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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
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By and Among
Standard Management Corporation,
an Indiana corporation,
Precision Health Care Acquisition Corporation,
a Tennessee corporation,
and
Precision Healthcare, Inc.,
a Tennessee corporation,
and
Krista K. Trespalacios,
Teresa Fox-Morgan,
Robert R. Buehler.
and
Jose A. Trespalacios
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Dated July 28, 2005
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS;
CONSTRUCTION...................................1
1.1
Definitions................................................1
1.2
Construction...............................................8
ARTICLE II THE
MERGER.................................................9
2.1 The
Merger.................................................9
2.2 Conversion
of Equity Securities............................9
2.3
Earn-Out..................................................10
2.4 Working
Capital Adjustment................................12
2.4 Closing of
Transfer Records...............................14
2.5 Exchange
of Certificates..................................14
2.6
Shareholders' Representative..............................14
ARTICLE III THE
CLOSING..............................................14
3.1
Closing...................................................14
3.2 Closing
Deliveries of Parent and Merger Sub...............15
3.3 Closing
Deliveries of Shareholders........................15
ARTICLE IV SHAREHOLDERS' REPRESENTATIONS AND
WARRANTIES..............17
4.1
Organization..............................................17
4.2
Authorization.............................................17
4.3 Validity;
Binding Effect..................................17
4.4
Noncontravention..........................................18
4.5 Capital
Structure.........................................18
4.6 Financial
Statements......................................18
4.7 Title to
and Sufficiency of Assets........................20
4.8 Tax
Matters...............................................20
4.9
Litigation; Claims........................................21
4.10 Legal
Compliance..........................................21
4.11 Environmental
Laws and Regulations........................23
4.12
Permits...................................................23
4.13 Material
Contracts........................................23
4.14 Labor and
Employment Matters..............................25
4.15 Employee
Benefits.........................................25
4.16 Intellectual
Property.....................................26
4.17 Affiliate
Transactions....................................26
4.18 Broker's
Fees.............................................26
4.19
Warranty..................................................26
4.20
Disclosure................................................26
4.21
Knowledge.................................................27
ARTICLE V PARENT'S AND MERGER SUB'S
REPRESENTATIONS AND WARRANTIES....27
5.1
Organization..............................................27
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5.2
Authorization.............................................27
5.3 Validity;
Binding Effect..................................27
5.4
Noncontravention..........................................27
5.5 Broker's
Fees.............................................27
5.6 Standard
Management Shares................................27
5.7 Reports to
Shareholders: Adverse
Changes.................28
5.8
Consents..................................................28
5.9 Legal
Proceedings.........................................29
ARTICLE VI
INDEMNIFICATION...........................................29
6.1
Indemnification by Shareholders...........................29
6.2
Indemnification by Merger Sub.............................29
6.3
Limitations on Indemnity..................................29
6.4 Third
Party Claims........................................30
ARTICLE VII ADDITIONAL
COVENANTS.....................................31
7.1
General...................................................31
7.2
Noncompetition and Nonsolicitation........................31
7.3 Piggy-back
Registration Rights............................32
7.4 Reports
Under Securities Exchange Act of 1934.............36
7.5 Sale of
Standard Management Shares........................36
7.6
Indebtedness; Affiliate Payables..........................37
ARTICLE VIII
MISCELLANEOUS...........................................37
8.1
Assignment................................................37
8.2
Notices...................................................37
8.3 Expenses;
Attorneys' Fees.................................39
8.4 Governing
Law; Forum......................................40
8.5 Partial
Invalidity........................................40
8.6 Execution
in Counterparts; Facsimile Signatures...........40
8.7 Entire
Agreement; Amendments and Waivers..................41
Exhibits
Exhibit A
Form of Escrow Agreement
Exhibit B
Form of Grant Agreements
Exhibit C
Form of Release
Exhibit D
Form of Employment Agreements
Exhibit E
Form of Non-Competition Agreement
Exhibit F
Special Indemnity Matters
Exhibit G
Other Indemnity Matters
Exhibit H
Non-Competition Territory
Exhibit I
Registration Rights Agreements
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Schedules
Schedule 4.1(a)
Foreign Qualifications
Schedule 4.1(b)
Company Locations
Schedule 4.4
Noncontravention
Schedule 4.5
Capitalization
Schedule 4.6(a)
Financial Statements
Schedule 4.6(b)
Undisclosed Liabilities
Schedule 4.7(a)
Real Property/Leaseholds
Schedule 4.7(b)
Permitted Liens
Schedule 4.8
Tax Matters
Schedule 4.9
Litigation; Claims
Schedule 4.10(d)
Medicare/Medicaid Reports
Schedule 4.10(f)
Health Care Compliance Matters
Schedule 4.11
Environmental Matters
Schedule 4.12
Permits
Schedule 4.13
Material Contracts
Schedule 4.14
Labor and Employment Matters
Schedule 4.15
Employee Benefits
Schedule 4.16
Intellectual Property
Schedule 4.17
Affiliate Transactions
Schedule 4.18
Broker's Fees
Schedule 4.19
Warranties
Schedule 5.9
Parent/Merger Sub Litigation
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and
entered
into as of July 28, 2005 by and among
Standard Management Corporation, an
Indiana corporation ("Parent"), Precision
Health Care Acquisition Corporation, a
Tennessee corporation ("Merger Sub"),
Precision Healthcare, Inc., a Tennessee
corporation (the "Company"), Jose A.
Trespalacios, as Voting Trustee ("Voting
Trustee") under the Voting Trust Agreement,
dated as of March 1, 2005 (the
"Voting Trust Agreement"), by and between
Jose A. Trespalacios ("Mr.
Trespalacios") and Krista K. Trespalacios
("Ms. Trespalacios"), Teresa
Fox-Morgan ("Morgan"), and Robert R.
Buehler ("Buehler") (Voting Trustee, Morgan
and Buehler, each a "Shareholder" and
collectively, the "Shareholders"), Ms.
Trespalacios, individually, and Jose A.
Trespalacios, individually, for the
limited provisions set forth on the
signature page hereto,
WITNESSETH THAT:
WHEREAS, Mr. Trespalacios owned 700 common shares of the Company
until
March 1, 2005, when he transferred all 700
common shares to Ms. Trespalacios
pursuant to the divorce settlement
agreement by and between Mr. Trespalacios and
Ms. Trespalacios, dated March 1, 2005;
and
WHEREAS, in connection with the settlement of their divorce,
Mr.
Trespalacios and Ms. Trespalacios entered
into the Voting Trust Agreement,
pursuant to which title to all such 700
common shares was transferred into the
name of Mr. Trespalacios, as Voting
Trustee, with Ms. Trespalacios retaining
such rights and benefits with respect to
such 700 common shares as is set forth
in the Voting Trust Agreement; and
WHEREAS, Morgan owns 200 common shares of the Company, and Buehler
owns
100 common shares of the Company; and
WHEREAS, the Shareholders are the sole shareholders of the Company,
and
collectively own all of the issued and
outstanding common shares of the Company;
and
WHEREAS, the parties hereto desire to cause Merger Sub to be
merged
with and into the Company, with the Company
surviving such merger (the
"Merger"), all on the terms and subject to
the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
good
and valuable consideration, the receipt and
sufficiency of which hereby are
acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
1.1 Definitions. All initially-capitalized terms used in this
Agreement
shall have the meanings given to such terms
in this Section 1.1 below:
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"Accounts Receivable" has the meaning ascribed to it in Section
4.6(d)
of this Agreement.
"Affiliate" means, with respect to any Person, any other Person
that
directly, or indirectly through one or more
intermediaries, controls, is
controlled by, or is under common control
with, such Person.
"Aggregate Adjustment Amount" means an amount equal to the
difference
between Closing Date Working Capital and
Base Working Capital. If Closing Date
Working Capital exceeds Base Working
Capital, the Aggregate Adjustment Amount
shall be a positive number. If Base Working
Capital exceeds Closing Date Working
Capital, the Aggregate Adjustment Amount
shall be a negative number.
"Agreement" means this Agreement and Plan of Merger, executed by
the
parties hereto on the date set forth
above.
"Average Price" has the meaning ascribed to it in Section 7.5(b)
of
this Agreement.
"Base Working Capital" means an amount equal to the positive
difference
between Current Assets and Current
Liabilities, as of the close of business on
June 30, 2005.
"Benefit Plan" has the meaning ascribed to it in Section 4.15.
"Buehler" has the meaning ascribed to it in the introductory
paragraph
of this Agreement.
"Carve-Out Claims" has the meaning ascribed to it in Section
6.3(a).
"Closing" means the time at which the parties hereto consummate
the
Merger.
"Closing Date" means the date on which the Closing actually
occurs.
"Closing Date Balance Sheet" has the meaning ascribed to it in
Section
2.4 of this Agreement.
"Closing Date Working Capital" means an amount equal to the
difference
between Current Assets and Current
Liabilities as of the close of business on
July 31, 2005. If Current Assets exceed
Current Liabilities, Closing Date
Working Capital shall be a positive number.
If Current Liabilities exceed
Current Assets, Closing Date Working
Capital shall be a negative number.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning ascribed to it in the introductory
paragraph
of this Agreement.
"Competing Business" has the meaning ascribed to it in Section
7.2(a)
of this Agreement.
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"Current Assets" means all current assets of the Company (or of
the
Surviving Corporation, as applicable),
other than accounts receivable aged more
than 180 days.
"Current Liabilities" means all current liabilities of the Company
(or
of the Surviving Corporation, as
applicable), including the accrual of all
employee vested obligations.
"Earn-Out Amount" has the meaning ascribed to it in Section 2.3(a)
of
this Agreement.
"Earn-Out Dispute Notice" has the meaning ascribed to it in
Section
2.3(b) of this Agreement.
"Earn-Out Dispute Period" has the meaning ascribed to it in
Section
2.3(b) of this Agreement.
"Earn-Out Position Statement" has the meaning ascribed to it in
Section
2.3(e) of this Agreement.
"Earn-Out Post-Closing Delivery" has the meaning ascribed to it
in
Section 2.3(a) of this Agreement.
"Earn-Out Post-Closing Delivery Period" has the meaning ascribed to
it
in Section 2.3(a) of this Agreement.
"Earn-Out Resolution Period" has the meaning ascribed to it in
Section
2.3(d) of this Agreement.
"EBITDA" means for the 2005 calendar year the Surviving
Corporation's
net income before payment of the Earn-Out
Amount for such 12-month period
determined in accordance with GAAP after
adding back (i) any interest expense,
(ii) any income tax expense, (iii) any
depreciation expense, (iv) any
amortization expense; (v) Pre-Closing
Company Transaction Expenses incurred by
the Company that would otherwise be
deducted in calculating the Surviving
Corporation's net income for calendar year
2005; and (vi) those certain monthly
payments of $8,000 each made by the Company
to Drugcloud, LLC during 2005 prior
to Closing; provided, however, that no
amount shall be added back to or deducted
from net income more than once.
"EBITDA Target" has the meaning ascribed to it in Section 2.3(a)
of
this Agreement.
"Effective Time" means the later of the effective times set forth
in
the certified copies of the articles of
merger issued by the Tennessee Secretary
of State with respect to the Merger.
"Environmental Laws" means all Laws concerning pollution or
protection
of the environment, including, without
limitation, all those relating to the
presence, use, production, generation,
handling, transportation, treatment,
storage, disposal, distribution, labeling,
testing, processing, discharge,
release, threatened release, control or
cleanup of any Hazardous Material.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
as
amended.
"ERISA Affiliate" means any member of a controlled group of
corporations under Section 414(b) of the
Code of which the Company is or was a
member, and any trade or business (whether
or not incorporated) who is or was
under common control with the Company under
Section 414(c) of the Code, and all
other entities which together with the
Company are or were prior to the date
hereof treated as a single employer under
Section 414(m) or 414(o) of the Code.
"Escrow Agent" has the meaning ascribed to it in Section 2.2(a) of
this
Agreement.
"Escrow Agreement" has the meaning ascribed to it in Section 2.2(a)
of
this Agreement.
"Financial Statements" has the meaning ascribed to it in Section
4.6(a)
of this Agreement.
"GAAP" means Generally Accepted Accounting Principles in the
United
States of America, consistently
applied.
"GLB" has the meaning ascribed to it in Section 4.10(g).
"Hazardous Activity" means the distribution, generation,
handling,
importing, management, manufacturing,
processing, production, refinement,
release, storage, transfer, transportation,
treatment or use of Hazardous
Material in, on, under, about or from any
of the real estate owned, used or
leased by the Company or any part thereof
and any other act, business, operation
or thing that violates any Environmental
Law, or increases the danger, or risk
of danger, or poses an unreasonable risk of
harm, to Persons or property.
"Hazardous Material" means any substance, material or waste which
is or
will foreseeably be regulated by any
governmental authority, including any
material, substance or waste defined as a
"hazardous waste," "hazardous
material," "hazardous substance,"
"extremely hazardous waste," "restricted
hazardous waste," contaminant," toxic
waste" or "toxic substance" under any
provision of Environmental Law, including
lead paint, petroleum, petroleum
products, asbestos, presumed
asbestos-containing material or asbestos-containing
material, urea formaldehyde and
polychlorinated biphenyls.
"HIPAA" has the meaning ascribed to it in Section 4.10(g).
"Indebtedness" means any and all liabilities and obligations of
the
Company as of the Closing but immediately
prior to the Effective Time (i) for
the repayment of borrowed money (whether
owed to lenders, affiliates or any
other Person), including amounts owed in
respect of principal, interest, fees,
charges, premiums and prepayment penalties,
or (ii) for Pre-Closing Company
Transaction Expenses; provided, however,
that the term "Indebtedness" shall not
include the accounts payable or any capital
leases of the Company.
"Indemnified Party" has the meaning ascribed to it in Section
7.3(g) of
this Agreement.
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"Indemnified Person" has the meaning ascribed to it in Section
6.4(a)
of this Agreement.
"Indemnifying Party" has the meaning ascribed to it in Section
7.3(g)
of this Agreement.
"Indemnifying Person" has the meaning ascribed to it in Section
6.4(a)
of this Agreement.
"Independent Accountants" has the meaning ascribed to it in
Section
2.3(e) of this Agreement.
"Intellectual Property" has the meaning ascribed to it in Section
4.16.
"Interim Balance Sheet" has the meaning ascribed to it in
Section
4.6(a) of this Agreement.
"IRS" means the Internal Revenue Service.
"Labor and Employment Law" means all Laws relating to
employment
practices, terms and conditions of
employment, equal opportunity,
nondiscrimination, immigration, wages,
hours, benefits and collective
bargaining, the payment of social security
and similar taxes, unemployment
compensation, workers compensation and
occupational safety and health.
"Law" means all laws, statutes, rules, regulations, ordinances,
codes,
bulletins, opinions, decisions, plans,
injunctions, judgments, orders, decrees,
rulings, and charges thereunder of federal,
state, local and foreign governments
(and all agencies thereof).
"Liens" means any and all liens, security interests, mortgages,
easements, restrictions, encumbrances,
pledges, conditional sales contracts, or
other similar conflicting ownership or
security interest in favor of any Person.
"Losses"
has the meaning ascribed to it in Section 6.1.
"Medicare Laws" means any and all Laws applicable to reimbursement
by
Medicare, Medicaid or any other
governmental healthcare program for services or
items rendered by the Company, including
all federal and state laws relating to
the referral of patients to the Company's
business.
"Merger" has the meaning ascribed to it in the second recital of
this
Agreement.
"Merger Sub" has the meaning ascribed to in the introductory
paragraph
of this Agreement.
"Minimum Share Value" means three dollars and twenty-eight
cents
($3.28).
"Morgan" has the meaning ascribed to it in the introductory
paragraph
of this Agreement.
5
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"Mr. Trespalacios" has the meaning ascribed to it in the
introductory
paragraph of this Agreement.
"Ms. Trespalacios" has the meaning ascribed to it in the
introductory
paragraph of this Agreement.
"Multiemployer Plan" means a plan as defined in ERISA Section
4001(a)(3) to which Company or any ERISA
Affiliate of Company is making or
accruing an obligation to make
contributions or has made or accrued an
obligation to make contributions.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Notice" has the meaning ascribed to it in Section 8.2 of this
Agreement.
"Notice Party" has the meaning ascribed to it in Section 8.2 of
this
Agreement.
"Order" has the meaning ascribed to it in Section 4.9 of this
Agreement.
"Parent" has the meaning ascribed to it in the introductory
paragraph
of this Agreement.
"Payor" has the meaning ascribed to it in Section 4.10(d) of
this
Agreement.
"Pension Plan" means an employee pension benefit plan, as defined
in
ERISA Section 3(2), other than a
Multiemployer Plan, which is covered by Title
IV of ERISA and which either (i) is
maintained by the Company and/or any ERISA
Affiliate of the Company for employees of
such Person, or (ii) has at any time
preceding the date hereof been maintained
by the Company and/or any ERISA
Affiliate of the Company for employees of
such Person.
"Per Share Value" means, with respect to the Standard Management
Shares
an amount equal to the greater of (i) the
average per-share closing price of a
Standard Management Share determined over
the 10 trailing days immediately
preceding the date which is two days prior
to the Closing Date, or (ii) the
Minimum Share Value.
"Permit" has the meaning ascribed to such term in Section 4.12 of
this
Agreement.
"Person" means an individual, partnership, corporation, business
trust,
limited liability company, limited
liability partnership, joint stock company,
trust, unincorporated association, joint
venture, company or other entity or any
governmental authority.
"PHI" has the meaning ascribed to it in Section 4.10(g) of this
Agreement.
"Plan" means the Standard Management Corporation 2002 Stock
Incentive
Plan as established by Parent and amended
from time to time.
6
<PAGE>
"Pre-Closing Company Transaction Expense" means all fees and
expenses
incident to the transactions contemplated
by this Agreement and which are
incurred by or are for the account of the
Company or the Shareholders'
Representative, including without
limitation, fees and expenses payable to their
representatives (including any attorneys',
broker's or finder's fees), in
respect of services performed on or before
the Closing Date, whether or not such
expenses have accrued or have been billed
or become due prior to Closing and all
amounts payable to consultants or others
arising out of or relating to the
transactions contemplated by this Agreement
in respect of services performed on
or before the Closing Date.
"Pro-Rata" means with respect to a Shareholder in respect of his or
her
shares of common stock of the Company, the
number of shares of common stock held
by such Shareholder immediately prior to
the Effective Time, in proportion to
the total number of shares of common stock
of the Company issued and outstanding
immediately prior to the Effective Time,
and for purposes of clarity shall mean
for each of the Shareholders, the following
percentages: (i) for Voting Trustee,
70%, (ii) for Morgan, 20%, and (iii) for
Buehler, 10%.
"Registrable Shares" shall mean the Standard Management Shares
issued
in accordance with this Agreement, except
that, as to any particular Registrable
Shares, such securities, once issued, will
cease to be Registrable Shares when
(i) a registration statement under the 1933
Act covering such securities has
been declared effective and such securities
have been disposed of pursuant to an
effective registration statement, (ii) such
securities have been sold to the
public without registration in accordance
with Rule 144 (or any similar
provisions then in force) under the 1933
Act, or (iii) in the reasonable opinion
of counsel for Parent, all of the
Registrable Securities may be sold without
restriction under Rule 144(k).
"Report" has the meaning ascribed to it in Section 4.10(d) of
this
Agreement.
"Restrictions" means any and all liens, restrictions, restrictions
on
transfer, options, pledges, voting
agreements, rights of first refusal,
tag-along, co-sale or other rights,
licenses, security interests, claims,
charges or encumbrances of any kind or
nature whatsoever.
"SEC" means the United States Securities and Exchange
Commission.
"Section 7.3 Indemnified Person" has the meaning ascribed to it
in
Section 7.3(g) of this Agreement.
"Shareholder" has the meaning ascribed to it in the
introductory
paragraph of this Agreement.
"Shareholders' Representative" has the meaning ascribed to it
in
Section 2.6 of this Agreement.
"Standard Management Shares" means common shares of Parent, no
par
value.
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<PAGE>
"Surviving Corporation" means the Company, immediately following
the
Effective Time of the Merger.
"Tennessee Law" means the Tennessee Business Corporation Act.
"Third-Party Claim" has the meaning ascribed to it in Section
6.4(a) of
this Agreement.
"Voting Trust Agreement" has the meaning ascribed to it in the
introductory paragraph to this
Agreement.
"Voting Trustee" has the meaning ascribed to it in the
introductory
paragraph to this Agreement.
"Working Capital Dispute Notice" has the meaning ascribed to it
in
Section 2.4(b) of this Agreement.
"Working Capital Dispute Period" has the meaning ascribed to it
in
Section 2.4(b) of this Agreement.
"Working Capital Position Statement" has the meaning ascribed to it
in
Section 2.4(d) of this Agreement.
"Working Capital Post-Closing Delivery" has the meaning ascribed to
it
in Section 2.4(a) of this Agreement.
"Working Capital Resolution Period" has the meaning ascribed to it
in
Section 2.4(c) of this Agreement.
1.2 Construction.
(a) The meanings of terms defined herein are equally
applicable to the singular and plural of
such defined terms.
(b) The headings of articles and sections to this Agreement
are provided for convenience only and will
not affect the construction or
interpretation hereof.
(c) This Agreement and all Exhibits and Schedules hereto are a
result of negotiations among the parties
hereto. Accordingly, neither this
Agreement nor any Exhibit or Schedule
hereto shall be construed against any
party hereto because of its or its
counsel's involvement in its preparation.
8
<PAGE>
ARTICLE II
THE MERGER
2.1 The Merger.
(a) On the terms and subject to the conditions set forth in
this Agreement and in accordance with the
Tennessee Law, concurrently herewith,
the parties hereto shall cause Merger Sub
to be merged with and into the
Company. The parties shall so cause the
Merger to occur by filing with the
Tennessee Secretary of State articles of
merger executed in accordance with the
relevant provisions of the Tennessee Law
and by making all other filings or
recordings required thereby to effect the
Merger. As a result of the Merger, and
at the Effective Time, the separate
corporate existence of Merger Sub will cease
and the Company will continue to survive
the Merger. As a result of the Merger,
the Company will succeed to and assume all
of the rights and obligations of
Merger Sub in accordance with the Tennessee
Law. The Merger will also have such
other effects as are set forth and
described in the Tennessee Law.
(b) The officers and directors of Merger Sub at the Effective
Time shall become the officers and
directors of the Surviving Corporation and
continue as such until his or her successor
shall have been elected and
qualified or until his or her earlier
resignation or removal. Morgan shall
initially be President, and Buehler shall
initially be Vice President, of the
Surviving Corporation.
(c) The Articles of Incorporation and By-Laws of Merger Sub at
the Effective Time shall become the
Articles of Incorporation and By-Laws of the
Surviving Corporation and shall continue as
such until altered, amended or
repealed; provided, however, that the
Articles of Incorporation of the Surviving
Corporation shall be amended to change the
name of the Company, immediately
following the Effective Time, to "Precision
Healthcare, Inc."
2.2 Conversion of Equity Securities. On the terms and subject to
the
conditions set forth in this Agreement, at
the Effective Time, by virtue of the
Merger and without any action on the part
of Merger Sub or the Company:
(a) Each common share of the Company owned by Voting Trustee
immediately prior to the Effective Time
shall be cancelled and all of such
common shares, in the aggregate, shall be
converted into the right to receive
(i) $350,000 in Standard Management Shares
based upon the Per Share Value, (ii)
$1,390,000 in immediately available funds,
which all such shares and funds
(other than $225,000 of such funds) shall
be deposited at Closing into an escrow
account with Karp & Genauer, P.A. (the
"Escrow Agent") to be held pursuant to an
Escrow Agreement, in the form attached
hereto as Exhibit A (the "Escrow
Agreement"), (iii) a Pro-Rata portion of
the Earn-Out Amount (if any), as set
forth in Section 2.3 below, and (iv) a
Pro-Rata portion of a positive Aggregate
Adjustment Amount (if any), as set forth in
Section 2.4.
(b) Each common share of the Company owned by Morgan
immediately prior to the Effective Time
shall be cancelled and all of such
common shares, in the aggregate, shall be
converted into the right to receive
(i) $433,000 in Standard Management Shares
based upon the Per Share Value, (ii)
$196,000 in immediately available funds,
payable at the Closing to an
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<PAGE>
account designated by Morgan, (iii) a
Pro-Rata portion of the Earn-Out Amount
(if any), as set forth in Section 2.3
below, and (iv) a Pro-Rata portion of a
positive Aggregate Adjustment Amount (if
any), as set forth in Section 2.4.
(c) Each common share of the Company owned by Buehler
immediately prior to the Effective Time
shall be cancelled and all of such
common shares, in the aggregate, shall be
converted into the right to receive
(i) $217,000 in Standard Management Shares
based upon the Per Share Value, (ii)
$108,000 in immediately available funds,
payable at the Closing to an account
designated by Buehler, (iii) a Pro-Rata
portion of the Earn-Out Amount (if any),
as set forth in Section 2.3 below, and (iv)
a Pro-Rata portion of a positive
Aggregate Adjustment Amount (if any), as
set forth in Section 2.4.
(d) Each common share of the Company held in the treasury of
the Company immediately prior to the
Effective Time shall be canceled and
extinguished without any conversion thereof
and no payment will be made with
respect thereto.
(e) Each common share of Merger Sub issued and outstanding
immediately prior to the Effective Time
will be converted into one common share
of the Surviving Corporation.
Notwithstanding anything to the contrary set forth in this
Agreement,
all cash amounts payable to the
Shareholders under this Section 2.2 shall be
reduced on a Pro-Rata basis by the amounts
to be paid by the Company prior to or
simultaneous with the Closing in accordance
with Section 7.6.
2.3 Earn-Out.
(a) On or before the 75th day following the expiration of the
calendar year 2005 (the "Earn-Out
Post-Closing Delivery Period"), the Surviving
Corporation shall deliver to each
Shareholder copies of the Surviving
Corporation's year-end financial statements
for calendar year 2005 and a
calculation of EBITDA for calendar year
2005 (the "Earn-Out Post-Closing
Delivery"). If the Surviving Corporation's
EBITDA for calendar year 2005 is
$600,000 or more (the "EBITDA Target"), the
Shareholders shall be entitled to
receive their respective Pro-Rata portions
of $500,000 (the "Earn-Out Amount"),
as more fully set forth in this Section
2.3. If the Surviving Corporation's
EBITDA for calendar year 2005 is less than
$600,000, the Shareholders shall not
be entitled to the Earn-Out Amount (or any
portion thereof). If the Surviving
Corporation fails to deliver to each
Shareholder the Earn-Out Post-Closing
Delivery on or before the tenth (10th)
business day after the expiration of the
Earn-Out Post-Closing Delivery Period, the
EBITDA Target shall be deemed to have
been met and the Shareholders shall
entitled to receive their Pro-Rata portions
of the Earn-Out Amount in accordance with
Section 2.3(f) hereof. In no event
shall any Shareholder be required to make a
payment to the Surviving Corporation
or any other party in the event that, and
solely as a result of the fact that,
the EBITDA Target has not been met.
(b) The Shareholders' Representative (for and on behalf of the
Shareholders) shall have thirty (30) days
from the date the Surviving
Corporation makes the Earn-Out Post-
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Closing Delivery (such period, the
"Earn-Out Dispute Period") to notify the
Surviving Corporation, in writing, as to
whether the Shareholders'
Representative agrees or disagrees with the
Earn-Out Post-Closing Delivery (such
written notice, the "Earn-Out Dispute
Notice"). During the Earn-Out Dispute
Period, the Shareholders' Representative
and her accountants shall be permitted
to review (during regular business hours
and upon reasonable prior notice) the
working papers of the Surviving Corporation
and (where applicable) the Surviving
Corporation's accountants relating to the
matters set forth in the Earn-Out
Post-Closing Delivery.
(c) If the Shareholders' Representative fails to deliver an
Earn-Out Dispute Notice to the Surviving
Corporation during the Earn-Out Dispute
Period, the Earn-Out Post-Closing Delivery
as delivered by the Surviving
Corporation shall be deemed to be final and
correct and shall be binding upon
each of the parties hereto.
(d) If the Shareholders' Representative delivers an Earn-Out
Dispute Notice to the Surviving Corporation
during an Earn-Out Dispute Period,
the Shareholders' Representative and the
Surviving Corporation shall, for a
period of forty-five (45) days from the
date the Earn-Out Dispute Notice is
delivered to the Surviving Corporation
(such period, the "Earn-Out Resolution
Period"), use their respective best efforts
to amicably resolve the items in
dispute. Any items so resolved by the
parties shall be deemed to be final and
correct as so resolved and shall be binding
upon each of the parties hereto.
(e) If the Shareholders' Representative and the Surviving
Corporation are unable to resolve all of
the items in dispute during the
Earn-Out Resolution Period, then
Shareholders' Representative or the Surviving
Corporation may refer the items remaining
in dispute to Deloitte & Touche (the
"Independent Accountants"), which the
Company and the Parent both represent is
independent of their interests. Such
referral shall be made in writing to the
Independent Accountants, copies of which
shall concurrently be delivered to the
non-referring party hereto. The referring
party shall furnish the Independent
Accountants, at the time of such referral,
with the Earn-Out Post-Closing
Delivery and the Earn-Out Dispute Notice.
The parties shall also furnish the
Independent Accountants with such other
information and documents as the
Independent Accountants may reasonably
request in order for them to resolve the
items in dispute. The parties hereto shall
also, within ten (10) days of the
date the items in dispute are referred to
the Independent Accountants, provide
the Independent Accountants with a written
notice (a "Earn-Out Position
Statement") describing in reasonable detail
their respective positions on the
items in dispute (copies of which will
concurrently be delivered to the other
party hereto). If any party fails to timely
deliver its Earn-Out Position
Statement to the Independent Accountants,
the Independent Accountants shall
resolve the items in dispute solely upon
the basis of the information otherwise
provided to them. The Independent
Accountants shall resolve all disputed items
in a written determination to be delivered
to each of the parties hereto within
forty-five (45) days after such matter is
referred to them; provided, however,
that any delay in delivering such
determination shall not invalidate such
determination or deprive the Independent
Accountants of jurisdiction to resolve
the items in dispute. The decision of the
Independent Accountants as to the
items in dispute shall be final and binding
upon the parties hereto and shall
not be subject to judicial review or
arbitration. The fees and expenses of the
Independent Accountants incurred in the
resolution of any items in dispute shall
be determined by the Independent
Accountants and set forth in their report and
shall be allocated and paid by
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the Shareholders, on one hand, and the
Surviving Corporation, on the other hand,
in inverse proportion to the extent they
prevailed on the items in dispute.
(f) Once there is a final determination with respect to the
Earn-Out Post-Closing Delivery, if such
final determination results in the
Surviving Corporation owing the Earn-Out
Amount to the Shareholders (whether
through failure of the Surviving
Corporation to timely deliver the Earn-Out
Post-Closing Delivery, failure of the
Shareholders' Representative to timely
deliver an Earn-Out Dispute Notice,
agreement of the parties, or determination
of the Independent Accountants), the
Surviving Corporation shall pay each
Shareholder within thirty (30) days of such
final determination their respective
Pro-Rata portion of the Earn-Out Amount in
immediately available funds and
Standard Management Shares in the same
proportion of cash and stock as such
Shareholder received at the Closing;
provided that Voting Trustee's Pro-Rata
portion of the Earn-Out Amount (including
both cash and stock) shall be paid to
the Escrow Agent to be held in escrow
pursuant to the terms of the Escrow
Agreement.
(g) During the period from the Closing through December 31,
2005, Parent shall cause the Surviving
Corporation to operate its business in
the ordinary course and usual course
consistent with past practices and will not
cause EBITDA to be artificially reduced by
virtue of expenses that were not
consistent with past practices or
accelerated expenses or delayed income.
2.4 Working Capital Adjustment.
(a) As promptly as reasonably practicable after the Closing
Date, and in any event not later than sixty
(60) days after the Closing Date,
the Surviving Corporation shall prepare and
deliver to the Shareholders'
Representative (such delivery, the "Working
Capital Post-Closing Delivery"):
(i) a balance sheet of the Company (without giving effect to
the consummation of the transactions contemplated hereby) prepared
as
of the close of business on July 31, 2005 in accordance with GAAP
(the
"Closing Date Balance Sheet"); and
(ii) a calculation of the Closing Date Working Capital and
the Aggregate Adjustment Amount.
(b) The Shareholders' Representative (for and on behalf of the
Shareholders) shall have thirty (30) days
from the date the Surviving
Corporation makes the Working Capital
Post-Closing Delivery (such period, the
"Working Capital Dispute Period") to notify
the Surviving Corporation, in
writing, as to whether the Shareholders'
Representative agrees or disagrees with
the Working Capital Post-Closing Delivery
(such written notice, the "Working
Capital Dispute Notice"). During the
Working Capital Dispute Period, the
Shareholders' Representative and his or her
accountants shall be permitted to
review (during regular business hours and
upon reasonable prior notice) the
working papers of the Surviving Corporation
and (where applicable) the Surviving
Corporation's accountants relating to the
matters set forth in the Working
Capital Post-Closing Delivery.
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<PAGE>
(c) If the Shareholders' Representative delivers the Working
Capital Dispute Notice to the Surviving
Corporation during the Working Capital
Dispute Period, the Shareholders'
Representative and the Surviving Corporation
shall, for a period of forty-five (45) days
from the date the Working Capital
Dispute Notice is delivered to the
Surviving Corporation (such period, the
"Working Capital Resolution Period"), use
their respective best efforts to
amicably resolve the items in dispute. Any
items so resolved by the parties
shall be deemed to be final and correct as
so resolved and shall be binding upon
each of the parties hereto.
(d) If the
Shareholders' Representative and the Surviving
Corporation are unable to resolve all of
the items in dispute during the Working
Capital Resolution Period, then
Shareholders' Representative or the Surviving
Corporation may refer the items remaining
in dispute to the Independent
Accountants. Such referral shall be made in
writing to the Independent
Accountants, copies of which shall
concurrently be delivered to the
non-referring party hereto. The referring
party shall furnish the Independent
Accountants, at the time of such referral,
with the Working Capital Post-Closing
Delivery and the Working Capital Dispute
Notice. The parties shall also furnish
the Independent Accountants with such other
information and documents as the
Independent Accountants may reasonably
request in order for them to resolve the
items in dispute. The parties hereto shall
also, within ten (10) days of the
date the items in dispute are referred to
the Independent Accountants, provide
the Independent Accountants with a written
notice (a "Working Capital Position
Statement") describing in reasonable detail
their respective positions on the
items in dispute (copies of which will
concurrently be delivered to the other
party hereto). If any party fails to timely
deliver its Working Capital Position
Statement to the Independent Accountants,
the Independent Accountants shall
resolve the items in dispute solely upon
the basis of the information otherwise
provided to them. The Independent
Accountants shall resolve all disputed items
in a written determination to be delivered
to each of the parties hereto within
forty-five (45) days after such matter is
referred to them; provided, however,
that any delay in delivering such
determination shall not invalidate such
determination or deprive the Independent
Accountants of jurisdiction to resolve
the items in dispute. The decision of the
Independent Accountants as to the
items in dispute shall be final and binding
upon the parties hereto and shall
not be subject to judicial review or
arbitration. The fees and expenses of the
Independent Accountants incurred in the
resolution of any items in dispute shall
be determined by the Independent
Accountants and set forth in their report and
shall be allocated and paid by the
Shareholders, on one hand, and the Surviving
Corporation, on the other hand, in inverse
proportion to the extent they
prevailed on the items in dispute.
(e) Within five (5) days following date on which the Aggregate
Adjustment Amount is finally determined
pursuant to this Agreement:
(i) if the Aggregate Adjustment Amount is a positive number,
the Surviving Corporation shall pay each Shareholder, in
immediately
available funds to an account designated by such Shareholder in
writing, an amount
equal to the result obtained by multiplying (A) that
Shareholder's Pro-Rata portion, by (B) the amount of the
Aggregate
Adjustment Amount; and
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(ii) if the Aggregate Adjustment Amount is a negative number,
each Shareholder shall pay the Surviving Corporation, in
immediately
available funds to an account designated by the Surviving
Corporation
in writing, an amount equal to the result obtained by multiplying
(A)
that Shareholder's Pro-Rata portion, by (B) the Aggregate
Adjustment
Amount; provided that any negative Aggregate Adjustment Amount
shall be
net of the aggregate amount of cash and cash equivalents of the
Company
as of July 31, 2005. For purposes of this calculation, Merger
Sub
agrees not to withdraw cash or cash equivalents from the
Surviving
Corporation until after July 31, 2005.
Notwithstanding the forgoing, if the Escrow Agreement is in full
force
and effect as of the Closing Date, Voting
Trustee's Pro-Rata portion of the
Aggregate Adjustment Amount, as determined
by this Section 2.4(e), shall be paid
to the Escrow Agent to be held in escrow
pursuant to the terms of the Escrow
Agreement.
2.5 Closing of Transfer Records. After the close of business on
the
Closing Date, transfers of any of the
Company's common shares outstanding prior
to the Effective Time will not be made on
the transfer books of the Surviving
Corporation.
2.6 Exchange of Certificates. Concurrently herewith, each
Shareholder
shall surrender all certificates
representing the common shares of the Company
held by such Shareholder (or if lost, an
affidavit, indemnity and such other
security as is reasonably required by
Merger Sub and its counsel).
2.7 Shareholders' Representative. Each Shareholder hereby
irrevocably
constitutes and appoints Mr. Trespalacios
as his, her or its lawful
attorney-in-fact, as the "Shareholders'
Representative" under this Agreement,
with the exclusive authority to act as such
hereunder. In the event of the
death, resignation or inability of Mr.
Trespalacios to act as the Shareholders'
Representative hereunder, George Vina will
be the successor Shareholders'
Representative with all powers of his
predecessor. The Shareholders'
Representative will have full power to act
on each Shareholder's behalf
according to the terms of this Agreement to
give and receive notices on behalf
of Shareholders and in general to do all
things and to perform all acts on each
Shareholder's behalf as may be contemplated
by this Agreement, including the
resolution of indemnification claims, all
in the absolute discretion of the
Shareholders' Representative. Shareholders
shall be bound by all acts of the
Shareholders' Representative taken in
connection with this Agreement.
ARTICLE III
THE CLOSING
3.1 Closing. The Closing shall take place, concurrently herewith,
at
the offices of Merger Sub's counsel, Sommer
Barnard Attorneys, PC, in
Indianapolis, Indiana, or by transmission
of faxed or scanned copies of all
documents necessary to effect the Closing
of the transactions described in this
Agreement (as well as wire transfer of all
cash amounts due hereunder) followed,
as soon as practicable, by overnight
delivery of the original executed Closing
documents.
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3.2 Closing Deliveries of Parent and Merger Sub. Concurrently
herewith,
in addition to any other documents
specifically required to be delivered
pursuant to this Agreement, Parent and
Merger Sub shall deliver to Shareholders:
(a) The immediately available funds as required by Section 2.2
above;
(b) The Standard Management Shares, as required by Section 2.2
above;
(c) A certificate of the Secretary or Assistant Secretary of
Merger Sub, dated as of the Closing Date,
certifying the resolutions duly
adopted by the Board of Directors and
shareholder of Merger Sub authorizing and
approving the execution, delivery and
performance of this Agreement and the
consummation of the transactions
contemplated hereby;
(d) A certificate, duly executed by the President or Vice
President of Merger Sub, dated as of the
Closing Date, certifying (i) that
Merger Sub has performed and complied in
all material respects with all of the
terms, provisions and conditions of this
Agreement to be performed and complied
with by it prior to the Closing, and (ii)
that Merger Sub's representations and
warranties in this Agreement are true and
correct in all material respects as of
the Closing Date;
(e) A counterpart to a Grant Agreement, in the form attached
hereto as Exhibit B, duly executed by
Parent, entitling Morgan the option to
purchase 40,000 shares of stock of Parent
under the Plan at a price equal to the
fair market value of such shares as of the
Closing Date;
(f) A
counterpart to a Grant Agreement, in the form attached
hereto as Exhibit B, duly executed by
Parent, entitling Buehler the option to
purchase 25,000 shares of stock of Parent
under the Plan at a price equal to the
fair market value of such shares as of the
Closing Date;
(g) Such other documents, instruments and agreements as the
Shareholders or their counsel may
reasonably request to consummate the
transaction contemplated hereby, in form
and substance reasonably acceptable to
Shareholders and their counsel; and
(h) A counterpart to the Escrow Agreement duly executed by an
authorized officer of Merger Sub.
3.3 Closing Deliveries of Shareholders. At the Closing, in addition
to
any other documents specifically required
to be delivered pursuant to this
Agreement, each Shareholder shall deliver
to Merger Sub the following:
(a) Certificates representing all of the common shares of the
Company owned beneficially and of record by
such Shareholder as of the Closing
Date;
(b) A Release, duly executed by such Shareholder, in the form
attached hereto as Exhibit C;
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(c) A legal opinion of counsel to Shareholders, Mr.
Trespalacios, and Ms. Trespalacios, dated
as of the Closing Date, addressed to
Parent and Merger Sub, and containing
customary legal opinions, exceptions and
qualifications;
(d) Copies of the Company's Charter, as amended to date, duly
certified by the Tennessee Secretary of
State dated no more than 10 days prior
to the Closing Date;
(e) A Certificate of Existence for the Company from the
Tennessee Secretary of State dated no more
than 10 days prior to the Closing
Date;
(f) A Certificate, duly executed by such Shareholder, dated as
of the Closing Date, certifying that such
Shareholder has performed and complied
in all material respects with all of the
terms, provisions and conditions of
this Agreement to be performed and complied
with by it prior to the Closing;
(g) The original minute books, stock ledgers and corporate
seal (if any) of the Company;
(h) A Guaranty Release Agreement, duly executed by all
appropriate parties (including, without
limitation, all of the parties listed as
guarantors to the below-described
Guaranties), providing for release of (i) that
certain Guaranty, dated January 1, 2003,
guaranteeing the obligations of
Drugcloud, LLC, a Florida limited liability
company, under that certain
Promissory Note dated October 15, 2003 in
favor of Martin J. Bradley, III, and
(ii) that certain Guaranty, dated January
1, 2003, guaranteeing the obligations
of Drugcloud, LLC, under that certain
Promissory Note dated October 15, 2003 in
favor of Martin J. Bradley, Jr.;
(i) Counterparts to the Employment Agreements, in the forms
attached hereto as Exhibit D, signed
respectively by Morgan and Buehler;
(j) A counterpart to a Non-Competition Agreement, in the form
attached hereto as Exhibit E, signed by Mr.
Trespalacios;
(k) Counterparts to the Grant Agreement, signed by Morgan and
Buehler;
(l) A certificate of the Secretary or Assistant Secretary of
the Company, dated as of the Closing Date,
certifying (i) the resolutions duly
adopted by the Board of Directors and
shareholders of the Company authorizing
and approving the execution, delivery and
performance of this Agreement and the
consummation of the transactions
contemplated hereby, and (ii) that such
resolutions have not been rescinded or
modified and remain in full force and
effect as of the Closing Date;
(m) Such other documents, instruments and agreements as Merger
Sub or its counsel may reasonably request
to consummate the transaction
contemplated hereby, in form and substance
reasonably acceptable to Merger Sub
and its counsel; and
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(n) Counterparts to the Escrow Agreement, duly executed by
Voting Trustee and Ms. Trespalacios.
ARTICLE IV
SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES
Any exception or qualification set forth in any Schedule to
this
Agreement with respect to a particular
representation or warranty contained in
this Agreement shall be deemed to be an
exception or qualification with respect
to all other applicable representations and
warranties of the Shareholders
contained in this Agreement to the extent
that such exception or qualification
is reasonably identified and it is readily
apparent that such exception or
qualification relates to such other
representation or warranty. Nothing in any
Schedule to this Agreement is intended to
broaden the scope of any
representation or warranty of the
Shareholders contained in this Agreement.
The Shareholders, jointly and severally, represent and warrant
to
Merger Sub as follows:
4.1 Organization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the
laws of the State of Tennessee. Schedule
4.1(a) contains a true, accurate and
complete list of each jurisdiction in which
the Company is qualified to do business as
a foreign corporation. The Company is
duly qualified to do business as a foreign
corporation and is in good standing
under the Laws of each state or other
jurisdiction in which either the ownership
or use of the properties owned or used by
it, or the nature of the activities
conducted by it, requires such
qualification.
(b) The Company has full power and authority to own or use its
properties and assets and carry on its
business activities as now conducted.
Schedule 4.1(b) lists the addresses of all
locations at which the Company
conducts its business.
(c) Complete and accurate copies of the Articles of
Incorporation, by-laws, minute books and
stock transfer books of the Company
have been delivered to Merger Sub. The
minute books of the Company fairly and
accurately reflect all material actions of
the Board of Directors and
shareholders of the Company. The stock
transfer books of the Company are
correct, complete and current, and, to the
extent applicable, all documentary
and stock transfer tax stamps required in
connection with the issuance and
transfer of shares of the Company's stock
have been duly paid, affixed or
canceled.
4.2 Authorization. The Company and each Shareholder has full power
and
authority to execute and deliver this
Agreement and to p
