MERGER AGREEMENT
AGREEMENT dated as of June 6, 1997, by and among HEALTHCARE HEARING
CLINICS, INC., a Washington corporation, ("HealthCare"), and HEARING IMPROVEMENT
CENTER, INC., a California corporation (the "Company"), and XXXX X. XXXX and
XXXXX XXXXX who are the shareholders of the Company (the "Shareholders").
RECITALS
A. HealthCare is a wholly owned subsidiary of HealthCare Capital Corp.,
a corporation organized under the laws of the Province of Alberta, Canada
("HCC").
B. The Shareholders own all the issued and outstanding capital stock of
the Company.
C. The Company operates audiology and hearing aid clinics in Xxxx Xxxxx
xxx Xxxx Xxxxx, Xxxxxxxxxx, which perform testing and evaluation of patients'
hearing, prescribe and fit hearing aids, and provide related services and
products.
D. HealthCare and the Shareholders desire that the Company be merged
into HealthCare.
AGREEMENT:
In consideration of the premises and of the mutual covenants contained
herein, the parties agree as follows:
ARTICLE I
MERGER
1.1 Agreement and Plan of Merger. The parties agree that the Company
shall be merged into HealthCare pursuant to an Agreement and Plan of Merger
prepared in accordance with Section 1101 of the California General Corporation
Law and Section 23B.11.010 of the Washington Business Corporation Act which
shall be in the form of Schedule 1.1 attached hereto (the "Agreement and Plan of
Merger"). The merger of the Company into HealthCare (the "Merger") shall be on
the terms set forth in the Agreement and Plan of Merger and in this Agreement.
1.2 Terms of Merger. Upon the consummation of the Merger:
(a) HealthCare shall be the surviving corporation (the
"Surviving Corporation") and shall continue its existence as a
Washington corporation under the name "HealthCare Hearing Clinics,
Inc.";
- 1 -
(b) The separate corporate existence of the Company shall
terminate;
(c) The presently issued and outstanding stock of the Company
shall be converted into shares of the common stock of HCC, cash, and
HealthCare promissory notes as provided in Section 1.4(a) hereof; and
(d) The presently issued and outstanding stock of HealthCare
shall be converted into shares of the stock of Surviving Corporation as
provided in Section 1.4(b) hereof.
1.3 Consummation. The consummation of the Merger shall take place at
Closing (as defined in Section 2.1 hereof). The Merger shall be consummated by
filing:
(a) A copy of the Agreement and Plan of Merger accompanied by
an appropriate officer's certificate with the Secretary of State of the
state of California; and
(b) Articles of Merger with the Secretary of State of the
state of Washington.
The term "Effective Time" shall mean the time when the second of the two filings
is completed and the Merger becomes effective.
1.4 Conversion of Shares. The basis for converting and exchanging the
issued and outstanding shares of the Company and HealthCare upon the
consummation of the Merger will be as follows:
(a) The 200 issued and outstanding shares of the Company which
are owned by the Shareholders shall, as of the Effective Time by virtue
of the Merger and without any action on the part of the holders
thereof, be converted into and exchanged for (i) 141,844 shares of HCC
common stock (the "HCC Shares"), (ii) cash in the amount of $500,000,
(iii) HealthCare's promissory note in the face amount of $132,624 in
the form attached hereto as Schedule 1.4(a)-1, and (iv) HealthCare's
promissory note in the face amount of $282,036 in the form attached
hereto as Schedule 1.4(a)-2 with such HCC Shares, the cash, and the
notes apportioned between the Shareholders pro rata based upon their
ownership of the Company's shares; and
(b) Each share of HealthCare stock issued and outstanding at
the Effective Time shall, as of the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into and exchanged for one share of the stock of the
Surviving Corporation.
1.5 Restrictions on Transfer of the HCC Shares. Following the Closing,
the HCC Shares shall be subject to the restrictions set forth in Article VI
hereof.
- 2 -
1.6 Post-Closing Adjustments.
The HCC Shares, the cash, and the promissory notes to be
received by the Shareholders as provided in Section 1.4(a) shall be subject to
adjustment as provided in Subsections (a), (b), and (c) below.
(a) Net Working Capital Adjustment. For purposes of this
Agreement, "Net Working Capital" shall equal (i) cash, money market
accounts, accounts receivable (net of reasonable provisions for
doubtful accounts), inventory, prepaid expenses (including for magazine
advertising) and all other current assets of the Company as of Closing
less (ii) all current liabilities of the Company as of Closing
including but not limited to liabilities for inventory, office
supplies, ordinary compensation payables, employee benefits and taxes
(excluding accrued sick and vacation pay), bonuses (including all
related payroll taxes and employee benefits), accrued taxes due federal
and state and other governments based on income, personal and real
property taxes, water, gas, electric and other utility charges,
business and other license fees and taxes, merchants' association dues,
rental payments under any leases, any refunds due customers for hearing
aids delivered prior to Closing, and all other operating liabilities
(including legal, accounting, and other professional fees and expenses
incurred in the ordinary course of business), and vendor accounts
payable. As promptly as practicable following the Closing, but in no
event later than 45 days thereafter, the Shareholders and HealthCare
shall cooperate in preparing a mutually agreeable statement of Net
Working Capital which shall set forth the computation and components
thereof in reasonable detail (the "Statement of Net Working Capital").
On the fifteenth day after the date on which the Statement of Net
Working Capital is completed (or such earlier date as such statement is
mutually agreed upon by Shareholders and HealthCare in writing), (i) in
the event that the Net Working Capital exceeds $50,000, then HealthCare
shall pay to the Shareholders in cash an amount equal to the excess, or
(ii) in the event that the Net Working Capital is less than $50,000,
then the Shareholders shall pay to HealthCare the amount by which the
Net Working Capital is less than $50,000.
(b) Accounts Receivable. On the 200th day following the
Closing, the Shareholders shall reimburse HealthCare on a pro rata
basis in an amount equal to the total of the accounts receivable
reflected on the Statement of Net Working Capital (as defined in
subsection 1.6(a) above) net of the reserve for bad debts, which remain
uncollected as of such date. Upon such reimbursement, the uncollected
accounts shall be assigned to the Shareholders. During such 200-day
period, the Shareholders may participate in the collection process of
such accounts receivable.
(c) Long-Term Debt. The Shareholders acknowledge that the
consideration they are to receive pursuant to Section 1.4(a) hereof was
negotiated on the assumption that the Company would have no long-term
liabilities including debt as of the Closing. In the event that, in
preparing the Statement of Net Working Capital, it is determined that
Company had long-term liabilities as of the Closing, the Shareholders
shall pay to
- 3 -
HealthCare on a pro rata basis an amount equal to the total of any such
long-term liabilities on the date the Net Working Capital Adjustment is
made.
All adjustments due from the Shareholders to HealthCare shall be payable in cash
provided that in the event adjustments due from the Shareholders exceed in the
aggregate the sum of $300,000, the Shareholders may pay any excess by tendering
to HealthCare HCC Shares at a deemed value of $1.41 per share.
1.7 Shareholders' Loans. As of the date hereof, the Company is indebted
to the Shareholders as set forth on Schedule 1.7. Notwithstanding any other
provision of this Agreement, the Shareholders shall have the option, on or prior
to the Closing, to (i) contribute such indebtedness to the capital of the
Company or (ii) cause the Company to repay such indebtedness to the extent the
Company has funds available for such purpose.
ARTICLE II
CLOSING
2.1 Closing. The closing of the transaction provided for herein (the
"Closing") shall occur on June 6, 1997, or on such other date as the parties may
mutually agree. The Closing shall take place at such place and at such time as
the parties shall mutually agree. Notwithstanding the foregoing, HealthCare
shall have the right to postpone the Closing for up to 90 days if, in its
judgment, it becomes necessary to do so as a result of requirements of the
securities laws, regulations, or rules of the Province of Alberta, the Alberta
Stock Exchange, the United States, the state of Washington or the state of
California.
2.2 Closing Transactions. The following actions shall be taken at the
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) Deliveries by Shareholders. The Shareholders shall deliver
to HealthCare:
(i) Certificates representing the shares of the
Company or appropriate affidavits of loss respecting such
certificates;
(ii) An opinion of counsel to the Shareholders, dated
as of the Closing date, substantially in the form of Schedule
2.2(a)(ii);
(iii) Copies of resolutions adopted by the Company's
board of directors and shareholders, certified by its
corporate secretary, which resolutions shall be in full force
and effect on the Closing date, authorizing the execution,
delivery and performance of this Agreement, the Merger, and
the other agreements and transactions contemplated hereby; and
(iv) All consents required in connection with the
transactions contemplated hereunder.
- 4 -
(b) Deliveries by HealthCare. HealthCare shall deliver to the
Shareholders:
(i) Certified or cashier's checks for the cash
specified in Section 1.4(a) hereof allocated between the
Shareholders pro rata based upon their ownership of the shares
of the Company;
(ii) The two promissory notes provided for in Section
1.4(a) hereof;
(iii) An opinion of counsel to HealthCare, dated as
of the Closing date, substantially in the form of Schedule
2.2(b)(ii); and
(iv) Copies of the resolutions of the boards of
directors of HealthCare and HCC as the shareholder of
HealthCare, certified by their corporate secretaries, which
resolutions shall be in full force and effect on the Closing
date, authorizing the execution, delivery and performance of
this Agreement, the Merger, and the other agreements and
transactions contemplated hereby.
(c) Joint Delivery. HealthCare and the Shareholders shall
deliver to each other counterparts of (i) the Shareholders'
Noncompetition Agreements provided for in Section 7.6(a) hereof, (ii)
the Shareholders' Employment Agreements provided for in Section 7.6(b)
hereof.
(d) HCC Share Certificate Delivery. Not later than 20 business
days following the Closing, HealthCare shall deliver to the
Shareholders certificates representing the HCC Shares provided for in
Section 1.4(a) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as otherwise set forth in the Disclosure Statement attached
hereto as Schedule III, the Shareholders hereby jointly and severally represent
and warrant to HealthCare as follows:
3.1 Corporate.
(a) Organization. The Company is a corporation duly organized
and existing under the laws of the state of California.
(b) Capitalization. The authorized capital stock of the
Company consists of 100,000 shares of a single class of common stock,
of which 200 shares are issued, and outstanding. All issued and
outstanding shares of the Company have been validly issued and are
fully paid and nonassessable. The Shareholders are the owners
(beneficially and of record) of all the issued and outstanding shares
of the common
- 5 -
stock of the Company hereof free and clear of all liens, claims, and
encumbrances whatsoever as follows:
Shareholder Number of Shares
Xxxx X. Xxxx 100
Xxxxx Xxxxx 100
No person has any agreement, option or other right, present or future,
to purchase or otherwise acquire any of the shares of the Company.
(c) Corporate Power. The Company has all requisite corporate
power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted, to
enter into this Agreement and the other documents and instruments to be
executed and delivered by it pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
(d) No Subsidiaries. The Company does not own an interest in
any corporation, partnership or other entity.
(e) Articles of Incorporation; Bylaws. The copies of the
Company's articles of incorporation and bylaws which have heretofore
been delivered to HealthCare are complete and correct as amended or
restated to the date hereof.
3.2 Authorization. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by the Company
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the board of directors of the
Company and the Shareholders. This Agreement constitutes and, when executed and
delivered, the other documents and instruments to be executed and delivered by
the Company and the Shareholders pursuant hereto, will constitute valid and
binding agreements of the Company and the Shareholders enforceable against the
Company and the Shareholders in accordance with their respective terms.
3.3 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Company or the Shareholders pursuant hereto, nor the consummation by the Company
and the Shareholders of the transactions contemplated hereby and thereby (a)
will violate any statute or law or any rule, regulation, order, writ, injunction
or decree of any court or governmental authority, (b) will require any
authorization, consent, approval, exemption or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body or (c) will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, or result in the creation of any material Lien (as
defined in Section 3.18(b)) upon any of the assets of the Company under, any
term or provision of the articles of incorporation or bylaws of the Company or
of any
- 6 -
material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which the Company is a party or by which
the Company or the Company's assets or properties or the shares of the Company
may be bound or affected.
3.4 Financial Statements. The Shareholders have heretofore delivered to
HealthCare the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial statements for the Company's fiscal years ended
October 31, 1994, 1995, and 1996;
(b) Financial Statements for the interim period ended February
28, 1997.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations for the periods then ended in accordance with
generally accepted accounting principles consistently applied.
3.5 Books and Records. The books of account of the Company reflect all
material items of income and expense and the assets, liabilities, and accruals
of its business and operations. The minute books and stock transfer records of
the Company contain records which are complete and accurate in all material
respects of all minutes and consents of shareholders and directors and all stock
transfers of the Company.
3.6 Absence of Certain Changes. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
(a) Adverse Change. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
(b) Damage. Any material loss, damage or destruction, whether
covered by insurance or not, affecting the Company's businesses or
assets;
(c) Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
(d) Labor Disputes. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
(e) Commitments. Any commitment or transaction by the Company
(including, without limitation, any capital expenditure) other than in
the ordinary course of business consistent with past practice;
- 7 -
(f) Dividends. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of the Company's
capital stock; any redemption, purchase or other acquisition by the
Company of any of its capital stock or any security relating thereto;
or any other payment to the Shareholders as shareholders;
(g) Disposition of Property. Any sale, lease or other transfer
or disposition of any properties or assets of the Company except for
sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment all in the ordinary
course of business;
(h) Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's lines of credit in the ordinary course of business;
(i) Amendment of Contracts. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
(j) Loans, Advances, or Credit. Any loan or advance or any
grant of credit by the Company; or
(k) Unusual Events. Any other event or condition specifically
related to the Company not in the ordinary course of business which
would have a material adverse effect on the assets or the business of
the Company.
3.7 Adverse Conditions. There are no conditions known to the
Shareholders with respect to the markets, products, facilities, or personnel of
the Company which might materially and adversely affect its business or
prospects other than such conditions as may affect the industry in which the
Company participates as a whole.
3.8 No Litigation. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Shareholders
threatened against the Company, its directors (in such capacity), its business
or any of its assets. Schedule 3.8 identifies all actions, suits, proceedings,
investigations and inquiries to which the Company or either of the Shareholders
has been a party since January 1, 1993. Neither the Company nor its business or
any of its assets is subject to any judgment, order, writ or injunction of any
court, arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.9 Compliance With Laws.
(a) Compliance. The Shareholders warrant that the Company
(including each and all of its operations, practices, properties and
assets) is in material compliance with all applicable federal, state,
local and foreign laws, ordinances, orders, rules and regulations
(collectively, "Laws"), including, without limitation, those applicable
to discrimination in employment, occupational safety and health,
- 8 -
trade practices, environmental protection, competition and pricing,
product warranties, zoning, building and sanitation, employment,
retirement and labor relations, and product advertising except to the
extent any noncompliance would not have a material adverse effect upon
the assets or the business of the Company taken as a whole. The Company
has not received notice of any violation or alleged violation of, and
are not subject to liability for past or continuing violation of, any
Laws. All reports and returns required to be filed by the Company with
any governmental authority have been filed, and were accurate and
complete when filed except to the extent any deficiency would not have
a material adverse effect upon the assets or the business of the
Company taken as whole.
(b) Licenses and Permits. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its businesses (as presently
conducted) except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in Schedule 3.9(b) and are in full force and
effect. The Company (including its operations, properties and assets)
is and has been in compliance with all such permits and licenses,
approvals, authorizations and consents, except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the business of the Company taken as a whole.
3.10 Environmental Compliance. The Shareholders have delivered to
HealthCare a copy of every written communication given or received by the
Company to or from any environmental agency with respect to the Company or with
respect to any property which is now being used or which has heretofore been
used by the Company in the operation of its business. The Shareholders have at
all times operated the Company in compliance with all applicable federal, state
and local laws and regulations relating to pollution control and environmental
contamination including, without limitation, all laws and regulations governing
the generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of hazardous materials (as defined below) and all
laws and regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials (as defined below), except for such
noncompliance as would not have a material adverse effect on Company's business
or assets. The Company has not received notice of any administrative or judicial
proceeding pursuant to such laws or regulations. There is no basis for the
assertion of a valid claim against the Company relating to environmental matters
including, without limitation, any claim arising from past or present
environmental practices, asserted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time
("CERCLA"), the Resource Conservation and Recovery Act, as amended from time to
time ("RCRA") or any other federal, state, or local statute, code, rule,
regulation, ordinance, order, decree, or other governmental authority as now or
at any time hereafter in effect. For purposes of this Section 3.10, the term
"Hazardous Materials" means materials defined as "hazardous wastes" or "solid
wastes" in CERCLA, RCRA or in any similar federal, state, or local statute,
code, rule, regulation,
- 9 -
ordinance, order, decree, or other governmental authority as now or at any time
hereafter in effect.
3.11 No Undisclosed Liabilities. Except (a) as described on the
Schedules attached hereto as an item which can be reasonably construed as a
liability or obligation or (b) items not required to be disclosed on the
Schedules by reason of exceptions, exclusions, or other qualifications contained
in the representations and warranties of this Agreement, the Company has no
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) which are not properly reflected or reserved against in the Financial
Statements (except for liabilities or obligations which have been incurred in
the ordinary course of business since the date of the most recent Financial
Statements) in a manner consistent with past practice; and the reserves
reflected in the Financial Statements are adequate, appropriate and reasonable.
3.12 Tax Matters.
(a) Except with respect to current Taxes (as defined below)
for which adequate reserves have been accrued, the Company has timely
paid all federal, state, county, local and foreign taxes, including,
without limitation, income taxes, excise taxes, sales taxes, use taxes,
gross receipts taxes, franchise taxes, employment and payroll taxes,
withholding taxes, property taxes, import duties, and all other taxes
of any nature whatsoever and however denominated together with all
penalties, additions to tax, interest, assessment or other damages
imposed thereon with respect to the Company (collectively, "Tax" or
"Taxes") required to be paid or deposited by the Company through the
Closing. For purposes of this Section 3.12(a), timely payment shall
include payment in accordance with any available extensions and
recording of balances due as payables.
(b) The Company has filed on or before the applicable due date
(including extensions) all tax returns which it is required to have
filed through the date hereof and has timely paid all Taxes due for the
periods covered by such returns including any deficiencies or other
additional amounts subsequently assessed by any taxing authority with
respect to each such tax return. All such returns are correct and
complete.
(c) The Company has not waived any statute of limitations
applicable to its Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency of the Company, and the assessment of
any additional Taxes of the Company with respect to periods for which
returns have been filed is not expected.
(d) There are no proposed deficiencies or unresolved claims
concerning the Company's liability for Taxes.
(e) Complete and correct copies of the Company's federal and
California income tax returns for 1993, 1994, and 1995 have been
delivered by the Shareholders to HealthCare.
- 10 -
3.13 Product Warranty. Set forth in Schedule 3.13 is a true, correct
and complete copy of the Company's standard warranty or warranties for sales of
its products.
3.14 Product Liability. No action is pending or, to the knowledge of
the Shareholders, threatened against or involving the Company relating to any
product alleged to have been sold by the Company and alleged to have been
defective, or improperly designed or manufactured. To the knowledge of the
Shareholders, there exists no design, manufacturing or other defects in products
sold in the course of the Company's business or held as inventory.
3.15 Insurance. The Company maintains policies of fire, liability,
product liability, malpractice, workers compensation, health and other forms of
insurance with such coverage limits and deductible amounts as are reasonable and
prudent in light of the nature of its assets and the risks of its business. The
Company has received no notification of cancellation, modification or denial of
renewal of any material policies of fire, product liability, malpractice or
other forms of insurance.
3.16 Suppliers. The Company has not received from any material supplier
a notice of termination or intent to terminate its relationship with the
Company.
3.17 Patents, Trademarks, etc. Set forth in Schedule 3.17 is a list of
all United States and foreign trademarks, service marks, trade names, brand
names, copyrights, including registrations and applications, patent and patent
applications, and employee covenants and agreements respecting intellectual
property ("Trade Rights") in which the Company now has any interest, specifying
the basis on which such Trade Rights are owned, controlled, used or held (under
license or otherwise) by the Company, and also indicating which of such Trade
Rights are registered. All Trade Rights shown as registered in Schedule 3.17
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. In order to conduct
the business of the Company, as such is currently being conducted, the Company
does not require any Trade Rights that it does not already have. The Company is
not infringing and has not infringed on any Trade Rights of another in the
operation of its business. To the knowledge of the Shareholders no person is
infringing on the Trade Rights of the Company. The Company has not granted any
license or made any assignment of any Trade Right and no other person has any
right to use any Trade Right owned or held by the Company. The Company does not
pay any royalties or other consideration for the right to use any Trade Rights
of others. Except as set forth in Schedule 3.17, to the knowledge of
Shareholders, there are no inquiries, investigations or claims or litigation
challenging or threatening to challenge the Company's right, title and interest
with respect to its continued use and right to preclude others from using any
Trade Rights of the Company. To the knowledge of Shareholders, all Trade Rights
of the Company are valid, enforceable and in good standing, and there are no
equitable defenses to enforcement based on any act or omission of the Company.
- 11 -
3.18 Contracts and Commitments.
(a) Leases.
(i) Set forth in Schedule 3.18(a) is a list of all
real and personal property leases (the "Leases") to which the
Company is party. Complete and correct copies of each lease
listed on the schedule, and all amendments thereto, have
heretofore been delivered to HealthCare. The Leases are
currently in full force and effect.
(ii) Company is not in default under the Leases; to
the knowledge of the Shareholders, there are no defaults by
the lessors under any of the Leases; and no event has occurred
which with the passage of time or the giving of notice would
constitute a default under any of the Leases. The Company has
not waived any rights under any of the Leases.
(b) Purchase Commitments. Set forth in Schedule 3.18(b) is a
list of all agreements (written or oral) between the Company and third
parties for the purchase of goods and supplies by the Company which
individually call for the payment by the Company after the date hereof
of more than $5,000 or which obligate the Company for a period
extending over a period of more than 90 days from the date hereof.
Complete and correct copies of all such written agreements have
heretofore been delivered to HealthCare.
(c) Sales Commitments. Set forth in Schedule 3.18(c) is a list
and description of all presently effective agreements (written or oral)
between the Company and third parties for the distribution and sale of
its products. Complete and correct copies of all such written contracts
have heretofore been delivered to HealthCare.
(d) Contracts With the Shareholders and Certain Others. Except
for the employment relationship which exists between the Shareholders
and the Company, the Company has no agreement, understanding, contract
or commitment (written or oral) with the Shareholders, or any relative
of the Shareholders.
(e) Collective Bargaining Agreements. The Company is not party
to any collective bargaining agreement with any union.
(f) Loan Agreements. The Company is not obligated under any
loan agreement, promissory note, letter of credit, or other evidence of
indebtedness as a signatory, guarantor or otherwise.
(g) Guarantees. The Company has not under any instrument which
is presently effective guaranteed the payment or performance of any
person, firm or corporation, agreed to indemnify any person or act as a
surety, or otherwise agreed to be contingently or secondarily liable
for the obligations of any person.
- 12 -
(h) Restrictive Agreements. The Company is not party to nor is
it bound by any agreement requiring it to assign any interest in any
trade secret or proprietary information, or prohibiting or restricting
it from competing in any business or geographical area or soliciting
customers or otherwise restricting them from carrying on its business
anywhere in the world.
(i) Other Material Contracts. The Company is not party to any
lease, license, contract (including without limitation contracts with
health maintenance organizations) or commitment of any nature involving
consideration or other expenditure in excess of $5,000, or involving
performance over a period of more than 90 days, or which is otherwise
individually material to the operations of the Company, except as set
forth in Schedule 3.18(i).
(j) No Default. The Company is not in default under any lease,
agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien (as defined in Section 3.19(b) below) on any of the assets owned,
used or occupied by the Company. To the knowledge of the Shareholders,
no third party is in default under any lease, agreement, contract or
commitment to which the Company is a party, nor has any event or
omission occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder or give rise to
an automatic termination, or the right of discretionary termination
thereof.
3.19 Title to and Condition of Properties.
(a) Real Property. The Company does not own any interest in
any real property other than under the leases referred to in Section
3.18(a) hereof.
(b) Personal Property. The Company has good and marketable
title to all its assets, free and clear of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, exceptions,
limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens"). All the Company's tangible assets are located
at the business premises leased by it and all tangible assets located
at such premises are owned by the Company.
(c) Condition. All the Company's tangible assets are, taken as
a whole, in good operating condition and repair, normal wear and tear
excepted.
(d) Land Use Regulations. There are no condemnation, zoning,
land use, or other regulatory proceedings, pending or, to the knowledge
of the Shareholders, planned to be instituted, that could detrimentally
affect the use or occupancy of the real property presently occupied by
the Company or the continued operation of the Company's business as it
is presently being conducted.
- 13 -
3.20 Employee Benefit Plans. Set forth in Schedule 3.20, is a
description of all pension, profit sharing, retirement, bonus, executive or
deferred compensation, hospitalization and other similar fringe or employee
benefit plans, programs and arrangements, and any employment or consulting
contracts, "golden parachutes", severance agreements or plans, vacation and sick
leave plans including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all employee manuals, and all written or binding oral
statements of policies, practices or understandings relating to employment,
which are provided to, for the benefit of, or relate to, any persons employed by
the Company. The items described in the foregoing sentence are hereinafter
sometimes referred to collectively as "Employee Plans/Agreements." True and
correct copies of all written Employee Plans/Agreements, including all
amendments thereto, have heretofore been provided to HealthCare. The Company is
in compliance with and has made all payments due under all Employee
Plans/Agreements and with respect thereto the Company is in compliance with all
applicable federal and state laws and regulations. The Company is not a
contributor to any multi-employer pension plan which has an unfunded liability
with respect to benefits due its participants.
3.21 Employment Compensation. Set forth in Schedule 3.21 is a true and
correct list of:
(a) All employees to whom the Company is paying compensation;
such list identifies the current annual rate of compensation for each
salaried employee and in the case of hourly or commission employees
identifies certain reasonable ranges of rates and the number of
employees falling within each such range; and
(b) All amounts owed to employees of the Company (including
the Shareholders) for accrued sick pay, vacation pay, and bonus pay.
3.22 Key Employees; Bank; Etc. Set forth in Schedule 3.22 is a list
showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.23 Inventory. The inventories of the Company are of a quality and
quantity usable and salable in the ordinary course of business and have a
commercial value at least equal to the value shown on the Financial Statements.
- 14 -
3.24 Disclosure. No representation or warranty by the Shareholders in
this Agreement, nor any statement, certificate, schedule, or exhibit hereto
furnished or to be furnished by or on behalf of the Shareholders pursuant to
this Agreement, nor any document or certificate delivered to HealthCare pursuant
to this Agreement or in connection with transactions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits or
shall omit a material fact necessary to make the statements contained therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HEALTHCARE
HealthCare hereby represents and warrants to the Shareholders as
follows:
4.1 Corporate.
(a) Organization. HealthCare is a corporation duly authorized
and validly existing under the laws of the state of Washington.
(b) Corporate Power. HealthCare has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by it pursuant hereto and to carry out the transactions
contemplated hereby and thereby.
(c) Qualification. HealthCare is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 Capitalization. As of the date thereof, the authorized and issued
capital stock of HCC is as set forth in HCC's Registration Statement on Form
SB-2 (the "Registration Statement") filed with the Securities and Exchange
Commission March 12, 1997, referred to in Section 6.1(a)(ii). All of such issued
and outstanding shares have been validly issued and are fully paid and
nonassessable. The HCC Shares to be issued to the Shareholders pursuant to this
Agreement will, upon issuance, be validly issued, fully paid, and nonassessable
and free and clear of any lien or restriction except as set forth herein.
4.3 Authorization. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by HealthCare
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the board of directors and HCC
as the shareholder of HealthCare. This Agreement constitutes and, when executed
and delivered, the other documents and instruments to be executed and delivered
by HealthCare pursuant hereto, will constitute valid and binding agreements of
HealthCare enforceable against HealthCare in
- 15 -
accordance with their respective terms. The issuance of the HCC Shares as
provided herein has been duly approved by the board of directors of HCC.
4.4 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by
HealthCare pursuant hereto, nor the consummation by it of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body (except the Alberta Stock
Exchange), or (c) will violate or conflict with, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or will result in the termination of, or accelerate the performance
required by, or result in the creation of any material Lien upon any of the
assets of HealthCare under any term or provision of its articles of
incorporation or bylaws or of any material contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which it is a
party or by which it or any of its assets or properties may be bound or
affected.
4.5 Disclosure. No representation or warranty by HealthCare in this
Agreement nor any statement, certificate, schedule, or exhibit hereto furnished
or to be furnished by or on behalf of HealthCare pursuant to this Agreement, nor
any document or certificate delivered to HealthCare pursuant to this Agreement
or in connection with transactions contemplated hereby, contains or shall
contain any untrue statement of material fact or omits or shall omit a material
fact necessary to make the statements contained therein not misleading.
ARTICLE V
COVENANTS
5.1 Covenants of the Shareholders.
(a) Access to Information and Records. The Shareholders agree
that during the period between the date hereof and to the Closing,
HealthCare, its counsel, accountants and other representatives shall be
provided (i) reasonable access during normal business hours to all of
the properties, books, records, contracts and documents of the Company
for the purpose of such inspection, investigation and testing as
HealthCare deems appropriate (and the Shareholders shall furnish or
cause to be furnished to HealthCare and its representatives all
information with respect to the business and affairs of the Company as
HealthCare may reasonably request), (ii) reasonable access to employees
and agents of the Company for such meetings and communications as
HealthCare reasonably desires, and (iii) with the prior consent of the
Company in each instance (which consent shall not be unreasonably
withheld), access to vendors, customers, and others having business
dealings with the Company.
- 16 -
(b) Conduct of Business Pending the Closing. The Shareholders
agree that from the date hereof until the Closing, except as otherwise
approved in writing by HealthCare:
(i) No Changes. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) Maintain Organization. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to HealthCare the present officers
and employees of the Company, and to preserve for HealthCare
its present relationships with suppliers and customers and
others having business relationships with the Company.
(iii) No Breach. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Shareholders herein.
(iv) No Material Contracts. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
(v) No Corporate Changes. The Company shall not amend
its articles of incorporation or bylaws or make any changes in
its authorized or issued capital stock nor grant any right or
option to acquire any shares of its capital stock.
(vi) Maintenance of Insurance. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage.
(vii) Maintenance of Property. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) Interim Financials. The Company will provide
HealthCare with interim monthly financial statements and other
management reports as and when they are available.
- 17 -
(ix) No Dividends. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Shareholders.
(x) Compensation. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
(c) Reimbursement of Vacation Pay. In consideration for
excluding accruals for vacation pay entitlements for employees of the
Company from the definition of Net Working Capital, the Shareholders
agrees to reimburse HealthCare for any vacation pay payments HealthCare
is required to make to former employees of the Company who become
employees of HealthCare as of the Closing and whose employment
terminates for any reason within the first six months following the
Closing to the extent such payments relate to accruals of vacation pay
prior to the Closing.
(d) HCC Shares. The Shareholders agree to retain the HCC
shares for one year after the Closing Date.
(e) Plan Audit. Company's defined contribution benefit plan
referred to in Section 5.2(b) is currently being audited by the
Internal Revenue Service. Shareholders agree to retain responsibility
for the conduct of this audit on behalf of the plan and Company and to
indemnify and hold HealthCare harmless from and against all loss,
costs, fees, expenses, penalties, and interest which might result from
such audit.
5.2 Covenants of HealthCare.
(a) The Shareholders have provided personal guarantees or have
otherwise become individually liable with respect to certain leases,
line of credit agreements, purchase agreements with manufacturers, or
other agreements for the benefit for the Company, including, without
limitation, those described on Schedule 5.2(a). Following the Merger,
HealthCare will use its best efforts to obtain the release of the
Shareholders from all such personal liabilities. To the extent that any
such release cannot be obtained, HealthCare will indemnify and hold the
Shareholders harmless with respect to any loss, cost, or expense the
Shareholders may incur as a result of not being released.
(b) Company has heretofore maintained a defined contribution
benefit plan for its employees. Promptly after the Closing, HealthCare
shall take such action as may be necessary or appropriate to terminate
the plan and arrange for the distribution to the participants of their
account balances. Until the plan is terminated, Shareholders shall be
permitted to remain as its trustees subject to their reasonable
performance of their duties as trustees.
- 18 -
5.3 Acknowledgment. HealthCare and the Shareholders acknowledge that
the rules governing the practice of audiology by corporations in the state of
California and the policies of the administrative agencies charged with the
enforcement of such rules are unclear and their application of the transaction
provided for herein are uncertain. Accordingly, the parties agree that,
notwithstanding any other provision hereof, the parties shall make no claim
against each other related to or arising out of such rules or policies.
ARTICLE VI
SECURITIES LAWS
6.1 Securities Laws.
(a) Investment Representations. The Shareholders represent to
HealthCare as follows:
(i) The Shareholders are acquiring the HCC Shares for
their own account and for investment only, and not with a view
to the distribution of all or any part of the HCC Shares, and
the acquisition of the HCC Shares by the Shareholders and
their continued holding thereof as may be required by law and
the terms hereof are consistent with their financial position.
(ii) The Shareholders have had access to complete
information regarding the business and finances of HCC, have
met and discussed the business and finances of HCC with its
management employees to the extent they deem necessary, have
received, read, and understood the contents of the
Registration Statement, and the Shareholders believe they have
received all the information they consider necessary or
appropriate for deciding whether to receive the HCC Shares as
consideration in the Merger.
(iii) The Shareholders can bear the economic risk of
receiving the HCC Shares as consideration in the Merger, and
have such knowledge and experience in financial or business
matters that they are capable of evaluating the merits and
risks of receiving such shares.
(iv) The Shareholders are "accredited investors" as
that term is defined in Rule 501 of Regulation D promulgated
by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as a result of the following:
(A) Each of the Shareholders has an
individual net worth, or joint worth with the
Shareholder's spouse, which exceeds $1,000,000;
and/or
- 19 -
(B) Each of the Shareholders has had an
individual income in excess of $200,000 in each of
the two most recent years or joint income with
Shareholder's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of
reaching the same income level in the current year.
(b) Limitations on Transfer. Except as expressly provided in this
Agreement, the Shareholders shall not, directly or indirectly, offer or sell,
pledge, transfer, or otherwise dispose of all or any portion of the HCC
Shares, or solicit any offer to buy, purchase, or otherwise acquire or take a
pledge of all or any portion of the HCC Shares, except (A) in the manner and
to the extent described in (i) a registration statement in effect under the
Securities Act of 1933 (the "Act") covering the HCC Shares and as to which a
prospectus meeting the requirements of the Act is duly delivered and filed as
necessary with any state agency or (ii) an opinion of counsel for the
Shareholders reasonably acceptable to HCC, which opinion is in form and
substance satisfactory to counsel for HCC, to the effect that such proposed
offer, sale, pledge, transfer, or other disposition of HCC Shares may
lawfully be made without such registration, delivery or state filing or (B)
pursuant to trades made on the Alberta Stock Exchange ("ASE") after 90 days
following the Closing pursuant to Rule 904 of Regulation S under the Act. The
Shareholders acknowledge that they have consulted with counsel concerning the
limited availability of exemptions from registration under the Act or
exemptions from qualification under state securities laws and they understand
that they (i) may bear the economic risk of investment in the HCC Shares for
an indefinite period of time because the HCC Shares have not been registered
under the Act or qualified under state securities laws and, therefore, cannot
be sold unless they are subsequently registered under the Act or qualified
under state securities laws or an exemption from such registration, such as
that contained in Rule 904, or from state qualification is available, (ii)
HCC is not obligated to register the HCC Shares under the Act or qualify them
under state securities laws, (iii) that absent registration, the HCC Shares
ordinarily may not be sold in the United States for at least one year after
the Closing and then only in accordance with Rule 144 under the Act, and
absent qualification under state securities laws may be subject to similar
restrictions and (iv) the HCC Shares may not be sold, transferred or
otherwise disposed of in the province of Alberta, Canada, or traded through
the facilities of the ASE for a period of 90 days following the Closing.
(c) Legends on Certificates. Certificates representing the HCC Shares
shall be endorsed with legends, (i) substantially in the form set forth in
Schedule 6.1(c) hereto, and (ii) to the effect that the HCC Shares may not be
traded in Canada for 90 days following the Closing. HCC need not recognize
any person other than the Shareholders as having any interest in or to the
HCC Shares unless the acquisition thereof shall have been made in compliance
with Subsection 6.1(b) above. HCC may issue appropriate stop transfer
instructions to the transfer agent for the HCC Shares to prevent transfers in
violation of Subsection 6.1(b) hereof.
(d) Removal of Legends.
- 20 -
(i) At any time while the HCC Shares are registered under the
Act, HCC shall, upon written request, cause the certificates
representing the HCC Shares to be reissued free of all legends and
withdraw all stop transfer instructions. Upon the termination of any
such registration, if the Shareholders own HCC Shares represented by
a certificate without such legends, the Shareholders shall, upon
written request, promptly return such certificate to HCC for
reissuance on a certificate endorsed with the legends specified in,
and otherwise subject to, the provisions of Subsection 6.1(c). Three
years after the Closing, HCC's right to request the return of
unlegended certificates for previously registered HCC Shares shall
terminate and HCC shall, upon written request of the Shareholders,
cause any certificates bearing one or more legends to be reissued
free of such legends and withdraw all stop transfer instructions,
provided that Rule 144(k) under the Act, or a comparable rule, is in
effect in substantially its present form and the Shareholders
furnishes to HCC evidence satisfactory to HCC and its counsel that
they meet the requirements of such rule.
(ii) HealthCare shall, upon written request, cause a
certificate representing all or a portion of the HCC Shares to be
reissued free of all legends and shall withdraw all stop transfer
instructions upon the provision by the Shareholders of a declaration
to The R-M Trust Company as transfer agent in substantially the form
set forth in Schedule 6.1(d)(ii) hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO HEALTHCARE'S OBLIGATIONS
Each and every obligation of HealthCare to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the written
waiver by HealthCare) of each of the following conditions:
7.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by the Shareholders in this Agreement, or in
any instrument, schedule, list, certificate or writing delivered by Shareholders
pursuant to this Agreement, shall be true and correct when made and shall be
true and correct in all material respects at and as of the Closing as though
such representations and warranties were made as of the Closing.
7.2 Compliance With Agreement. The Shareholders shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing, including the delivery of the Closing documents
specified in Section 2.2(a) hereof.
7.3 Absence of Suit. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against HealthCare, the Company or any of the affiliates, officers
or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of HealthCare
shall not be
- 21 -
affected unless there is a reasonable likelihood that as a result of such
action, suit, investigation, or proceeding HealthCare will be unable to retain
substantially all the practical benefits of the transaction to which it is
entitled under this Agreement.
7.4 Approvals; Consents. All consents (including without limitation
those of Xxxxxxxx Xxxxx Medical Group, a California professional corporation,
and Xxxxx & Son, a California limited partnership), permits, approvals, licenses
or orders from any governmental or regulatory body or other third party required
to be obtained by the Shareholders for the lawful consummation of the
transactions contemplated by this Agreement shall have been obtained except
where failure to obtain such consents, permits, approvals, licenses or orders
would not have a material adverse effect (whether or not such effect is referred
to or described in any Schedule) on the business, prospects, financial
conditions, assets, reserves or operations of the Company taken as a whole.
7.5 No Material Adverse Change. From the date of the most recent
Financial Statements to the Closing, the Company shall not have suffered any
change which has a material adverse effect (whether or not such effect is
referred to or described in any Schedule) on the business, prospects, financial
condition, assets, reserves or operations of the Company taken as a whole.
7.6 Agreements.
(a) Noncompetition Agreement. Each of the Shareholders shall
have executed and delivered to HealthCare a Noncompetition Agreement
substantially in the form attached hereto as Schedule 7.6(a).
(b) Employment Agreement. Each of the Shareholders shall have
executed and delivered to HealthCare an Employment Agreement
substantially in the form of Schedule 7.6(b) hereto.
7.7 Alberta Stock Exchange. The issuance of the HCC Shares to the
Shareholders shall have been conditionally approved by the ASE.
7.8 Investor Questionnaires. Shareholders shall each have delivered to
HealthCare a completed investor questionnaire in the form heretofore provided by
HealthCare.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE SHAREHOLDERS'S OBLIGATIONS
Each and every obligation of the Shareholders to be performed at
Closing shall be subject to the satisfaction prior to or at the Closing (or the
written waiver by the Shareholders) of the following conditions:
8.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by HealthCare in this Agreement, or in any
instrument, list, certificate or writing delivered by HealthCare pursuant to
this Agreement, shall be true and correct
- 22 -
when made and shall be true and correct at and as of the Closing as though such
representations and warranties were made as of the Closing.
8.2 Compliance With Agreement. HealthCare shall have in all material
respects performed and complied with all of HealthCare's agreements and
obligations under this Agreement which are to be performed or complied with by
HealthCare prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
8.3 Absence of Suit. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against HealthCare, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Shareholders shall not be affected unless there is a reasonable likelihood that
as a result of such action, suit, proceeding or investigation, the Shareholders
will be unable to retain substantially all the consideration to which they are
entitled under this Agreement.
8.4 Agreements. HealthCare shall have executed and delivered to each of
the Shareholders the Employment and Noncompetition Agreements referred to in
Section 7.6(a) and (b) hereof.
8.5 Alberta Stock Exchange. The issuance of the HCC Shares to the
Shareholders shall have been conditionally approved by the ASE.
ARTICLE IX
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
9.1 Indemnification by Shareholders. The Shareholders hereby agree to
indemnify, defend, and hold HealthCare harmless from and against all Claims (as
defined below) asserted against, resulting to, imposed upon, or incurred by
HealthCare directly or indirectly by reason of, arising out of, or resulting
from (a) the inaccuracy or breach of any representation or warranty of the
Shareholders contained in or made pursuant to this Agreement, or (b) the breach
of any covenant of the Shareholders contained in this Agreement. As used in this
Section 9.1, the term "Claim" shall include all losses, damages, judgments,
awards, settlements, costs, and expenses (including without limitation
penalties, court costs, and attorneys fees and expenses at trial and on appeal)
awarded by the arbitrator or arbitrators pursuant to Section 10.12 hereof.
9.2 Indemnification by HealthCare. HealthCare hereby agrees to
indemnify, defend, and hold harmless the Shareholders from and against all
Claims (as defined in Section 9.1) asserted against, resulting to, imposed upon,
or incurred by the Shareholders directly or indirectly by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any representation or
warranty of HealthCare contained in or made pursuant to this Agreement, or (b)
the breach of any covenant of HealthCare contained in this Agreement.
- 23 -
9.3 Notice; Defense of Claims. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
or they so elects, to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its or their own choice
to handle and defend the same, at the indemnifying party's cost, risk and
expense provided that the indemnifying party and its or their counsel shall
proceed with diligence and in good faith with respect thereto. The indemnified
party shall cooperate in all reasonable respects with the indemnifying party and
such attorneys in the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom; provided, however, that the indemnified party
may, at its or their own cost, participate in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom.
9.4 Survival of Representations. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement for a period ending 90 days after the second fiscal year end
(July 31) of HealthCare which occurs after the Closing (except for the
representations and warranties of the Shareholders set forth in Section 3.12
hereof which shall expire 90 days after the applicable statutes of limitation
shall have run with respect to all tax returns filed by the Company for all
periods ended on or before the Closing) after which all such representations and
warranties shall expire except with respect to claims asserted in writing prior
to such date.
ARTICLE X
MISCELLANEOUS
10.1 Termination.
(a) Right of Termination Without Breach. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either HealthCare or the Shareholders if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
- 24 -
(b) Termination for Breach.
(i) Termination by HealthCare. If there has been a
material breach by the Shareholders of any of their
agreements, representations or warranties contained in this
Agreement which has not been waived in writing by HealthCare,
then HealthCare may, by written notice to the Shareholders at
any time prior to the Closing that such breach is continuing,
terminate this Agreement with the effect set forth in Section
10.1(b)(iii) hereof.
(ii) Termination by Shareholders. If there has been a
material breach by HealthCare of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Shareholders, then
the Shareholders may, by written notice to HealthCare at any
time prior to the Closing that such breach is continuing,
terminate this Agreement with the effect set forth in Section
10.1(b)(iii).
(iii) Effect of Termination. Termination of this
Agreement pursuant to this Section 10.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed to perform any of the representations, warranties,
covenants, or agreements of this Agreement prior to
termination hereof.
10.2 Waiver. The Shareholders or HealthCare may (a) extend the time for
the performance of any of the obligations or other acts of the other, (b) waive
any inaccuracies in the representations and warranties of the other contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements of the other or satisfaction of any of the conditions
to its obligations contained herein. Any extension or waiver made pursuant to
this Section 10.2 must be by an instrument in writing signed on behalf of the
party granting the extension or waiver. A waiver by any party of any provision
hereof or breach hereof shall not operate or be construed as the waiver of any
other provision or any subsequent breach.
10.3 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
10.4 Dollars. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
10.5 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.6 Headings; Severability. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of
- 25 -
this Agreement shall be treated as separate and distinct and, in the event of
any provision hereof being declared invalid, such invalid provision shall be
deemed to be severable and all other provisions hereof shall remain in full
force and effect.
10.7 Schedules. The Schedules are a part of this Agreement as if fully
set forth --------- herein.
10.8 Disclosures and Announcements. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either the Shareholders or
HealthCare shall be subject to the approval of the other in all essential
respects, except that the Shareholders's approval shall not be required as to
any announcements or filings HealthCare may be required to make under applicable
laws or regulations.
10.9 Confidential Information. Following the Closing, the Shareholders
shall use their best efforts to cause all of their agents, officers, directors
and employees to treat and safeguard all Confidential Information concerning the
Company and, except as required by law, agree not to disclose or reveal any
Confidential Information to any third party or otherwise use such Confidential
Information. For purposes of this Agreement, "Confidential Information" shall
mean information of a valuable, proprietary and confidential nature relating
directly to the Company, asset lists and valuations of any kind, customer lists,
trade secrets, formulae, methods or processes, channels of distribution, pricing
policies and records. The term "Confidential Information" does not include
information that (a) is or becomes generally available to the public or is a
recognized standard industry practice; or (b) becomes available subsequent to
the date hereof to Shareholders on a non-confidential basis from a source other
than HealthCare or the Company.
10.10 Expenses. The Shareholders agrees to pay all fees and expenses
incurred by them in connection with this Agreement including, without
limitation, all fees of counsel and accountants.
10.11 Notice. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by private overnight courier service. The respective
addresses and telephone numbers to be used for all such notices, demands or
requests are as follows:
If to HealthCare HealthCare Hearing Clinics, Inc.
000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Attn: President
Personal & Confidential
Facsimile: (000) 000-0000
- 26 -
with a copy to: G. Xxxx Xxxxxxx
Miller, Nash, Wiener, Hager & Xxxxxxx
000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile: (000) 000-0000
If to Shareholders: Xxxx X. Xxxx
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile:
and Xxxxx Xxxxx
00 Xxxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Facsimile:
with a copy to: Xx. Xxxxxx Xxxxx
0000 Xxxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile (000) 000-0000
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
10.12 Resolution of Disputes.
(a) Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in Long Beach,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 10.12. Notwithstanding the
foregoing, HealthCare, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the provisions of the Shareholders under any
noncompetition and confidentiality agreements executed pursuant to this
Agreement.
(b) Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand
for arbitration, to exceed Fifty Thousand Dollars ($50,000), then the
panel to be appointed shall consist of three neutral arbitrators,
otherwise one neutral arbitrator.
- 27 -
(c) Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days
after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons,
including (without limitation) persons who have failed or refused to
participate in the arbitration process.
(d) Authority. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Shareholders and HealthCare hereby
submit to the in personam jurisdiction of the federal and state courts
in California for the purpose of confirming any such award and entering
judgment thereon.
(f) Confidentiality. All proceedings under this Section 10.12,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Section 10.12 shall have been
or may be invoked shall not excuse any party from performing its
obligations under this Agreement, and during the pendency of any such
procedure all parties shall continue to perform their respective
obligations in good faith, subject to any rights to terminate this
Agreement that may be available to any party.
10.13 Brokers and Finders. HealthCare on the one hand and Shareholders
jointly on the other, each agree to indemnify and hold the other harmless from
and against any claim made for a broker's or a finder's fee or other similar
compensation (and all related costs and expenses) asserted against an
indemnified party which arises out of or results from an action taken by an
indemnifying party.
10.14 Governing Law. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of California, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
10.15 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart
- 28 -
may consist of a number of copies hereof each signed by less than all, but
together signed by all, of the parties hereto.
10.16 Entire Agreement. This Agreement (including the Schedules) and
the agreements, certificates and other documents delivered pursuant hereto
contain the entire agreement between the parties hereto. All parties
collaborated in the preparation of this Agreement and it has been reviewed by
attorneys for each party. No one party should be considered the author of any
specific language for purposes of legal presumptions.
10.17 Further Assurances. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
10.18 Action of Shareholders. Whenever in this Agreement the
Shareholders are given the discretion to take or not take any action, the
decision of the Shareholders shall be made pursuant to the vote of the
Shareholders holding a majority of the shares of the Company.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
COMPANY: HEALTHCARE:
HEARING IMPROVEMENT CENTER, HEALTHCARE HEARING CLINICS, INC.
INC.
By --------------------------- By /s/ Xxxxx X. Kawasaki
--------------, President Xxxxx X. Kawasaki, Vice President
SHAREHOLDERS:
/s/ Xxxx X. Xxxx
------------------------------
Xxxx X. Xxxx
/s/ Xxxxx Xxxxx
------------------------------
Xxxxx Xxxxx
The undersigned, being the spouses of the Shareholders named in the foregoing
Merger Agreement, hereby relinquish all right, title, and interest, including,
without limitation, any
- 29 -
community property rights under California law to the shares of the Company and
hereby consent and agree to the transfer of such shares pursuant to such
Agreement
/s/ Xxxxxxx Xxxx /s/ Xxxx Xxxxx
------------------------------ --------------------------------------
Xxxxxxx Xxxx Xxxx Xxxxx
- 30 -
SCHEDULES
[omitted]
Schedule 1.1 Agreement and Plan of Merger
Schedule 1.4(a)-1 Promissory Note for $132,624
Schedule 1.4(a)-2 Promissory Note for $282,036
Schedule 1.7 Shareholders' Loans
Schedule 2.2(a)(ii) Opinion of Shareholders's Counsel
Schedule 2.2(b)(ii) Opinion of HealthCare's Counsel
Schedule III Disclosure Statement
Schedule 3.8 No Litigation
Schedule 3.9(b) Licenses and Permits
Schedule 3.13 Product Warranty
Schedule 3.17 Patents, Trademarks, etc.
Schedule 3.18(a) Real Property and Personal Property Leases
Schedule 3.18(b) Purchase Commitments
Schedule 3.18(c) Sales Commitments
Schedule 3.18(i) Other Material Contracts
Schedule 3.20 Employee Benefit Plans
Schedule 3.21 Employment Compensation
Schedule 3.22 Key Employees, Bank, Etc.
Schedule 5.2(a) Shareholders Personal Liability
Schedule 6.1(c) Legends on Certificates
Schedule 6.1(d)(ii) Declaration for Removal of Legends
Schedule 7.6(a) Noncompetition Agreement
Schedule 7.6(b) Employment Agreement
- 31 -
