liabilities accrued as of the respective dates
thereof. There is no pending tax examination or audit of, nor
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19
any action, suit, investigation or claim asserted or, to the knowledge
of Dynamic, threatened against Dynamic by any federal, state, local
or other authority; and there is no basis therefor. Dynamic has
not requested or been granted any extension of the limitation
period applicable to any tax claims.
(b) Dynamic has complied with all applicable laws, rules
and regulations relating to the payment and withholding of taxes
and has timely withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so
withheld and paid over. No agreements have been made by Dynamic to
waive the statute of limitations for the assessment or payment of
any taxes. To the knowledge of Dynamic, Dynamic has not committed
any violation of any federal, state, local or other tax laws.
5.18 Tax Reorganization. Dynamic has neither taken nor
failed to take any action which would prevent the Contribution from
being treated as a tax-free contribution under Section 721 of the
Code, or the Merger from constituting a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
5.19 Title to and Conditions of Assets. Dynamic is the sole
legal and beneficial owners of the personal property used in
operating its business, including all personal property reflected
in the Dynamic Financial Statements, and all such personal property
is owned by Dynamic free and clear of all liens, security
interests, charges and encumbrances, except as noted in Exhibit
5.19(a) attached hereto. Dynamic owns no real property, but is in
lawful possession of the real estate it leases. Dynamic is in
material compliance with respect to all leases of real estate
entered into for the conduct of its business. All equipment owned
or leased Dynamic performs the respective functions they are
supposed to perform and are in good working order, ordinary wear
and tear accepted. The inventory of Dynamic is, in aggregate, of a
quality and quantity customarily used in the ordinary course of
business. All Intellectual Property owned or used by Dynamic is
listed and described in Exhibit 5.19(b) attached hereto. Dynamic
is the sole legal and beneficial owner of such Intellectual
Property. No proceedings have been instituted or pending or, to
the knowledge of Dynamic, threatened which challenge the validity
of the ownership or use by Dynamic of any such Intellectual
Property. Dynamic has not licensed a third party to use any such
Intellectual Property, and Dynamic has no knowledge of the unlawful
use or infringement of any such Intellectual Property by any other
person. Dynamic possesses adequate and enforceable licences to use
all Intellectual Property currently used but not owned by Dynamic.
5.20 SEC Information. Dynamic Stock is reported only on the
Nasdaq O.T.C. Bulletin Board, the Frankfurt, Munich and Berlin
Germany Exchanges. Dynamic has provided to ACS2 true and complete
copies, as filed with the Securities Exchange Commission ("SEC")
and applicable German authorities, of Dynamic's Annual Report on
Form 10-K (or other form) for the fiscal year end December 31,
1997, Quarterly Reports on Form 10-Q (or other form) for the fiscal
quarters ended March 31, 1998, June 30, 1998, September 30, 1998
and March 31, 1999, proxy materials for the 1998 and 1999 Annual
Meeting of Stockholders, all other reports and other documents
filed with either the SEC, the NASDAQ Stock Market, the Berlin,
Munich and Frankfurt exchanges and all other German and foreign
authorities, or distributed to Dynamic Stockholders since December
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20
31, 1997, and all press releases issued since December 31, 1997
(collectively, the "Dynamic Public Reports"). Each Dynamic Public
Report is listed on Exhibit 5.20 attached hereto. Dynamic has
received an extension for the filing of its most recently due Form
10-Q and will file such 10-Q in compliance with applicable law.
Each of the Dynamic Public Reports, at the time it was filed with
the appropriate authorities or otherwise issued or distributed, was
prepared, filed and distributed timely and in accordance in all
material respects with the applicable rules and regulations of such
authorities and applicable requirements of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
and other law, foreign or domestic, as the case may be, and did
not, at the time they were so filed or mailed, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. As of their respective dates, the
financial statements of Dynamic contained in the Dynamic Public
Reports (the "Dynamic Financial Statements") were prepared in
accordance with, and complied as to form in all material respects
with, applicable accounting requirements and with the published
rules and regulations of the applicable authorities with respect
thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the
periods indicated except to the extent required by changes in
generally accepted accounting principles and as may be indicated in
the notes thereto and fairly presented the consolidated balance
sheet and the consolidated assets, liabilities and financial
position of Dynamic as at the dates thereof and the consolidated
results of operations and cash flows of Dynamic for the periods
then ended. All intercompany charges or payments between Dynamic
and any current or past affiliate are either set forth in the
Dynamic Financial Statements or noted on Exhibit 5.20 attached
hereto.
5.21 Absence of Appraisal Rights. No stockholders of Dynamic
will have any rights of appraisal of their shares of Dynamic Stock,
dissenters' rights or any comparable rights, as a result of the
transactions contemplated under this Agreement or the Merger
Agreement.
5.22 No Omissions or Misstatements. There is no fact
material to the aggregate assets, business, stock, liabilities or
prospects of Dynamic which has not been set forth or described in
this Agreement or in the Exhibits hereto. None of the information
included in this Agreement and Exhibits hereto, or other documents
furnished or to be furnished by Dynamic contains any untrue
statement of a material fact or is misleading in any material
respect or omits to state any material fact necessary in order to
make any of the statements herein or therein not misleading in
light of the circumstances in which they were made. Copies of all
documents referred to in any Exhibit hereto have been delivered or
made available to ACS2 and constitute true, correct and complete
copies thereof and include all amendments, exhibits, schedules,
appendices, supplements or modifications thereto or waivers
thereunder.
ARTICLE VI. COVENANTS OF PARTIES
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21
6.1 Preservation of Business and Assets. From the date
hereof until the Closing, each party will use its best efforts and
will do or cause to be done all such acts and things as may be
necessary to preserve, protect and maintain intact the operation of
its respective business and assets as a going concern consistent
with prior practice and not other than in the ordinary course of
business, including preserving, protecting and maintaining the
goodwill of the suppliers, employees, clientele, patients and
others having business relations with such party. Each party will
use its best efforts to retain its employees in their current
positions up to Closing. Through Closing, no party will acquire or
sell or agree to acquire or sell, by merging or consolidating with,
or by purchasing or selling a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof. The execution, delivery
and consummation of this Agreement and the transactions
contemplated hereunder will not give rise to any obligation of any
party hereto, or any right of any holder of any security of any
party hereto to require such party, to purchase, offer to purchase,
redeem or otherwise prepay or repay any capital stock or other
security, or deposit any funds to effect the same. All parties will
use their best efforts to facilitate the consummation of the
Contribution as contemplated hereunder and the Merger as
contemplated under the Merger Agreement, including obtaining
requisite approval of shareholders and other third parties.
Through Closing, with the exception of any shares of Advanced
Common Stock issued pursuant to the cancellation agreements
referenced in Section 1.7 and any shares of Dynamic Common Stock
issued upon exercise of outstanding Dynamic Warrants, Dynamic
Options or conversion of the Dynamic Secured Notes, no party will
issue, deliver or sell, or authorize or propose to issue, deliver
or sell, any shares of its capital stock of any class, any voting
securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities
or convertible securities. Through Closing, no party will split,
combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, or repurchase, redeem or otherwise acquire any shares of its
capital stock. From the date hereof until the Closing, no party
will pay any dividend or distribution to its shareholders as such,
and no party will, other than in the ordinary course of business,
sell, discard or dispose of any of its assets.
6.2 Retention of Assets of LLC. Neither Dynamic nor ACS2
intends or plan to dispose of, or to cause the LLC to dispose of,
a significant part of any assets of the LLC, the Dynamic
Subsidiaries or Advanced, now or hereafter owned or used, within
five (5) years after Closing of the Merger, other than dispositions
in the ordinary course of business.
6.3 Absence of Material Change. From the date hereof until
the Closing, no party will make any material change in its business
or in the utilization of its assets and will not enter into any
contract or commitment or any other transaction with respect to its
business or its assets which is contrary to its representations,
warranties and obligations as set forth in this Agreement.
6.4 Material Transactions. Except as contemplated under
this Agreement or the Merger, prior to the Effective Time of
Contribution, each of ACS2, Advanced and the other
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22
ACS2 Subsidiaries, on the one hand, and Dynamic, LLC and the Dynamic
Subsidiaries, on the other hand, will not, without first obtaining
the written consent of the other:
(a) dispose of or encumber any asset or enter into any
transaction or make any contract commitment relating to the
properties, assets and business of such entity, other than in the
ordinary course of business or as otherwise disclosed herein;
(b) enter into any employment contract which is not at
will or terminable upon notice of thirty (30) days or less without
penalty;
(c) enter into any contract or agreement (i) which
cannot be performed within three (3) months or less, or (ii) which
involves the expenditure of over $10,000.00;
(d) except as expressly stipulated in Section 6.1, issue
or sell, or agree to issue or sell, any shares of capital stock or
other securities of such entity;
(e) make any payment or distribution under any bonus,
pension, profit-sharing or retirement plan or incur any obligation
to make any such payment or contribution which is not in accordance
with such entities usual past practice, or make any payment or
contributions or incur any obligation pursuant to or in respect of
any other plan or contract or arrangement of providing for bonuses,
executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like, establish or enter
into any such plan, contract or arrangement, or terminate any plan;
(f) extend credit to anyone except in the ordinary
course of business consistent with prior practice;
(g) guarantee the obligation of any person, firm or
corporation;
(h) amend its Operating Agreement, Charter or Bylaws, or
applicable organizational documents;
(i) set aside or pay any cash or stock dividend or any
other distribution on or in respect of its capital stock or other
securities or any redemption, retirement or purchase with respect
to its capital stock or other securities or issue any additional
shares of its capital stock or other securities; or engage in any
stock split, recapitalization, reorganization or comparable
transaction;
(j) discharge or satisfy any lien, charge, encumbrance
or indebtedness outside the ordinary course of business;
(k) institute, settle or agree to settle any litigation,
action or proceeding before any court or governmental body other
than against or by former officers, directors and related parties;
(l) authorize any compensation increase of any kind
whatsoever for any employee, consultant or other representative; or
<PAGE 71>
23
(m) engage in any extraordinary transaction.
6.5 [Omitted.]
6.6 Certain Tax Matters.
(a) During the period from the date hereof through the
Effective Time of Contribution, no party will knowingly or
negligently take or fail to take any action that would jeopardize
the treatment of the Contribution as a tax-free contribution or the
treatment of the Merger as a "reorganization" within the meaning of
Section 368(a)(1)(A) of the Code (and any comparable provisions of
applicable state law). All parties shall report the Merger as a
reorganization as in Section 368(a) of the Code, and shall not take
any position inconsistent with this characterization except in the
event of a contrary final determination of the Internal Revenue
Service. If any party receives notice of any contrary position by
the Internal Revenue Service any party hereto may, at its option
and sole expense, contest such position, in which event the other
parties hereto shall cooperate with such contest as reasonably
requested by the contesting party.
(b) Each party shall provide to any other party, at the
expense of the requesting party, with such assistance as may
reasonably be requested by either of them in connection with the
preparation of any tax return, any audit or other examination by
any regulatory authority, or any judicial or administrative
proceedings relating to liability for taxes, and each will retain
and provide the requesting party with any records or information
that may be relevant to any of the foregoing.
6.7 Preserve Accuracy of Representations and Warranties.
Each party will refrain from taking any action which would render
any of its representations and warranties contained in this
Agreement untrue, inaccurate or misleading as of Closing. Through
Closing, each party will promptly notify the other parties of any
lawsuit, claim, audit, investigation, administrative action or
other proceeding asserted or commenced against such party that may
involve or relate in any way to another party to this Agreement.
Each party will promptly notify the other parties of any facts or
circumstances that come to its attention and that cause, or through
the passage of time may cause, any of a party's representations,
warranties or covenants to be untrue or misleading at any time from
the date hereof through Closing.
6.8 Notice of Subsequent Events. Each party hereto shall
notify the other parties in writing of any changes, additions or
events of which it has knowledge which would cause any material
change in or material addition to this Agreement or the Merger
Agreement (including but not limited to the Exhibits attached
hereto and thereto) promptly after occurrence of the same. If the
effect of such change or addition would, individually or in the
aggregate with the effect of changes or additions previously
disclosed pursuant to this Section, constitute a material adverse
effect on the notifying party, the non-notifying party may, within
(ten) 10 days after receipt of such written notice, elect to
terminate this Agreement and the Merger Agreement. If the non-
notifying party does not give written notice of such termination
with such ten (10)-day period, the non-notifying party shall be
<PAGE 72>
24
deemed to have consented to such change or addition and shall not
be entitled to terminate this Agreement by reason thereof.
6.9 Medicare and Medicaid Reporting. Through Closing, the
parties will timely file or cause to be filed all reports and
claims of every kind, nature or description, required by law or by
written or oral contract to be filed with respect to the purchase
of services by third party payors, including, but not limited to,
Medicare, Medicaid and Blue Cross.
6.10 Current Return Filing. Each party will continue to be
responsible for the preparation and filing of all of such party's
own tax returns which were due before, on or after the Closing, and
the payment of all taxes due.
6.11 Maintain Books and Accounting Practices. From the date
hereof until the Closing, each party will maintain its books of
account in the usual, regular and ordinary manner on a basis
consistent with prior years and will make no change in its
accounting methods or practices.
6.12 Compliance with Laws and Regulatory Consents. From the
date hereof until the Closing, (a) each party will comply with all
applicable statutes, laws, ordinances and regulations, (b) each
party will keep, hold and maintain all of its Licenses, (c) each
party will use its reasonable efforts and will cooperate fully with
the other parties hereto to obtain all consents, stockholder and
other approvals, exemptions and authorizations of third parties,
whether governmental or private, necessary to consummate the
Contribution and Merger, and (d) each party will make and cause to
be made all filings and give and cause to be given all notices
which may be necessary or desirable on their part under all
applicable laws and under their respective contracts, agreements
and commitments in order to consummate the Contribution and Merger.
6.13 Maintain Insurance Coverage. From the date hereof
until the Closing, each party will maintain and cause to be
maintained in full force and effect all its currently existing
insurance on such party's assets and the operations of such party's
business and will provide at Closing written evidence satisfactory
to each other party that such insurance continues to be in effect
and that all premiums due have been paid.
6.14 Closing Deliveries. At Closing the parties will
deliver or cause to be delivered the following in form and
substance reasonably satisfactory to the other parties:
(a) ACS2 will deliver to the LLC stock certificates
evidencing all Advanced Stock, duly endorsed by ACS2 or with stock
powers attached; provided, however, that ACS2 will not be deemed in
breach of this Agreement if it fails to obtain the same from its
shareholders.
(b) Dynamic will deliver to the LLC stock certificates
evidencing the outstanding capital stock of the Dynamic
Subsidiaries duly endorsed by Dynamic or with stock powers
attached.
<PAGE 73>
25
(c) Advanced, Dynamic and the LLC will each execute and
deliver Acceptance and Contribution Contracts, the form of which is
attached hereto as Exhibit 6.14(c). The LLC will issue to Dynamic
and ACS2 Contribution Consideration as contemplated under Section
1.3.
(d) ACS2 and Dynamic will execute and deliver the
Operating Agreement regarding their ownership interests in the LLC,
(in the form attached hereto as Exhibit 6.14(d).)
(e) Advanced will deliver the cancellation agreements
referenced in Section 1.7; provided, however, that Advanced will
not be deemed in breach of this Agreement if it fails to obtain the
same from the individual holders of Advanced Warrants, Advanced
Options and Advanced SARs.
(f) Each party will deliver to the other parties a
certificate of an officer of delivering party, dated as of Closing,
certifying that (i) each covenant and obligation of such party
hereunder has been complied with, (ii) each representation,
warranty and covenant of such party hereunder is true and correct
at the Closing as if made on and as of the Closing, and (iii) each
representation, warranty and covenant of such party under the
Merger Agreement is true and correct at the Closing as if made on
and as of the Closing.
(g) Each party will deliver an opinion of its legal
counsel, in form and substance reasonably acceptable to the
receiving party(ies).
(h) Each party shall deliver such customary certificates
of its officers and such other customary closing documentation as
may be reasonably requested by the other parties, including without
limitation:
(i) Certificates of Existence and/or "Good
Standing" regarding the delivering party and its subsidiaries,
certified by the appropriate Secretary of State and dated
within ten (10) business days of Closing;
(ii) Incumbency Certificates certifying the
identity of the officers of the delivering party and its
subsidiaries; and
(iii) Charters or Operating Agreements, as
certified by the appropriate Secretary of State within ten (10)
business days of Closing, and Bylaws, as certified by an
appropriate officer as of Closing, of the delivering party and its
subsidiaries.
(iv) copies of all resolutions and/or unanimous
written consent actions adopted by or on behalf of the board of
directors and, if applicable, the stockholders of each party
authorizing the transactions contemplated hereunder, certified by
an officer as of the date of Closing in form reasonably acceptable
to the receiving party.
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26
ARTICLE VII. CONDITIONS TO CLOSING
7.1 Conditions to Each Party's Obligation to Effect the
Merger. The obligation of each party to effect the Contribution
shall be subject to the fulfillment at or prior to the Closing of
the following conditions:
(a) No action or proceeding before a court or other
governmental body by any governmental agency or public authority
shall have been instituted or threatened to restrain or prohibit
the transactions contemplated under this Agreement or the Merger
Agreement or to obtain an amount of damages or other material
relief in connection with the execution of this Agreement, the
Merger Agreement or any related agreements or the consummation of
the Contribution and/or Merger; and no governmental agency shall
have given notice to any party hereto to the effect that
consummation of the transactions contemplated under this Agreement
would constitute a violation of any law or that it intends to
commence proceedings to restrain consummation of the Contribution
or Merger.
(b) All consents, authorizations, orders and approvals
of (or filings or registrations with) any governmental commission,
board or other regulatory body or any other third party (including
lenders and lessors) required in connection with the execution,
delivery and performance of this Agreement shall have been obtained
or made.
(c) The parties shall have entered into a mutual release
regarding the Interim Management Agreement dated December 7, 1998.
7.2 Further Conditions to Obligation of Dynamic and LLC to
Effect the Contribution. The obligation of Dynamic and LLC to
effect the Contribution shall also be subject to the fulfillment at
or prior to the Closing of the following conditions:
(a) ACS2 and Advanced shall each have performed its
respective obligations contained in this Agreement, including but
not limited to the deliveries stipulated in Section 6.14, required
to be performed on or prior to the Closing and the representations
and warranties of ACS2 and Advanced contained in this Agreement and
in any document delivered in connection herewith shall be true and
correct as of the Closing.
(b) From the date of this Agreement until the Effective
Time of Contribution, there shall not have occurred any material
change in the financial condition, business, operations or
prospects of Advanced or the other ACS2 Subsidiaries that would
have or would be reasonably likely to have a material adverse
effect on the operation of Advanced or the other ACS2 Subsidiaries;
provided, however, that for purposes of determining whether there
shall have been any such material changes, any adverse change
resulting from or relating to general industry or economic
conditions shall be disregarded.
(c) Dynamic and Kevin D. Lee shall have agreed to enter
into an Employment Agreement and a Stock Option Agreement upon
consummation of the Merger, each in the respective form attached
hereto as Exhibit 7.2(c).
<PAGE 75>
27
(d) Dynamic and its representatives shall have had
reasonable access of inspection of the business of ACS2 and the
ACS2 Subsidiaries in connection with Dynamic's due diligence
review, and the results of Dynamic's inspection and due diligence
review shall be acceptable to it. Further, should any such due
diligence reveal a matter reasonably related to any representation,
warranty or covenants herein or any exhibit hereto, Dynamic may
require appropriate amendment(s) to address such matter.
7.3 Further Conditions to Obligation of ACS2 to Effect the
Contribution. The obligations of ACS2 to effect the Contribution
shall also be subject to the fulfillment at or prior to the Closing
of the following conditions:
(a) Each of Dynamic and LLC shall have performed its
respective obligations contained in this Agreement, including but
not limited to the deliveries stipulated in Section 6.14, required
to be performed on or prior to the Closing and the representations
and warranties of Dynamic and the LLC contained in this Agreement
and in any document delivered in connection herewith shall be true
and correct as of the Closing. In addition, the security holders
of Advanced and its affiliates shall have executed and/or delivered
the applicable documents noted in Section 6.14.
(b) From the date of this Agreement until the Effective
Time of Contribution, there shall not have occurred any material
change in the financial condition, business, operations or
prospects of Dynamic or Dynamic Subsidiaries that would have or
would be reasonably likely to have a material adverse effect on the
operations of Dynamic or Dynamic Subsidiaries; provided, however,
that for purposes of determining whether there shall have been any
such material changes, any adverse change resulting from or
relating to general industry or economic conditions shall be
disregarded.
(c) Dynamic and Kevin D. Lee shall have agreed to enter
into the employment and stock option agreements referenced in
Section 7.2(c).
(d) ACS2, Advanced and their representatives shall have
had reasonable access of inspection of the business of Dynamic and
the Dynamic Subsidiaries in connection with ACS2' and Advanced's
due diligence review, and the results of ACS2' and Advanced's
inspection and due diligence review shall be acceptable to it.
Further, should any such due diligence reveal a matter reasonably
related to any representation, warranty or covenant herein or any
exhibit hereto, ACS2 and/or Advanced may require appropriate
amendment(s) to address such matter.
(e) Documentation, in form and substance reasonably
acceptable to ACS2, will have been executed and delivered electing
the officers and directors of the LLC and the other Dynamic
Subsidiaries as contemplated under Section 1.6.
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ARTICLE VIII. TERMINATION; AMENDMENT; EXTENSION AND WAIVER
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Contribution and Merger may be abandoned at any
time prior to the Effective Time of Contribution, by the mutual
consent of the Boards of Directors of ACS2 and Dynamic.
8.2 Termination by Either ACS2 or Dynamic. This Agreement
may be terminated and the Contribution and Merger may be abandoned
by action of the Board of Directors of ACS2 or Dynamic if (a) the
Contribution shall not have been consummated by March 31, 1999, (b)
there has been a breach by the other party (or an affiliate of the
other party) of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have a
material adverse effect on the operations of the other party, or
(c) there has been a breach of any of the covenants or agreements
set forth in this Agreement on the part of the other party (or an
affiliate of the other party), which breach is not curable or, if
curable, is not cured within thirty (30) days after written notice
of such breach is given by the terminating party.
8.3 Effect of Termination and Abandonment. Upon
termination of this Agreement pursuant to Section 8.1 or 8.2, this
Agreement and the Merger Agreement, along with all agreements and
documents (including opinion of counsel) related thereto, shall be
void and of no force or effect, and there shall be no liability by
reason of this Agreement or the Merger Agreement, or the
termination thereof, on the part of any party hereto, or on the
part of the respective directors, officers, employees, agents,
representatives or shareholders of any of them; provided that this
Section 8.3 will not relieve any party from liability for damages
incurred as a result of any willful breach by such party of any of
its representations, warranties, covenants or agreements set forth
in this Agreement.
8.4 Failure to Consummate Merger. If the Merger is not
consummated as contemplated under the Merger Agreement, either
party may cause a liquidation and dissolution of the LLC to occur
pursuant to the terms of Article XII of the Operating Agreement of
the LLC and Section 8.5(2) of the Merger Agreement, the effect of
which will be to reverse the transactions consummated pursuant to
the terms of this Agreement. In such event, there shall be no
liability by reason of this Agreement, the Merger Agreement or the
termination hereof or thereof, on the part of any party hereto, or
on the part of the respective directors, officers, employees or
shareholders of any of them, except as stipulated in said Section
8.5(b) of the Merger Agreement.
8.5 Extension; Waiver. At any time prior to the Closing,
any party hereto, by action taken by its Board of Directors
evidenced in writing, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies
in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a
party hereto to a waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
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ARTICLE IX. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
9.1 Survival. The covenants, obligations, representations
and warranties of ACS2 and Advanced, Dynamic and the LLC contained
in this Agreement, or in any certificate or document delivered
pursuant to this Agreement, will be deemed to be material and to
have been relied upon by the parties hereto notwithstanding any
investigation prior to the Closing, will survive the Closing, will
not be merged into any documents delivered in connection with the
Closing and will terminate two (2) years after Closing; provided
however, that if a notice claiming indemnity is properly delivered
pursuant to Section 9.4, the indemnification obligations will not
expire with respect to such claim(s) until the same are resolved as
contemplated hereunder.
9.2 Indemnification by Dynamic. Subject to the provisions
of Section 8.3 and Section 9.5, Dynamic and the LLC shall jointly
and severally indemnify, defend and hold ACS2, Advanced and the
other ACS2 Subsidiaries, their officers, directors, employees and
representatives, and the ACS2 stockholders harmless against any and
all losses, costs and expenses (including reasonable cost of
investigation, court costs and legal fees actually incurred) and
other damages resulting from (a) any breach by Dynamic or LLC of
any of its covenants, obligations, representations or warranties or
breach or untruth of any representation, warranty, fact or
conclusion pertaining to Dynamic, the LLC and/or the Dynamic
Subsidiaries contained in this Agreement, the Merger Agreement or
any certificate or document of Dynamic or LLC delivered pursuant to
this Agreement, and (b) any claim that is brought or asserted by
any third party(ies) arising out of the ownership, licensing,
operation or conduct of Dynamic, LLC and the Dynamic Subsidiaries
through the Closing.
9.3 Indemnification by ACS2. Subject to the provisions of
Section 8.3 and Section 9.5, ACS2 shall indemnify, defend and hold
Dynamic, the Dynamic Subsidiaries, their officers, directors,
employees and representatives, and the Dynamic stockholders
harmless against any and all losses, costs and expenses (including
reasonable cost of investigation, court costs and legal fees
actually incurred) and other damages resulting from (a) any breach
by ACS2 of any of its covenants, obligations, representations or
warranties or breach or untruth of any representation, warranty,
fact or conclusion pertaining to ACS2 contained in this Agreement,
the Merger Agreement or any certificate or document of ACS2
delivered pursuant to this Agreement, and (b) any claim that is
brought or asserted by any third party(ies) arising out of the
ownership, licensing, operation or conduct of ACS2 and the ACS2
Subsidiaries through the Closing.
9.4 Indemnification by Advanced. Subject to the provisions
of Section 8.3 and Section 9.5, Advanced shall indemnify, defend
and hold Dynamic, the Dynamic Subsidiaries, their officers,
directors, employees and representatives, and the Dynamic
stockholders harmless against any and all losses, costs and
expenses (including reasonable costs of investigation, court costs
and legal fees actually incurred) and other damages resulting from
(a) any breach by Advanced of any of its covenants, obligations,
representations or warrants or breach or untruth of any
representation, warranty, affect or conclusion pertaining to
Advanced and/or the ACS2 Subsidiaries contained in this Agreement,
the Merger Agreement or any certificate or document of Advanced
delivered
<PAGE 78>
30
pursuant to this Agreement, and (b) any claim that is
brought or asserted by any third party(ies) arising out of the
ownership, licensing, operation or conduct of Advanced and the
other ACS2 Subsidiaries through the Closing.
9.5 Rules Regarding Indemnification. The obligations and
liabilities of each party hereto (the "indemnifying party") which
may be subject to indemnification liability hereunder to the other
party(ies) (the "indemnified party") will be subject to the
following terms and conditions:
(1) Claims by Non-Parties. The indemnified party will
give written notice to the indemnifying party, within such time as
not to prejudice unduly the indemnifying party's ability to defend
against the underlying claim, of any written claim by a third party
which is likely to give rise to a claim by the indemnified party
against the indemnifying party based on the indemnity agreements
contained in this Article, stating with reasonable specificity the
nature of said claim and the amount thereof, to the extent known.
The indemnified party will give notice to the indemnifying party
that pursuant to the indemnity, the indemnified party is asserting
against the indemnifying party a claim with respect to a potential
loss from the third party claim, and such notice will constitute
the assertion of a claim for indemnity by the indemnified party.
If, within ten (10) days after receiving such notice, the
indemnifying party advises the indemnified party that it will
provide indemnification and assume the defense at its expense, then
so long as such defense is being conducted, the indemnified party
will not settle or admit liability with respect to the claim
without the consent of the indemnifying party and will afford to
the indemnifying party and defending counsel reasonable assistance
in defending against the claim. If the indemnifying party assumes
the defense, counsel reasonably acceptable to the indemnified party
will be selected by such party and if the indemnified party then
retains its own counsel, it will do so at its own expense. If the
indemnified party does not receive a written objection to the
notice from the indemnifying party within ten (10) days after the
indemnifying party's receipt of such notice, the claim for
indemnity will be conclusively presumed to have been assented to
and approved, and in such case the indemnified party may control
the defense of the matter or case and, at its sole discretion,
settle or admit liability. If within the aforesaid ten (10) day
period the indemnified party will have received written objection
to a claim (which written objection will briefly describe the basis
of the objection to the claim or the amount thereof, all in good
faith), then for a period of thirty (30) days after receipt of such
objection the parties will attempt to settle the dispute as between
the indemnified party and indemnifying parties. If they are unable
to settle the dispute, the unresolved issue or issues will be
settled by a court of competent jurisdiction located in Nashville,
Tennessee. During the pendency of any such dispute, the
indemnified party may control all aspects of the defense of the
matter or case.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in
subsection (1) above) pursuant to this Article will be made as
follows: the indemnified party will give written notice to the
indemnifying party, within such time as not to prejudice unduly the
indemnifying party's ability to defend against the underlying
claim, of any claim by the indemnified party which has not been
made pursuant to subsection (1) above, stating with reasonable
specificity the nature of such claim and the amount thereof, to the
extent known. The claim will be deemed to have
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resulted in a determination in favor of the indemnified party and
to have resulted in a liability of the indemnifying party in an amount
equal to the amount of such claim estimated pursuant to this clause
(2) if within thirty (30) days after the indemnifying party's
receipt of the claim the indemnified party will not have received
written objection to the claim. In such event, the claim will be
conclusively presumed to have been assented to and approved. If
within the aforesaid thirty (30)-day period the indemnified party
will have received written objection to a claim (which written
objection will briefly describe the basis of the objection to the
claim or the amount thereof, all in good faith), then for a period
of sixty (60) days after receipt of such objection the parties will
attempt to settle the disputed claim as between the indemnified and
indemnifying parties. If they are unable to settle the dispute,
the unresolved issue or issues will be settled by a court of
competent jurisdiction located in Nashville, Tennessee.
9.6 Exclusive Remedy. The indemnification obligations under
this Article IX are the sole and exclusive remedies available to
ACS2, Advanced, Dynamic and the LLC with respect to this Agreement
and the transactions contemplated hereunder. The parties hereto
expressly acknowledge and agree that they may make no claim nor
institute any action against any security holder of ACS2 with
respect to this Agreement, any related agreement or the
transactions contemplated hereunder and thereunder.
ARTICLE X. MISCELLANEOUS
10.1 Expenses. Except as otherwise provided in this
Agreement, each party will pay all of its expenses in connection
with the negotiation, execution, and implementation of the
transactions contemplated under this Agreement.
10.2 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this
Agreement will be in writing and will be deemed to have been duly
given: (a) if delivered personally or sent by facsimile, on the
date received, (b) if delivered by overnight courier, on the day
after mailing, and (c) if mailed, five (5) days after mailing with
postage prepaid. Any such notice will be sent as follows:
To ACS2 or Advanced:
Advanced Clinical Systems, Inc.
49 Music City West, Suite 502
Nashville, TN 37203-3272
Attn: Kevin D. Lee
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with a courtesy copy to:
Lauren Anderson
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
To Dynamic and LLC:
Dynamic Associates, Inc.
Suite B-169
7373 N. Scottsdale
Scottsdale, Arizona 85253
with courtesy copies to:
Michael H. Taylor Michael A. Cane
O'Neill & Company Cane & Company
Suite 1880, Royal Centre Suite 1200
1055 West Georgia Street, 101 Convention Center Dr
Box 11122 Las Vegas, Nevada
Vancouver, British Columbia 89109
V6E 3P3
10.3 Confidentiality; Prohibition on Trading. All parties
agree to maintain the confidentiality of the existence of this
Agreement and the Merger Agreement and the transactions
contemplated hereunder and thereunder, unless disclosure is
required by law and except for disclosures to be made in connection
with obtaining shareholder approval and other third party consents,
and actions required to consummate the contemplated transactions.
ACS2, Advanced and the other ACS2 Subsidiaries agree not to trade
in the securities of Dynamic based upon any nonpublic information.
10.4 Controlling Law. This Agreement will be construed,
interpreted and enforced in accordance with the substantive laws of
the State of Delaware, without giving effect to its conflicts of
laws provisions.
10.5 Headings. Any table of contents and Section headings in
this Agreement are for convenience of reference only and will not
be considered or referred to in resolving questions of
interpretation.
10.6 Benefit. This Agreement will be binding upon and will
inure to the benefit of the parties hereto and their successors and
assigns; however, no party may assign any rights or delegate any
duties hereunder without the prior written consent of the other
parties hereto. Any prohibited assignment or delegation will be
deemed null and void.
10.7 Partial Invalidity. The invalidity or unenforceability
of any particular provision of this Agreement will not affect the
other provisions hereof, and this Agreement will be
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construed in all respects as if such invalid or unenforceable
provisions were omitted. Further, there will be automatically
substituted for such invalid or unenforceable provision a
provision as similar as possible which is valid and enforceable.
10.8 Counterparts and Facsimiles. This Agreement may be
executed simultaneously in two (2) or more counterparts each of
which will be deemed an original and all of which together will
constitute but one and the same instrument. The signature page to
this Agreement and all other documents required to be executed at
Closing may be delivered by facsimile and the signatures thereon
will be deemed effective upon receipt by the intended receiving
party.
10.9 Interpretation. All pronouns and any variation thereof
will be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or entity, or the
context, may require. Further, it is acknowledged by the parties
that this Agreement has undergone several drafts with the
negotiated suggestions of both; and, therefore, no presumptions
will arise favoring either party by virtue of the authorship of any
of its provisions or the changes made through revisions.
10.10 Entire Agreement, Waivers. This Agreement, including
the Exhibits and Attachments hereto, constitutes the entire
Agreement between the parties hereto with regard to the matters
contained herein and it is understood and agreed that all previous
undertakings, negotiations, letter of intent and agreements between
the parties, other than the Merger Agreement and documents related
thereto, are merged herein. This Agreement may not be modified
orally, but only by an agreement in writing signed by the parties
hereto. The failure of any party to this agreement, or the failure
of any stockholder of ACS2, to assert any of its rights under this
Agreement or otherwise will not constitute a waiver of such rights.
Neither the failure nor any delay on the part of any party hereto
in exercising any rights, power or remedy hereunder will operate as
a waiver thereof, or of any other right, power or remedy; nor will
any single or partial exercise of any right, power or remedy
preclude any further or other exercise thereof, or the exercise of
any other right, power or remedy.
10.11 Legal Fees and Costs. In the event any party hereto
incurs legal expenses to enforce or interpret any provision of this
Agreement, the prevailing party will be entitled to recover such
legal expenses, including, without limitation, attorney's fees,
costs and disbursements, in addition to any other relief to which
such party will be entitled.
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IN WITNESS WHEREOF, the parties hereto have executed this
Capital Contribution Agreement as of the date first above written.
"ACS2":
ACS2, INC.
By: /s/ Kevin D. Lee
Title: President
"ADVANCED":
ADVANCED CLINICAL SYSTEMS, INC.
By: /s/ Kevin D. Lee
Title: President
"DYNAMIC":
DYNAMIC ASSOCIATES, INC.
By: /s/ Jan Wallace
Title: President, CEO
"LLC"
ADVANCED-DYNAMIC, LLC
By: Kevin D. Lee
Title: Chief Manager
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