NOTICE OF INDEMNIFICATION: THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
IN ARTICLE VII, NOTICE OF WHICH IS HEREBY GIVEN.
SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 12, 1997
BY AND AMONG
INTEGRATED ORTHOPAEDICS INVESTORS, L.P.,
INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.,
INTEGRATED ORTHOPAEDICS, INC.,
FOR PURPOSES OF SECTION 6.6 AND 9.11 ONLY,
CHARTWELL CAPITAL INVESTORS, L.P.,
AND
FOR PURPOSES OF SECTION 9.11 ONLY,
XXXX X. XXXXXXX, XXXXXX X. XXXXXX,
XXXXXXXXX X. XXXXX, XXXXXXXX XXXXXX,
XXXXXXX X. XXXXXXX, M.D., AND XXXXXX XXX XXXXXXX
TABLE OF CONTENTS
Page
ARTICLE I. ISSUANCE OF SECURITIES..................................... 1
1.1. Authorization.............................................. 1
1.2. Purchase and Sale of the Securities; the Closing........... 1
ARTICLE II. REPRESENTATIONS AND WARRANTIES............................. 2
2.1. Representations and Warranties of the Company.............. 2
2.1.1. Organization and Good Standing................... 2
2.1.2. Authorization of Agreement; Binding Obligation... 2
2.1.3. Subsidiaries and Equity Investments.............. 3
2.1.4. No Restrictions Against Issuance of Securities;
Required Consents................................ 3
2.1.5. Capitalization................................... 4
2.1.6. Financial Statements............................. 5
2.1.7. Accounts Receivable.............................. 5
2.1.8. Business, Properties and Other Information....... 5
2.1.9. Absence of Undisclosed Liabilities............... 7
2.1.10. Books of Account................................. 7
2.1.11. Contracts and Commitments........................ 7
2.1.12. Liens and Encumbrances; Condition of Assets...... 9
2.1.13. Regulatory Compliance............................ 9
2.1.14. Insurance........................................ 10
2.1.15. Conduct of the Business Since the Interim Balance
Sheet Date....................................... 11
2.1.16. Employee Benefit Plans........................... 12
2.1.17. Litigation; Decrees.............................. 13
2.1.18. Compliance With Law; Permits..................... 13
2.1.19. Taxes............................................ 13
2.1.20. Real Property.................................... 14
2.1.21. Commissions or Finders Fees...................... 15
2.1.22. Certain Business Practices and Regulations;
Affiliate Transactions........................... 15
2.1.23. Compliance with American Stock Exchange Rules and
Regulations...................................... 15
2.1.24. Shareholder Proposals............................ 16
2.1.25. Disclosure....................................... 16
2.2. Representations and Warranties of the Purchasers........... 17
2.2.1. Corporate Organization........................... 17
2.2.2. Authorization and Effect of Agreement............ 17
2.2.3. Purchase of Securities........................... 17
ARTICLE III. PRE-CLOSING COVENANTS............................ 17
3.1. Access to Information; Communications.......................... 17
3.2. Conduct of Business............................................ 18
3.3. Supplemental Financial Statements.............................. 20
3.4. Notification................................................... 20
3.5. Cooperation.................................................... 20
3.6. No Inconsistent Action......................................... 21
3.7. Satisfaction of Conditions..................................... 21
3.8. Confidentiality................................................ 21
3.9. Publicity...................................................... 21
3.10. Acquisition Proposals.......................................... 22
ARTICLE IV. CONDITIONS TO CLOSING............................ 22
4.1. Conditions Precedent to Obligations of the Purchasers.......... 22
4.1.1. Representations, Warranties and Covenants.............. 22
4.1.2. Certificate of Controlling Stockholders................ 22
4.1.3. Closing Documents...................................... 23
4.1.4. Governmental Consents or Approvals..................... 23
4.1.5. No Adverse Proceedings................................. 23
4.1.6. Opinions............................................... 23
4.1.7. Registration Rights Agreements......................... 23
4.1.8. Warrant Agreements and Warrants........................ 23
4.1.9. Stock Certificates..................................... 23
4.1.10. Certificate of Designation............................. 23
4.1.11. Acquisition Committee Designees........................ 24
4.1.12. Chartwell Matters...................................... 24
4.1.13. Private Placement Numbers.............................. 24
4.1.14. Reserved Shares........................................ 24
4.1.15. Payment of Fees........................................ 24
4.1.16. Amendment to By-laws................................... 24
4.1.17. Additional Listing Application......................... 24
4.1.18. Termination of Agreements.............................. 24
4.1.19. Directors.............................................. 24
4.2. Conditions Precedent to Obligations of the Company............. 25
4.2.1. No Material Misrepresentation or Breach................ 25
4.2.2. Closing Documents...................................... 25
4.2.3. Governmental Consents or Approvals..................... 25
4.2.4. No Adverse Proceedings................................. 25
ARTICLE V. DOCUMENTS TO BE DELIVERED AT THE CLOSING..........25
5.1. Documents to be Delivered by the Company....................... 25
5.1.1. Certified Resolutions.................................. 25
5.1.2. Officer's Certificate.................................. 26
5.1.3. Good Standing Certificates............................. 26
5.1.4. Other Documents........................................ 26
5.2. Documents to be Delivered by the Purchasers.................... 26
5.2.1. Purchase Price......................................... 26
5.2.2. Other Documents........................................ 26
ARTICLE VI. POST-CLOSING COVENANTS.......................... 26
6.1. Acquisition Committee Designees................................ 26
6.2. Board Designees................................................ 26
6.3. Post-Closing Notifications..................................... 27
6.4. Certain Tax Matters............................................ 27
6.5. Financial Statements and Information........................... 27
6.6. Right of First Refusal......................................... 28
6.7. Reservation of Shares of Common Stock.......................... 29
6.8. Preparation of Proxy Statement; Shareholders Meeting........... 29
ARTICLE VII. SURVIVAL AND INDEMNIFICATION.................... 29
7.1. Survival of Representations, Warranties and Covenants.......... 29
7.2. Certain Definitions............................................ 30
7.3. Indemnification................................................ 30
7.4. Defense of Claims.............................................. 31
7.5. Limitation of Liability; Equitable Adjustment.................. 32
ARTICLE VIII. TERMINATION..................................... 33
8.1. Termination.................................................... 33
ARTICLE IX. MISCELLANEOUS PROVISIONS........................ 34
9.1. Specific Performance........................................... 34
9.2. Notices........................................................ 34
9.3. Expenses....................................................... 36
9.4. Successors and Assigns......................................... 36
9.5. Waiver......................................................... 37
9.6. Entire Agreement............................................... 37
9.7. Amendments and Supplements..................................... 37
9.8. Rights of the Parties.......................................... 37
9.9. Brokers........................................................ 37
9.10. Further Assurances............................................. 38
9.11. Irrevocable Proxy.............................................. 38
9.12. Governing Law.................................................. 39
9.13. Severability................................................... 39
9.14. Execution in Counterparts...................................... 39
9.15. Titles and Headings............................................ 39
9.16. Certain Interpretive Matters and Definitions................... 39
Defined Terms
Acquisition Committee....................................... Section 4.1.11
Acquisition Proposal........................................ Section 3.10
Agreement................................................... Introduction
Business.................................................... Recitals
Certificate of Designation.................................. Section 1.1
Closing Date................................................ Section 1.2
Code........................................................ Section 2.1.16(b)
Commission.................................................. Section 2.1.8
Common Stock................................................ Section 1.1
Company..................................................... Introduction
Direct Claim................................................ Section 7.4(d)
Employee Plans.............................................. Section 2.1.16(a)
ERISA....................................................... Section 2.1.16(a)
Exchange Act................................................ Section 2.1.8
Excluded Representations and Warranties..................... Section 7.1
First Refusal Offer......................................... Section 6.6(a)
GAAP........................................................ Section 2.1.6
Governmental Entity......................................... Section 2.1.4
Indemnifiable Losses........................................ Section 7.2
Indemnifying Party.......................................... Section 7.2
Indemnitee.................................................. Section 7.2
Indemnity Payment........................................... Section 7.2
Interim Balance Sheet Date.................................. Section 2.1.6
Interim Balance Sheet....................................... Section 2.1.6
liabilities................................................. Section 2.1.9
Liens....................................................... Section 2.1.12(a)
Offer....................................................... Section 6.6(a)
Option Holders.............................................. Section 6.6(a)
Pension Plans............................................... Section 2.1.16(a)
Permits..................................................... Section 2.1.18
Permitted Liens............................................. Section 2.1.12(a)
Physician Practice Groups................................... Section 2.1.13
Proxy Statement............................................. Section 6.8(a)
Purchaser................................................... Introduction
Record Date................................................. Section 2.1.24
Registration Rights Agreement............................... Section 4.1.7
Sale Notice................................................. Section 6.6(a)
SEC Reports.................................................. Section 2.1.8
Securities................................................... Section 1.1
Securities Act............................................... Section 2.1.4
Series A Preferred Stock..................................... Section 2.1.5
Series B Preferred Stock..................................... Section 1.1
Shareholder Proposals........................................ Section 9.11
Subsidiaries................................................. Section 2.1.3
Supplemental Financial Statements............................ Section 3.3
Tax Return................................................... Section 2.1.19(e)
Tax.......................................................... Section 2.1.19(e)
Taxes........................................................ Section 2.1.19(e)
Third Party Claim............................................ Section 7.2
Transaction Documents........................................ Section 9.15(a)
Warrant Agreement............................................ Section 1.1
Warrants..................................................... Section 1.1
Exhibits
--------
Exhibit A Form of Certificate of Designation
Exhibit B Form of Warrant Agreement and Warrant
Exhibit C Form of Opinion of Xxxxxxx Xxxx & Xxxxxxxxx
Exhibit D Form of Opinion of Xxxxxxxxx & Grundy, L.L.P.
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of First Amendment to Investment Agreement
Exhibit G Form of Termination Agreement
Exhibit H Form of Amended and Restated Certificate of Designation Regarding
the Series A Preferred Stock
Exhibit I Form of Amended and Restated By-laws
Schedules
---------
Schedule I Purchasers and Securities
Schedule 2.1.1 Organization and Good Standing
Schedule 2.1.3 Subsidiaries and Equity Investments
Schedule 2.1.4 No Restrictions Against Issuance of Securities; Required
Consents
Schedule 2.1.5 Capitalization
Schedule 2.1.6 Financial Statements
Schedule 2.1.7 Accounts Receivable
Schedule 2.1.9 Absence of Undisclosed Liabilities
Schedule 2.1.11(a) Contracts and Commitments
Schedule 2.1.11(b) Exceptions to Contracts and Commitments
Schedule 2.1.12(a) Liens and Encumbrances; Condition of Assets
Schedule 2.1.14 Insurance
Schedule 2.1.15 Conduct of the Business Since the Interim Balance Sheet Date
Schedule 2.1.16(a) Employee Benefit Plans
Schedule 2.1.16(b) Pension Plans
Schedule 2.1.17 Litigation; Decrees
Schedule 2.1.18 Compliance With Law; Permits
Schedule 2.1.20 Real Property
Schedule 2.1.22(b) Certain Business Practices and Regulations; Affiliated
Transactions
Schedule 2.1.24 Stock Ownership Listing
Schedule 3.2 Conduct of Business
Schedule 4.1.18 Terminated Agreements
Schedule 4.1.19 Resigning Directors
Schedule I
Purchaser Securities to be Purchased
--------- --------------------------
FW Integrated Orthopaedics Investors, L.P. 125,000 shares of Series B
Preferred Stock;
Warrant to Purchase 2,500,000
Stock Units
FW Integrated Orthopaedics Investors II, L.P. 125,000 shares of Series B
Preferred Stock;
Warrant to Purchase 2,500,000
Stock Units
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 12, 1997, by and among FW Integrated Orthopaedics Investors,
L.P., a Texas limited partnership, FW Integrated Orthopaedics Investors II,
L.P., a Texas limited partnership (each a "Purchaser" and collectively, the
"Purchasers"), Integrated Orthopaedics, Inc., a Texas corporation (the
"Company"), for purposes of Sections 6.6 and 9.11 only, Chartwell Capital
Investors, L.P., and for purposes of Section 9.11 only, Xxxx X. Xxxxxxx, Xxxxxx
X. Xxxxxx, Xxxxxxxxx X. Xxxxx, Xxxxxxxx Xxxxxx, Xxxxxxx X. Xxxxxxx, M.D. and
Xxxxxx Xxx Xxxxxxx.
RECITALS:
--------
A. The Company presently conducts the business of managing and
administering physician practice groups specializing in orthopaedics (the
"Business");
B. The Company requires additional capital in order to expand the
Business; and
C. The Purchasers desire to provide additional capital to the Company for
such purpose in accordance with the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. ISSUANCE OF SECURITIES
1.1. Authorization. The Company has duly authorized the issuance and sale
of (a) 250,000 shares of its Series B Convertible, Non-Redeemable Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), having an
aggregate initial liquidation preference of $25,000,000 plus accrued and unpaid
dividends thereon, and other rights as specified in the Certificate of
Designation of Rights and Preferences in the form of Exhibit A attached hereto
(the "Certificate of Designation") and (b) Contingent Warrants (the "Warrants"
and, together with the Series B Preferred Stock, the "Securities") to purchase
5,000,000 shares of Common Stock, par value $.001 per share, of the Company
("Common Stock"). The form of Warrant Agreement ("Warrant Agreement") and form
of related Warrant are attached hereto as Exhibit B.
1.2. Purchase and Sale of the Securities; the Closing. Subject to the
terms and conditions hereof, the Company hereby agrees to sell to the
Purchasers, and the Purchasers hereby agree to purchase from the Company, the
Securities in the amounts set forth on Schedule I hereto, for an aggregate
purchase price of $25,000,000. The closing of such sale
and purchase shall be held at 10:00 A.M., Houston time, on December 12, 1997, or
on such other day as may be agreed by the Company and the Purchasers (the
"Closing Date"), at the offices of Weil, Gotshal & Xxxxxx LLP, 000 Xxxxxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxx 00000.
On the Closing Date, the Company will deliver to the Purchasers (a)
one or more certificates representing the shares of Series B Preferred Stock,
registered in the names of the Purchasers or in the names of one or more
nominees of the Purchasers and in any denomination as the Purchasers may specify
by timely notice to the Company (or, in the absence of such notice, one
certificate registered in the name of each Purchaser in the amounts designated
on Schedule I attached hereto) and (b) one or more executed Warrant Agreements
for each of the Purchasers or one or more of their nominees, and one or more
Warrants registered in the names of the Purchasers or in the names of one or
more such nominees of the Purchasers and in any denomination as the Purchasers
may specify by timely notice to the Company (or, in the absence of such notice,
one Warrant registered in the name of each Purchaser in the amounts designated
on Schedule I attached hereto), in each case against delivery to the Company of
immediately available funds in the amount of the purchase price of such
Securities, such delivery to be made by wire transfer to the Company's Account
No. 0000-000-000 at Xxxxx Fargo Bank, N.A., 0000 Xxxxxxxxx, Xxxxxxx, Xxxxx 00000
(ABA No. 000000000).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company. The Company makes the
following representations and warranties to the Purchasers, each of which is
true and correct as of the date hereof and shall be true and correct as of the
Closing Date and shall be unaffected by any investigation heretofore or
hereafter made by the Purchasers.
2.1.1. Organization and Good Standing. The Company and each of the
Subsidiaries (as hereinafter defined) is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
The Company and each of the Subsidiaries has the requisite corporate power and
authority to own, lease or otherwise hold the assets owned, leased or otherwise
held by it and to carry on the Business as presently conducted by it. The
Company and each of the Subsidiaries is in good standing and duly qualified to
conduct business as a foreign corporation in every state of the United States in
which its ownership or lease of property or conduct of business makes such
qualification necessary. Such of the foregoing states are listed on Schedule
2.1.1.
2.1.2. Authorization of Agreement; Binding Obligation. The Company
has the requisite corporate power to execute and to deliver this Agreement and
the other
2
Transaction Documents (as hereinafter defined) and to perform the transactions
contemplated hereby and thereby to be performed by it. The execution and
delivery by the Company of this Agreement and the other Transaction Documents
and the performance by it of the transactions contemplated hereby and thereby to
be performed by it have been duly authorized by all necessary corporate action
on the part of the Company. This Agreement and the other Transaction Documents
have been duly executed and delivered by duly authorized officers of the Company
and constitute valid and binding obligations of the Company enforceable against
it in accordance with terms hereof or thereof, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.1.3. Subsidiaries and Equity Investments. (a) Schedule 2.1.3 sets
forth (i) the name of each corporation of which the Company directly or
indirectly owns shares of capital stock having in the aggregate 50% or more of
the total combined voting power of the issued and outstanding shares of capital
stock entitled to vote generally in the election of directors of such
corporation (individually, a "Subsidiary" and collectively, the "Subsidiaries");
(ii) the name of each corporation, partnership, limited liability company, joint
venture or other entity (other than the Subsidiaries) in which the Company or
any Subsidiary has, or pursuant to any agreement has the right to acquire at any
time by any means, an equity interest or investment; (iii) in the case of each
of the Subsidiaries and such other corporations described in the foregoing
clause (ii), (A) the jurisdiction of incorporation and (B) the capitalization
thereof and the percentage of each class of voting stock owned by the Company or
by any of the Subsidiaries; and (iv) in the case of each of such unincorporated
entities, the equivalent of the information provided pursuant to the preceding
clause (iii) with regard to corporate entities.
(b) All of the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially by the Company, free and clear of any Liens
(as hereinafter defined).
(c) There are no options, warrants, calls, subscriptions, conversion
or other rights, agreements or commitments obligating any Subsidiary to issue
any additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of such
capital stock.
2.1.4. No Restrictions Against Issuance of Securities; Required
Consents. Except as disclosed on Schedule 2.1.4, the execution and delivery of
this Agreement and the other Transaction Documents by the Company does not, and
the performance by the
3
Company of the transactions contemplated hereby or thereby to be performed by it
will not, (a) conflict with the articles of incorporation or by-laws of the
Company or any Subsidiary, (b) conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a benefit under, any contract, permit, order, judgment
or decree to which the Company or any Subsidiary is a party or by which any of
their properties are bound, (c) constitute a violation of any law or regulation
applicable to the Company or any Subsidiary, or (d) result in the creation of
any Lien upon any of the Company's or the Subsidiaries' assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any nation or government, any state or other political subdivision thereof
or an entity exercising executive, legislative, judicial, regulatory or
administrative function of or pertaining to government (each a "Governmental
Entity") is required to be obtained or made by or with respect to the Company in
connection with the execution and delivery of this Agreement or any of the other
Transaction Documents by the Company or the performance by the Company of the
transactions contemplated hereby or thereby to be performed by it. Assuming the
accuracy of the Purchasers' representations and warranties contained in Section
2.2.3 hereof, the issuance and sale of the Securities are exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act").
2.1.5. Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 10,000,000 shares of preferred
stock, par value $.01 per share. As of the date hereof, the Company has, in the
aggregate, 5,510,374 shares of Common Stock (including 13,833 shares held in
treasury) and 25,226 shares of Series A Preferred Stock, par value $.01 per
share ("Series A Preferred Stock"), issued and outstanding, all of which have
been validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive rights. At the Closing, the Series B Preferred
Stock shall be validly issued, fully paid and non-assessable and shall have not
been issued in violation of any preemptive rights. As of the Closing Date,
6,550,000 shares of Common Stock will have been reserved for issuance upon
conversion of the Series B Preferred Stock and 5,000,000 shares of Common Stock
will have been reserved for issuance upon exercise of the Warrants, and when so
issued, all such shares of Common Stock will be validly issued, fully paid and
non-assessable and none of such shares of Common Stock will be issued in
violation of any preemptive rights. Except as disclosed on Schedule 2.1.5,
there are no options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating the Company to issue any capital
stock of the Company or any other securities convertible into, or exchangeable,
exercisable or evidencing the right to subscribe for, capital stock of the
Company.
4
2.1.6. Financial Statements. The Company has delivered to the
Purchasers true and complete copies of (a) the audited consolidated balance
sheets of the Company at December 31, 1996 and 1995 and the related statements
of income, cash flow and changes in shareholders' equity for the fiscal years
then ended, accompanied by certified opinions of the Company's auditing firm;
and (b) unaudited consolidated balance sheets of the Company at September 30,
1997 and 1996 and related statements of income, cash flow and changes in
shareholders' equity for the periods then ended, all of which have been prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP") throughout the periods involved, all of which is subject to the
disclosure set forth in Section 2.1.6. Such consolidated balance sheets,
including the related notes, fairly present the financial position, assets and
liabilities (whether accrued, absolute, contingent or otherwise) of the Company
and the Subsidiaries at the dates indicated and such statements of income, cash
flow and changes in shareholders' equity fairly present the results of
operations, cash flow and changes in shareholders' equity of the Company and the
Subsidiaries for the periods indicated. The unaudited consolidated financial
statements as at and for the periods ending September 30, 1997 and 1996 contain
all adjustments, which are solely of a normal recurring nature, necessary to
present fairly the financial position and results of operations of the Company
and the Subsidiaries for the periods then ended. References in this Agreement
to the "Interim Balance Sheet" shall mean the consolidated balance sheet of the
Company as of September 30, 1997 referred to above; and references in this
Agreement to the "Interim Balance Sheet Date" shall be deemed to refer to
September 30, 1997.
2.1.7. Accounts Receivable. The accounts receivable of the Company
and the Subsidiaries as set forth on the Interim Balance Sheet or arising since
the date thereof are valid and genuine; have arisen solely out of bona fide
sales and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice;
are not subject to valid defenses, set-offs or counterclaims; and, except as
described on Schedule 2.1.7, are collectible within 90 days after billing at the
full recorded amount thereof less, in the case of accounts receivable appearing
on the Interim Balance Sheet, the recorded allowance for collection losses on
the Interim Balance Sheet. The allowance for collection losses on the Interim
Balance Sheet has been determined in accordance with GAAP consistent with past
practice.
2.1.8. Business, Properties and Other Information. The Company is
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and has delivered to the Purchasers true and
complete copies of the following reports and proxy statements filed with the
Securities and Exchange Commission (the "Commission"):
5
A. its Annual Report on Form 10-KSB for its fiscal year ended December
31, 1996, filed pursuant to Section 13(a) of the Exchange Act;
B. its Quarterly Reports on Form 10-QSB for its fiscal quarters ended
March 31, June 30, and September 30, 1997, each filed pursuant to Section
13(a) of the Exchange Act;
C. its Current Reports on Form 8-K dated November 26, 1997, October
15, 1997 and January 14, 1997 (as amended by its Current Report on Form 8-
K/A dated April 3, 1997);
D. the Proxy Statement for a Special Meeting of Stockholders, dated
February 18, 1997, filed pursuant to Section 14 of the Exchange Act; and
E. the Proxy Statement for its 1997 Annual Meeting of Stockholders,
dated April 11, 1997, filed pursuant to Section 14 of the Exchange Act.
Said reports and proxy statements comprise all materials required to be filed by
the Company with the Commission since December 31, 1996 and are collectively
called the "SEC Reports", which term shall also include on the Closing Date all
further filings which the Company may heretofore have furnished to the
Purchasers pursuant to Section 3.1.
Neither the SEC Reports listed above, this Agreement, nor any other
document, slide presentation, certificate, written statement or projection of
future economic performance furnished to the Purchasers or their representatives
by or on behalf of the Company in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading;
provided that to the extent any such information therein was based upon or
constitutes an estimate or projection, the Company represents only that in
preparing such estimate or projection it acted in good faith and on a basis
which the Company reasonably believed to be reasonable based on the assumptions
set forth in the presentation materials and on a basis consistent with the
financial statements delivered pursuant to Section 2.1.6 hereof. The Company
knows of no facts not disclosed in the SEC Reports listed above or such other
documents referred to above as having been delivered to the Purchasers which
facts individually or in the aggregate have a material adverse effect on the
business, operations, assets, properties, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries taken as a whole or, so far as
the Company can now foresee, could have a material adverse effect on the
business, operations, assets, properties, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries taken as a whole.
6
2.1.9. Absence of Undisclosed Liabilities. Neither the Company nor
any of the Subsidiaries has liabilities or obligations, either direct or
indirect, matured or unmatured or absolute, contingent or otherwise, except:
(a) those liabilities or obligations set forth on the Interim Balance
Sheet and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of business under any
agreement, contract, commitment, lease or plan specifically disclosed on the
schedules hereto or not required to be disclosed because of the term or amount
involved;
(c) those liabilities and obligations described on Schedule 2.1.9; and
(d) those liabilities or obligations incurred, consistently with past
business practice, in or as a result of the normal and ordinary course of
business since the Interim Balance Sheet Date.
For purposes of this Agreement, the term "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
whether fixed or contingent, known or unknown, asserted or unasserted, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured.
2.1.10. Books of Account. The books, records and accounts of the
Company accurately and fairly reflect, in reasonable detail, the transactions
and the assets and liabilities of the Company and the Subsidiaries and do not
contain any material inaccurate information or omit any material information
necessary in order to make such books, records and accounts, in light of the
circumstances under which they were prepared, not misleading. Neither the
Company nor any of the Subsidiaries has engaged in any transaction, maintained
any bank account or used any of the funds of the Company or the Subsidiaries
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company.
2.1.11. Contracts and Commitments. (a) Except as described on
Schedule 2.1.11(a), neither the Company nor any Subsidiary is a party to any
written or oral:
(i) agreement, contract or commitment for the future purchase of, or
payment for, supplies or products, or for the performance of services by a third
party involving in any one case $50,000 or more;
7
(ii) agreement, contract or commitment to sell or supply products or
to perform services involving in any one case $50,000 or more;
(iii) agreement, contract or commitment continuing over a period of
more than six months from the date hereof or exceeding $50,000 in value;
(iv) employment, consulting, representative or sales agency
agreement, contract or commitment;
(v) lease under which the Company or any Subsidiary is either lessor
or lessee;
(vi) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of credit
or guarantee, pledge or undertaking of the indebtedness of any other person;
(vii) agreement, contract or commitment for any charitable or
political contribution;
(viii) commitment or agreement for any capital expenditure or leasehold
improvement in excess of $50,000;
(ix) agreement, contract or commitment limiting or restraining the
Company or any Subsidiary from engaging or competing in any manner or in any
business;
(x) agreement or arrangement with respect to the registration of
shares of Common Stock or any other securities of the Company or any Subsidiary;
(xi) license, franchise, distributorship or other agreement which
relates in whole or in part to any software, patent, trademark, trade name,
service xxxx or copyright or to any ideas, technical assistance or other know-
how of or used by the Company or any Subsidiary; or
(xii) material agreement, contract or commitment not made in the
ordinary course of business.
(b) Except as described on Schedule 2.1.11(b), each of the agreements,
contracts, commitments, leases, plans and other instruments, documents and
undertakings listed or required to be listed on Schedule 2.1.11(a), or not
required to be listed therein
8
because of the amount or term thereof, is valid and enforceable in accordance
with its terms; the Company and the Subsidiaries are (to the extent they are a
party thereto), and to the Company's knowledge all other parties thereto are, in
compliance with the provisions thereof; the Company and the Subsidiaries are
not, and to the Company's knowledge no other party thereto is, in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein; and no event has occurred which with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder.
Furthermore, no such agreement, contract, commitment, lease, plan or other
instrument, document or undertaking, in the reasonable opinion of the Company,
contains any contractual requirement with which there is a reasonable likelihood
the Company, any Subsidiary or any other party thereto will be unable to comply.
2.1.12. Liens and Encumbrances; Condition of Assets. (a) Except as
listed or described on Schedule 2.1.12(a), the Company and each of the
Subsidiaries has good, valid and marketable title to its assets free and clear
of all title defects or objections, mortgages, liens, claims, charges, pledges,
or other encumbrances of any nature whatsoever, including without limitation
licenses, leases, chattel or other mortgages, collateral security arrangements,
pledges, title imperfections, defect or objection liens, security interests,
conditional and installment sales agreements, charges, easements, encroachments
or restrictions, of any kind and other title or interest retention arrangements,
reservations or limitations of any nature (collectively, "Liens"), other than
(i) those reflected or reserved against in the Interim Balance Sheet and (ii)
Liens for Taxes, assessments and other governmental charges that are not due and
payable or that may thereafter be paid without penalty. (The items referred to
in the exception to the immediately preceding sentence are hereinafter referred
to as "Permitted Liens".)
(b) All of the assets of the Company and the Subsidiaries are in good
operating condition and repair, subject to normal wear and maintenance, are
usable in the regular and ordinary course of business and conform to all
applicable laws, ordinances, codes, rules and regulations, and Permits relating
to their construction, use and operation.
2.1.13. Regulatory Compliance. The Company, each of the Subsidiaries
and each physician practice group that is managed or was previously managed by
the Company or a Subsidiary (the "Physician Practice Groups") (but only with
respect to such periods in which a management relationship existed between the
Company or a Subsidiary and such Physician Practice Group) has timely filed all
reports required to be filed in connection with federal Medicare and applicable
state Medicaid programs, and all such required reports are true and complete in
all material respects; there are no claims, actions or appeals pending (and the
Company, the Subsidiaries and the Physician Practice Groups have not filed any
document, report or other instrument that would result in any claims, actions or
appeals)
9
before any commission, board or agency with respect to any state or federal
Medicare or Medicaid cost reports or claims filed by the Company, the
Subsidiaries or the Physician Practice Groups, or with respect to any
disallowances by any intermediary, carrier, other insurer, commission, board or
agency in connection with any audit of any cost reports that, if adversely
determined, would have a material adverse effect on the Company and the
Subsidiaries taken as a whole; no validation review or program integrity review
related to the Company, any Subsidiary or any Physician Practice Group has been
conducted by any commission, board or agency in connection with federal Medicare
or state Medicaid programs, and no such reviews are scheduled, pending or, to
the Company's knowledge, threatened against or affecting the Company, the
Subsidiaries or the Physician Practice Groups; the Company, each of the
Subsidiaries and each of the Physician Practice Groups has timely filed all
material reports, data and other information required by any other regulatory
agency with authority to regulate the Company, any of the Subsidiaries, any of
the Physician Practice Groups or the Business in any manner; the Company, each
of the Subsidiaries and each of the Physician Practice Groups is in compliance
in all material respects with all rules, regulations and requirements of all
regulatory agencies; and the conduct of the Business by the Company, the
Subsidiaries and the Physician Management Groups does not violate 42 U.S.C. (S)
1320a-7b (commonly known as the "Anti-Kickback Statute") or 42 U.S.C. (S) 1395nn
(commonly known as the "Xxxxx Amendments"), including all amendments thereto.
2.1.14. Insurance. The Company and each of the Subsidiaries has
insurance policies in full force and effect for such amounts as are sufficient
for material compliance with all requirements of law and of all agreements to
which the Company or any of the Subsidiaries is a party or by which any of them
is bound. Except as set forth in Schedule 2.1.14, no event relating to the
Company or the Subsidiaries has occurred that can reasonably be expected to
result in a retroactive upward adjustment in premiums under any such insurance
policies or that is likely to result in a prospective upward adjustment in such
premiums. Excluding insurance policies that have expired and been replaced in
the ordinary course of business, no insurance policy has been cancelled within
the last two years and, to the Company's knowledge, no threat has been made to
cancel any insurance policy of the Company or any Subsidiary during such period.
No event has occurred, including, without limitation, the failure by the Company
or any Subsidiary to give any notice or information or the Company or any
Subsidiary giving any inaccurate or erroneous notice or information, which
limits or impairs the rights of the Company or any Subsidiary under any such
insurance policies. The Company has provided the Purchasers with true and
complete copies of all regularly prepared loss run reports as of the date
hereof.
10
2.1.15. Conduct of the Business Since the Interim Balance Sheet Date.
Except as described on Schedule 2.1.15, since the Interim Balance Sheet Date,
neither the Company nor any of the Subsidiaries has:
(a) incurred any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or discharged or
satisfied any lien or encumbrance, or paid any liabilities, other than in the
ordinary course of business consistent with past practice, or failed to pay or
discharge when due any liabilities of which the failure to pay or discharge has
caused or will cause any material damage or risk of material loss to it or any
of its assets or properties;
(b) sold, encumbered, assigned or transferred any material assets or
properties;
(c) created, incurred, assumed or guaranteed any indebtedness for
money borrowed, or mortgaged, pledged or subjected any of its assets to any
mortgage, lien, pledge, security interest, conditional sales contract or other
encumbrance of any nature whatsoever, except for Permitted Liens;
(d) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease or plan to which it is a party or by
which it is bound, or cancelled, modified or waived any substantial debts or
claims held by it or waived any rights of substantial value, whether or not in
the ordinary course of business;
(e) declared, set aside or paid any dividend or made or agreed to make
any other distribution or payment in respect of its capital shares or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or acquire any of
its capital shares;
(f) suffered any damage, destruction or loss, whether or not covered
by insurance, (i) materially and adversely affecting its business, operations,
assets, properties or prospects or (ii) of any item or items carried on its
books of account individually or in the aggregate at more than $50,000;
(g) made commitments or agreements for capital expenditures or capital
additions or betterments exceeding in the aggregate $100,000 except such as may
be involved in ordinary repair, maintenance or replacement of its assets;
(h) increased the salaries or other compensation of, or made any
advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its
11
employees or made any increase in, or any addition to, other benefits to which
any of its employees may be entitled;
(i) changed any of the accounting principles followed by it or the
methods of applying such principles;
(j) entered into any transaction other than in the ordinary course of
business consistent with past practice; or
(k) suffered any material adverse change in its business, operations,
assets, properties, prospects or condition (financial or otherwise).
2.1.16. Employee Benefit Plans. (a) All "employee benefit plans," as
defined by Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all other employee benefit arrangements or payroll
practices, including, without limitation, bonus plans, consulting or other
compensation agreements, incentive, equity or equity-based compensation,
deferred compensation arrangements, stock purchase, severance pay, and change in
control agreements, programs, policies or arrangements maintained by the Company
or any Subsidiary or to which the Company or any Subsidiary contributes or
contributed on behalf of its respective employees or has any liability,
contingent or otherwise (the "Employee Plans"), are listed on Schedule
2.1.16(a). Any Employee Plans which constitute "employee pension benefit plans"
as defined in Section 3(2) of ERISA (the "Pension Plans") are so designated on
Schedule 2.1.16(a). No Pension Plan is subject to Title IV of ERISA or Section
412 of the Code.
(b) Except as set forth on Schedule 2.1.16(b), (i) each Pension Plan
is qualified under Section 401 of the Internal Revenue Code of 1986, as amended
(the "Code"), and any trust maintained pursuant thereto is exempt from federal
income taxation under Section 501 of the Code; and (ii) the Company and each of
the Subsidiaries has complied with respect to each Employee Plan in all material
respects with the reporting and disclosure requirements of ERISA and no "party
in interest" or "disqualified person" has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code.
(c) The Employee Plans have been established, maintained and operated
in all material respects in accordance with their terms and with all provisions
of ERISA, the Code and other applicable federal and state laws and regulations.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment
12
becoming due to any employee or consultant (current, former or retired) of the
Company or any of the Subsidiaries, (ii) increase any benefits otherwise payable
under any Employee Plan or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.1.17. Litigation; Decrees. There are no judicial or administrative
actions, proceedings or investigations pending or, to the Company's knowledge,
threatened that question the validity of this Agreement or any action taken or
to be taken by the Company in connection with this Agreement. Except as listed
or described on Schedule 2.1.17, there are no (i) lawsuits, claims,
administrative or other proceedings or investigations relating to the conduct of
the Business pending or, to the Company's knowledge, threatened by, against or
affecting the Company or any affiliate thereof or (ii) judgments, orders or
decrees of any Governmental Entity binding on the Company or any Subsidiary.
2.1.18. Compliance With Law; Permits. The Company and each of the
Subsidiaries has complied with each law, judgment, order and decree of any
Governmental Entity to which the Company or the Subsidiaries or their business,
operations, assets or properties is subject and is not currently in violation of
any of the foregoing. The Company and each of the Subsidiaries owns, holds,
possesses or lawfully uses in the operation of its business all licenses,
permits, authorizations and approvals (collectively, "Permits") which are in any
manner necessary to conduct the Business as now or previously conducted or for
the ownership and use of its assets, free and clear of all Liens and in
compliance with all laws. All such Permits are listed and described on Schedule
2.1.18. Neither the Company nor any Subsidiary is in default, nor has the
Company or any Subsidiary received any notice of any claim of default, with
respect to any such Permits. All such Permits are renewable by their terms or
in the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
None of such Permits will be adversely affected by consummation of the
transactions contemplated hereby. No shareholder, director, officer, employee
or former employee of the Company or any affiliates of the Company, or any other
person, firm or corporation owns or has any proprietary, financial or other
interest (direct or indirect) in any Permits which the Company or any Subsidiary
owns, possesses or uses in the operation of the Business as now or previously
conducted.
2.1.19. Taxes. (a) All Tax Returns (as defined in paragraph (e)
below) that are required to be filed on or before the Closing Date by the
Company or any of the Subsidiaries have been duly filed on a timely basis under
the statutes, rules or regulations of each applicable jurisdiction. All such
Tax Returns were complete and accurate in all material respects. All Taxes owed
by the Company or the Subsidiaries have been paid, whether or not such Taxes are
disputed. Neither the Company nor any of the Subsidiaries
13
has executed or filed with the Internal Revenue Service or any other taxing
authority any agreement extending the period for filing any Tax Return.
(b) No claim for assessment or collection of Taxes has been asserted
against the Company or any of the Subsidiaries. Neither the Company nor any of
the Subsidiaries is a party to any pending action, proceeding or investigation
by any Governmental Entity for the assessment or collection of Taxes nor does
the Company have knowledge of any such threatened action, proceeding or
investigation.
(c) No waivers of statutes of limitation in respect of any Tax Returns
have been given or requested by the Company or any of the Subsidiaries nor has
the Company or any Subsidiary agreed to any extension of time with respect to a
Tax assessment or deficiency. No claim has ever been made by a Governmental
Entity in a jurisdiction where the Company or any Subsidiary does not currently
file Tax Returns that it is or may be subject to taxation by that jurisdiction
nor is the Company aware that any such assertion of jurisdiction is threatened.
No security interests have been imposed upon or asserted against any of the
assets of the Company or any of the Subsidiaries as a result of or in connection
with any failure, or alleged failure, to pay any Tax.
(d) The Company and each of the Subsidiaries has withheld and paid all
Taxes required to be withheld in connection with any amounts paid or owing to
any employee, creditor, consultant, independent contractor or other third party.
(e) For purposes of this Agreement, the terms "Tax" and "Taxes" shall
mean all federal, state, local, or foreign income, payroll, employee
withholding, unemployment insurance, social security, sales, use, service,
service use, leasing, leasing use, excise, franchise, gross receipts, value
added, alternative or add-on minimum, estimated, occupation, real and personal
property, stamp, transfer, workers' compensation, severance, windfall profits,
environmental (including taxes under Section 59A of the Code), or other tax of
the same or of a similar nature, including any interest, penalty, or addition
thereto, whether disputed or not. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes or any amendment thereto, and including any schedule or
attachment thereto.
2.1.20. Real Property. Neither the Company nor any of the
Subsidiaries owns any real property. Except as set forth in Schedule 2.1.20,
the Company and each of the Subsidiaries has good and valid leaseholds in all
real estate leased by it, in each case, under enforceable leases. Except as
disclosed in Schedule 2.1.20, none of such real properties is subject to any
easements, rights of way, licenses, grants, building or use restrictions,
exceptions, reservations, limitations or other impediments which materially and
14
adversely affect the value thereof or which interfere with or impair the present
and continued use in the usual and normal conduct of the business of the Company
and the Subsidiaries.
2.1.21. Commissions or Finders Fees. Neither the Company nor any
person or entity acting on the behalf of the Company has agreed to pay a
commission, finder's fee or similar payment in connection with this Agreement or
any matter related hereto to any other person or entity.
2.1.22. Certain Business Practices and Regulations; Affiliate
Transactions. (a) None of the Company, the Subsidiaries or any directors,
officers, agents or employees of the Company or the Subsidiaries has (i) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds or violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
(b) Except as described on Schedule 2.1.22(b), none of the
stockholders holding 5% or more of the Common Stock or any officers or directors
of the Company or any of the Subsidiaries or any entity controlled by any of the
foregoing (i) owns, directly or indirectly, any significant interest in, or is a
director, officer, employee, consultant or agent of, any person that is a
competitor, lessor, lessee or customer of, or supplier of goods or services to,
the Business, (ii) owns, directly or indirectly, in whole or in part, any real
property, leasehold interests or other property the use of which is necessary
for the Business, (iii) has any cause of action or other suit, action or claim
whatsoever against, or owes any amount to the Company or any of the Subsidiaries
other than claims in the ordinary course of business, (iv) has sold to, or
purchased from, the Company or any of the Subsidiaries any assets or property
for aggregate consideration in excess of $25,000 since January 1, 1997, or (v)
is a party to any contract or participates in any arrangement, written or oral,
pursuant to which the Business provides services of any nature to any such
individual or entity, except to such individual in his capacity as an employee
of the Company or any of the Subsidiaries.
2.1.23. Compliance with American Stock Exchange Rules and
Regulations. The Company has complied in all material respects with all rules
and regulations of the American Stock Exchange since the date the Common Stock
was originally approved for trading thereon. The execution and delivery of this
Agreement and the other Transaction Documents by the Company does not, and the
performance by the Company of the transactions contemplated hereby or thereby to
be performed by it will not, conflict with, result in any violation of, or
constitute a default under any such rules and regulations. No event has
occurred or, to the knowledge of the Company, is reasonably likely to occur
which
15
could result in the Common Stock being delisted from such exchange or the
Company being subject to any material fine or sanction imposed by such exchange.
2.1.24. Shareholder Proposals. (a) The record date to vote on the
Shareholder Proposals (as hereinafter defined) has been duly fixed to be
December 17, 1997 (the "Record Date") by all necessary action of the Board of
Directors. As of the date hereof, the shareholders of the Company listed on
Schedule 2.1.24 are the record holders of the number of shares of Common Stock
or Series A Preferred Stock, as the case may be, set forth opposite their names
on such schedule. Such shareholders are entitled to vote all such shares in
connection with the Shareholder Proposals. Such shares represent more than 50%
of the issued and outstanding Common Stock and other securities of the Company
having voting rights as of the date hereof (and will represent more than 50% of
the issued and outstanding Common Stock and other securities of the Company
having voting rights as of the Record Date) and are sufficient in number to
approve the Shareholder Proposals even if all other shares of Common Stock and
other securities having voting rights issued and outstanding as of the date
hereof vote against the Shareholder Proposals.
(b) The Board of Directors of the Company, at a meeting duly called
and held, has by the vote of those directors present (who constituted 100% of
the directors then in office) (i) determined that the Shareholder Proposals are
fair to and in the best interests of the shareholders of the Company and has
approved the same and (ii) resolved to recommend that the holders of the shares
of Common Stock and Series A Preferred Stock approve the Shareholder Proposals.
2.1.25. Disclosure. No representation or warranty by the Company
contained in this Agreement or any of the other Transaction Documents, and no
statement contained in any document, list, schedule, certificate or other
instrument furnished or to be furnished by or on behalf of the Company or any
affiliate thereof to the Purchasers or any of its representatives in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading or necessary in
order fully and fairly to provide the information required to be provided in any
such document, list, schedule, certificate or other instrument. The Company has
not failed to disclose to the Purchasers in any of the schedules required to be
furnished hereunder or otherwise any fact which could reasonably be determined
to have a material adverse effect on the business, operations, assets,
properties, prospects or condition (financial or otherwise) of the Company and
the Subsidiaries taken as a whole, or which is otherwise material to the Company
and the Subsidiaries taken as a whole.
16
2.2. Representations and Warranties of the Purchasers. Each Purchaser,
severally and not jointly, as to itself, makes the following representations and
warranties to the Company, each of which is true and correct as of the date
hereof and shall be true and correct as of the Closing Date and shall be
unaffected by any investigation heretofore or hereafter made by the Company.
2.2.1. Corporate Organization. Such Purchaser is a limited
partnership duly formed and validly existing under the laws of the State of
Texas and has the requisite partnership power and authority to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted.
2.2.2. Authorization and Effect of Agreement. Such Purchaser has the
requisite partnership power to execute and deliver this Agreement and to
consummate the transactions contemplated hereby to be consummated by it. The
execution and delivery by such Purchaser of this Agreement and the consummation
by it of the transactions contemplated hereby to be consummated by it have been
duly authorized by all necessary partnership action on the part of such
Purchaser. This Agreement has been duly executed and delivered by such
Purchaser and constitutes a valid and binding obligation of such Purchaser,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.2.3. Purchase of Securities. Such Purchaser is acquiring the
Securities set forth opposite its name on Schedule I attached hereto on the
Closing Date without a present view to the distribution thereof. Such Purchaser
is an "accredited investor" within the meaning of Rule 501(a) of Regulation D
promulgated by the Commission under the Securities Act.
ARTICLE III. PRE-CLOSING COVENANTS
3.1. Access to Information; Communications. (a) Prior to the Closing,
upon reasonable notice from the Purchasers to the Company, the Company will
afford to the officers, attorneys, accountants or other authorized
representatives of the Purchasers reasonable access during normal business hours
to the employees, assets, facilities and books and records of the Company and
the Subsidiaries so as to afford the Purchasers full opportunity to make such
review, examination and investigation of the Company and the Subsidiaries as the
Purchasers may desire to make. The Purchasers will be permitted to make
extracts from or to make copies of such books and records as may be reasonably
17
necessary in connection therewith. Prior to the Closing, the Company will
promptly furnish or cause to be furnished to the Purchasers such financial and
operating data and other information as the Purchasers may reasonably request.
(b) Prior to the Closing, the Company shall promptly provide the
Purchasers with copies of all financial statements sent or made available by the
Company or the Subsidiaries to their equity or other security holders, all
regular and periodic reports and proxy statements, and all registration
statements and prospectuses, if any, filed by the Company or the Subsidiaries
with any securities exchange or with the Commission.
(c) Prior to the Closing, the Company shall promptly provide the
Purchasers with copies of all press releases and other statements made available
generally by the Company or any of the Subsidiaries to the public relating to
financial matters or to other material developments in the business of the
Company and the Subsidiaries.
(d) Prior to the Closing, promptly after receipt thereof, the Company
shall provide the Purchasers with copies of each management letter submitted to
the Company or the Subsidiaries by independent public accountants in connection
with any annual, interim or special audit made by them of the books of the
Company or the Subsidiaries.
3.2. Conduct of Business. Except as set forth on Schedule 3.2, as
contemplated herein or as otherwise consented to by the Purchasers in writing,
during the period from the date of this Agreement and continuing until the
Closing Date, the Company will, and will cause its affiliates to:
(a) use their respective best efforts to (i) carry on the Business in
the usual, regular and ordinary course as presently conducted and
consistent with past practice, (ii) keep the Business intact, (iii) keep
available the services of the present employees of the Business, and (iv)
use best efforts to maintain the goodwill associated with the Business,
including but not limited to preserving the relationships of customers,
suppliers and others having business dealings with the Business;
(b) not sell, lease or dispose of, or make any contract for the sale,
lease or disposition of, or subject to Lien, any material assets of the
Company or the Subsidiaries;
(c) not intentionally incur any liability or obligation (absolute,
accrued, contingent or otherwise) or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other person, other than in the ordinary course of business;
18
(d) not split, combine or reclassify any shares of capital stock of
the Company or any Subsidiary, declare, pay or set aside for payment any
dividend or other distribution in respect of capital stock of the Company
or any Subsidiary, or directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock or other securities of the Company or
any Subsidiary;
(e) not issue, sell, pledge, dispose of, encumber or deliver (whether
through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class of
the Company or any Subsidiary or any securities convertible into or
exercisable or exchangeable for shares of stock of any class of the Company
or any Subsidiary (other than issuance of Certificates in replacement of
lost Certificates);
(f) not amend or modify the Certificate or Articles of Incorporation
or By-laws of the Company or the Subsidiaries;
(g) not amend or terminate any contract or other agreement, other than
in the ordinary course of business consistent with past practices;
(h) not make any change in financial or tax accounting methods,
principles or practices unless required by GAAP or applicable law;
(i) not extend credit in the sale of services, collection of
receivables or otherwise, other than in the ordinary course of business
consistent with past practices;
(j) not fail to maintain its books, accounts and records in the usual,
regular and ordinary manner on a basis consistent with prior years;
(k) not grant to any employee any increase in compensation or in
severance or termination pay, grant any severance or termination pay, or
enter into any employment agreement with any employee, except as may be
required under employment or termination agreements in effect on the date
of this Agreement;
(l) not enter into any agreement which includes an aggregate payment
or commitment on the part of either party of more than $50,000;
(m) not adopt or amend any Employee Plan or collective bargaining
agreements, except as required by law;
19
(n) maintain in full force and effect all insurance described in
Schedule 2.1.14; and
(o) not take or omit to take any action as a result of which any
representation or warranty of the Company in Article II would be rendered
untrue or incorrect if such representation or warranty were made
immediately following the taking or failure to take such action.
3.3. Supplemental Financial Statements. Within thirty (30) days of the
end of each month, the Company shall deliver to the Purchasers unaudited
consolidated statements of income and cash flow and a consolidated balance sheet
of the Company for the month then ended (collectively, the "Supplemental
Financial Statements"). The Supplemental Financial Statements shall be
certified by the Chief Financial Officer of the Company. Such certification
shall state that: (a) the Supplemental Financial Statements were prepared in
accordance with GAAP and practices consistent with those followed in the
preparation of the financial statements delivered pursuant to Section 2.1.6
hereof; and (b) no material adjustments of such Supplemental Financial
Statements are required for a fair presentation of the financial condition and
results of operations of the Company and its Subsidiaries for the period covered
by such statements.
3.4. Notification. (a) The Company shall notify the Purchasers, and the
Purchasers shall notify the Company, of any litigation, arbitration or
administrative proceeding pending or, to its or their knowledge, threatened
against the Company or the Purchasers, as the case may be, which challenges the
transactions contemplated hereby.
(b) The Company will provide prompt written notice to the Purchasers
of any change in any of the information contained in its representations and
warranties made in Article II hereof or any Schedules referred to herein or
attached hereto and shall promptly furnish any information which the Purchasers
may reasonably request in relation to such change; provided, however, that such
notice shall not operate to cure any breach of the representations and
warranties made in Article II hereof or any Schedules referred to herein or
attached hereto.
3.5. Cooperation. The Purchasers and the Company shall cooperate fully
with each other in taking any actions, including actions to obtain the required
consent of any Governmental Entity or any third party, necessary or helpful to
accomplish the transactions contemplated by this Agreement; provided, however,
that no party shall be required to take any action which would have a material
adverse effect upon it or any affiliate.
20
3.6. No Inconsistent Action. Neither the Purchasers nor the Company shall
take any action which is materially inconsistent with its obligations under this
Agreement.
3.7. Satisfaction of Conditions. Without limiting the generality or
effect of any provision of Article IV, prior to the Closing, each of the parties
will use reasonable efforts with due diligence and in good faith to satisfy
promptly all conditions required hereby to be satisfied by such party in order
to expedite the consummation of the transactions contemplated hereby.
3.8. Confidentiality. The Purchasers and the Company shall each keep
confidential all information obtained by it with respect to the others in
connection with this Agreement and the negotiations preceding this Agreement,
and will use such information solely in connection with the transactions
contemplated by this Agreement, and if the transactions contemplated hereby are
not consummated, each shall return to the others, without retaining a copy
thereof, any schedules, documents or other written information obtained from the
others in connection with this Agreement and the transactions contemplated
hereby; provided, however, that if the transactions contemplated hereby are
consummated, the Purchasers shall be entitled to use such information concerning
the Company in any lawful manner. Notwithstanding the foregoing, neither the
Purchasers nor the Company shall be required to keep confidential or return any
information which (a) is known or available through other lawful sources not
bound by a confidentiality agreement with the disclosing party, (b) is or
becomes publicly known through no fault of the receiving party or its agents,
(c) is required to be disclosed pursuant to an order or request of a judicial
authority or Governmental Entity (provided the disclosing party is given
reasonable prior notice), (d) is developed by the receiving party independently
of the disclosure by the disclosing party or (e) is required to be disclosed in
connection with any dispute or legal proceeding arising under or in connection
with this Agreement or any of the other Transaction Documents.
3.9. Publicity. Prior to the Closing, none of the parties will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated hereby without the
prior consent of the other parties, which consent will not be unreasonably
withheld; provided, however, that nothing herein will prohibit any party from
issuing or causing publication of any such press release or public announcement
to the extent that such party determines such action to be required by law or
the rules of any national stock exchange applicable to it or its affiliates, in
which event the party making such determination will, if practicable in the
circumstances, use reasonable efforts to allow the other parties reasonable time
to comment on such release or announcement in advance of its issuance.
21
3.10. Acquisition Proposals. From and after the date of this Agreement
until the Closing Date, the Company shall not, and shall not authorize or permit
any officer, director or employee of, or any investment banker, attorney,
accountant or other representative retained by, the Company or any of the
Subsidiaries to, solicit, initiate or encourage submission of any proposal or
offer (including by way of furnishing information) from any person which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
As used in this Agreement, "Acquisition Proposal" shall mean any proposal for a
merger or other business combination involving the Company or any of the
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, the Company or
any of the Subsidiaries.
ARTICLE IV. CONDITIONS TO CLOSING
4.1. Conditions Precedent to Obligations of the Purchasers. The
obligations of the Purchasers under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to Closing, of all of the following conditions, any one or more of which
may be waived at the option of the Purchasers:
4.1.1. Representations, Warranties and Covenants.
(a) All representations and warranties of the Company made in this
Agreement or in any Exhibit, Schedule or document delivered pursuant hereto
that are qualified with respect to materiality shall be true and complete
in all respects as of the date hereof and on and as of the Closing Date and
such representations and warranties that are not so qualified shall be true
and complete on the date hereof and, in all material respects, on and as of
the Closing Date, without regard to any schedule updates furnished by the
Company after the date hereof.
(b) All of the terms, covenants and conditions to be complied with
and performed by the Company on or prior to the Closing Date shall have
been complied with or performed.
(c) The Purchasers shall have received a certificate, dated as of the
Closing Date, executed by the Chief Executive Officer and the Chief
Financial Officer of the Company, certifying in such detail as the
Purchasers may reasonably request that the conditions specified in Sections
4.1.1(a) and (b) hereof have been fulfilled.
4.1.2. Certificate of Controlling Stockholders. The Purchasers shall
have received a certificate of Xxxxxxx X. Xxxxxxx, M.D. and Xxxx X. Xxxxxxx
certifying that, to
22
the best knowledge of such persons, none of the SEC Reports contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
4.1.3. Closing Documents. The Company shall have delivered to the
Purchasers the documents identified in Section 5.1.
4.1.4. Governmental Consents or Approvals. Each of the governmental
and other approvals, consents or waivers listed or required to be listed on
Schedule 2.1.4 shall have been obtained.
4.1.5. No Adverse Proceedings. No suit, action, claim or
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or Governmental Entity shall have been rendered
against, any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms.
4.1.6. Opinions. The Purchasers shall have received a written
opinion of Xxxxxxx Xxxx & Xxxxxxxxx, special counsel to the Company in
connection with the transactions contemplated hereby, and a written opinion of
Xxxxxxxxx & Grundy, L.L.P., special Texas counsel to the Company, in
substantially the forms attached hereto as Exhibits C and D, respectively.
4.1.7. Registration Rights Agreements. A Registration Rights
Agreement, substantially in the form of Exhibit E attached hereto (the
"Registration Rights Agreement"), shall have been duly executed and delivered,
shall be in full force and effect and no term or condition thereof shall have
been amended, modified or waived.
4.1.8. Warrant Agreements and Warrants. The Warrant Agreements and
Warrants shall have been duly executed and delivered by the Company in
accordance with Section 1.2.
4.1.9. Stock Certificates. Stock certificates representing the
shares of Series B Preferred Stock shall have been duly executed and delivered
in accordance with Section 1.2.
4.1.10. Certificate of Designation. The Certificate of Designation
shall have been duly filed with, and accepted by, the Secretary of State of the
State of Texas.
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4.1.11. Acquisition Committee Designees. Two designees of the
Purchasers shall have been appointed to the Acquisition Committee of the Board
of Directors of the Company (the "Acquisition Committee"), effective as of the
Closing Date.
4.1.12. Chartwell Matters. The First Amendment to Investment
Agreement and the Termination Agreement, substantially in the forms attached
hereto as Exhibit F and G, respectively, shall have been duly executed and
delivered, shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived; and the Amendment and Restatement
of Certificate of Designation and Determination of Rights and Preferences of
Cumulative Convertible Preferred Stock, Series A, of the Company in the form
attached hereto as Exhibit H shall have been duly filed with, and accepted by,
the Secretary of State of the State of Texas.
4.1.13. Private Placement Numbers. The Series B Preferred Stock and
the Warrants shall have been assigned private placement numbers by Standard &
Poor's Corporation.
4.1.14. Reserved Shares. The Company shall have reserved an adequate
number of shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock and the exercise of the Warrants.
4.1.15. Payment of Fees. The Company shall have paid the fees and
disbursements of special counsel to the Purchasers as contemplated in Section
9.3.
4.1.16. Amendment to By-laws. The By-laws of the Company shall have
been amended and restated in the form attached hereto as Exhibit I.
4.1.17. Additional Listing Application. The Company shall have filed
an Additional Listing Application, including all applicable fees, with the
American Stock Exchange with respect to all of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and exercise of the
Warrants.
4.1.18. Termination of Agreements. The Company shall have terminated
each of the agreements set forth on Schedule 4.1.18 on terms reasonably
acceptable to the Purchasers.
4.1.19. Directors. The number of directors constituting the Board of
Directors of the Company shall have been increased to eight and the director
listed on Schedule 4.1.19 shall have resigned from the Board of Directors of the
Company effective as of the Closing Date.
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4.2. Conditions Precedent to Obligations of the Company. The obligations
of the Company under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to the Closing, of all
of the following conditions, any one or more of which may be waived at the
option of the Company:
4.2.1. No Material Misrepresentation or Breach.
(a) All representations and warranties of the Purchasers made in this
Agreement or in any Exhibit, Schedule or document delivered pursuant
hereto, shall be true and complete in all material respects as of the date
hereof and on and as of the Closing Date.
(b) All of the terms, covenants and conditions to be complied with
and performed by the Purchasers on or prior to the Closing Date shall have
been complied with or performed.
4.2.2. Closing Documents. The Purchasers shall have delivered to the
Company the documents identified in Section 5.2.
4.2.3. Governmental Consents or Approvals. Each of the governmental
and other approvals, consents or waivers listed on Schedule 2.1.4 shall have
been obtained.
4.2.4. No Adverse Proceedings. No suit, action, claim or
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or other Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated by this Agreement in
accordance with its terms.
ARTICLE V. DOCUMENTS TO BE DELIVERED AT THE CLOSING
5.1. Documents to be Delivered by the Company. At the Closing, the
Company will deliver to the Purchasers the following:
5.1.1. Certified Resolutions. Certified resolutions of the Board of
Directors of the Company (a) approving the execution and delivery of this
Agreement and each of the other documents delivered by the Company pursuant
hereto and authorizing the consummation of the transactions contemplated hereby
and thereby and (b) authorizing the establishment of the Acquisition Committee.
25
5.1.2. Officer's Certificate. A certificate, dated the Closing Date,
executed on behalf of the Company in the form described in Section 4.1.1.
5.1.3. Good Standing Certificates. Governmental certificates showing
that the Company and the Subsidiaries are duly incorporated and in good standing
in the state of its incorporation and in good standing in each state listed on
Schedule 2.1.1 certified as of a date not more than five (5) days before the
Closing Date.
5.1.4. Other Documents. Such additional information and materials as
the Purchasers shall reasonably request.
5.2. Documents to be Delivered by the Purchasers. At the Closing, the
Purchasers will deliver to the Company:
5.2.1. Purchase Price. Evidence of wire transfers in the aggregate
amount of $25,000,000.
5.2.2. Other Documents. Such additional information and materials as
the Company shall reasonably request.
ARTICLE VI. POST-CLOSING COVENANTS
6.1. Acquisition Committee Designees. At all times in which shares of
Series B Preferred Stock shall be issued and outstanding, the holders of a
majority of such issued and outstanding shares shall be entitled to designate
two members to the Acquisition Committee and the total number of persons
constituting such Committee shall be three (including the two designees of the
holders of the Series B Preferred Stock). Such rights to designate Acquisition
Committee members shall survive the conversion of the Series B Preferred Stock
and shall inure to the benefit of the Purchasers until such time that the
Purchasers and their affiliates own less than 50% of the Common Stock initially
issuable upon conversion of the Series B Preferred Stock. For so long as shares
of Series B Preferred Stock are issued and outstanding or the Purchasers or
their affiliates own more than 50% of the shares of Common Stock initially
issuable upon conversion of the Series B Preferred Stock, the Company shall not
dissolve the Acquisition Committee or increase the size of the Acquisition
Committee to more than three.
6.2. Board Designees. In accordance with the Certificate of Designation,
the holders of the Series B Preferred Stock shall be entitled to one vote for
each share of Series B Preferred Stock held by such holders on a record date set
to hold a meeting at which the
26
holders of Series B Preferred Stock shall be entitled to elect, as a class,
three directors to the Board of Directors of the Company (or a majority of the
directors in the event of a breach by the Company of any of the financial
covenants set forth in the Certificate of Designation). Such rights to
designate board members shall survive the conversion of the Series B Preferred
Stock and shall inure to the benefit of the Purchasers until such time that the
Purchasers and their affiliates own less than 50% of the Common Stock initially
issuable upon conversion of the Series B Preferred Stock. For so long as shares
of Series B Preferred Stock are issued and outstanding or the Purchasers or
their affiliates own more than 50% of the shares of Common Stock initially
issuable upon conversion of the Series B Preferred Stock, the Company shall not
increase the size of the Board of Directors to more than eight.
6.3. Post-Closing Notifications. The Purchasers and the Company will, and
each will cause their respective affiliates to, comply with any post-Closing
notification or other requirements, to the extent then applicable to such party,
of any antitrust, trade competition, investment or control, export or other law
of any Governmental Entity having jurisdiction over the Purchasers or the
Company.
6.4. Certain Tax Matters. All sales, use, transfer, stamp, conveyance,
value added or other similar taxes, duties, excises or governmental charges
imposed by any taxing jurisdiction, domestic or foreign, and all recording or
filing fees, notarial fees and other similar costs of Closing with respect to
the issuance of the Securities or otherwise on account of this Agreement or the
transactions contemplated hereby will be borne by the Company. The Company will
indemnify the Purchasers against any liability, direct or indirect, for any
Taxes imposed on the Purchasers with respect to the issuance of the Securities.
6.5. Financial Statements and Information. The Company will promptly
furnish to the Purchasers and any other subsequent holders of the Securities,
for so long as the Purchasers or such other subsequent holders shall hold any of
the Securities, in duplicate:
(a) copies of all financial statements sent or made available by the
Company or its subsidiaries to its equity or other security holders, all regular
and periodic reports and proxy statements, and all registration statements and
prospectuses, if any, filed by the Company or its subsidiaries with any
securities exchange or with the Commission;
(b) copies of all press releases and other statements made available
generally by the Company or its subsidiaries to the public relating to financial
matters or to other material developments in the business of the Company and its
subsidiaries; and
27
(c) copies of each management letter submitted to the Company or its
subsidiaries by independent public accountants in connection with any annual,
interim or special audit made by them of the books of the Company or its
subsidiaries.
6.6. Right of First Refusal. (a) If, at any time after the date hereof
until the fifth anniversary hereof, the Company proposes to issue (an "Offer")
shares of Common Stock or other equity securities of the Company, other than (i)
pursuant to a proposed underwritten public offering of Common Stock by the
Company or (ii) on terms no less favorable to the Company than could be obtained
from a non-affiliated third party, the Company shall, not less than 45 days
prior to the anticipated closing of such sale or transfer, give written notice
(the "Sale Notice") to the holders of the Series B Preferred Stock and the
holders of the Series A Preferred Stock (together, the "Option Holders") of such
proposed sale or transfer. The Sale Notice shall (i) specify the proposed
purchaser thereof, the number of shares to be issued, the amount and type of
consideration to be received therefor, and the other material terms on which the
Company proposes to issue the Common Stock or other equity securities, (ii)
contain an offer by the Company to sell to the Option Holders all of such shares
of Common Stock or other equity securities on the same terms as the Offer (the
"First Refusal Offer"), and (iii) indicate the appraised value of any non-cash
consideration proposed to be paid in the Offer; provided, that, if any non-cash
consideration is to be received by the Company pursuant to the Offer, the Option
Holders shall have the right to pay in cash the appraised value of such non-cash
consideration. Any appraisal or valuation required pursuant to this Section
shall be prepared by a nationally-recognized independent appraiser mutually
acceptable to the Company and the Option Holders and shall be submitted in
writing and addressed to the Company and the Option Holders.
(b) The Option Holders must notify the Company in writing within 15
days following receipt of the Sale Notice if they desire to accept the First
Refusal Offer. The Option Holders who desire to accept the First Refusal Offer
may purchase all or a portion of the shares of Common Stock or other equity
securities of the Company in such proportions as they may mutually agree or, in
the absence of such an agreement, in proportion to the number of shares of fully
diluted Common Stock owned by each such Option Holder who wishes to participate
in the purchase of such shares pursuant to the First Refusal Offer.
(c) Unless all the shares of Common Stock or other equity securities
of the Company proposed to be issued in the Sale Notice are to be acquired by
the Option Holders, the Company may transfer all such shares covered by the Sale
Notice or the portion not acquired by the Option Holders, as the case may be, to
the proposed third party transferee in accordance with the terms of the Offer
set forth in the Sale Notice; provided that such sale and issuance must occur no
later than 120 days after the date of the Sale Notice. If the First Refusal
Offers are accepted in a manner such that all or a portion of shares of Common
28
Stock or other equity securities of the Company covered by the Sale Notice are
to be purchased by the Option Holders, the Company shall issue all or such
portion of such shares of Common Stock or other equity securities, as the case
may be, free of all Liens, to the respective purchasers thereof against delivery
by the accepting Option Holders of immediately available funds payable to the
Company within 20 days after the date such offer is accepted; provided, that if
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, is
applicable to the exercise of any First Refusal Offer, such date shall be
extended to the date which is three days after the date the applicable waiting
period expires or is terminated.
6.7. Reservation of Shares of Common Stock. At all times in which shares
of Series B Preferred Stock or Warrants remain outstanding, the Company shall
cause an adequate number of shares of Common Stock to be reserved for issuance
upon conversion of the outstanding shares of Series B Preferred Stock and
exercise of the outstanding Warrants.
6.8. Preparation of Proxy Statement; Shareholders Meeting.
(a) As soon as practicable following the Closing Date, but in no
event more than 20 days after the Closing Date, the Company shall prepare and
file with the Commission a proxy statement (or information statement if
permitted by law and the rules and regulations of the American Stock Exchange)
with respect to the solicitation of votes for the Shareholder Proposals (the
"Proxy Statement"). The Company shall promptly respond to all Commission
comments with respect to the Proxy Statement and cause the Proxy Statement to be
mailed to the Company's shareholders at the earliest practicable date. The
Proxy Statement shall contain, among other things, a recommendation by the Board
of Directors of the Company in favor of the Shareholder Proposals.
(b) The Company shall, as soon as practicable after the Closing Date,
duly call, give notice of, convene and hold a special meeting of the
shareholders of the Company for the purpose of approving the Shareholder
Proposals. At such meeting of shareholders, the Company shall use its best
efforts to obtain the favorable vote of its shareholders.
(c) The Company shall not, and shall immediately instruct its
Transfer Agent in writing not to, authorize any issuance of Common Stock or
other securities of the Company having voting rights until the day immediately
following the Record Date.
ARTICLE VII. SURVIVAL AND INDEMNIFICATION
7.1. Survival of Representations, Warranties and Covenants. (a) The
representations and warranties of the Company and of the Purchasers contained in
this
29
Agreement shall survive the Closing for a period of three years thereafter,
except for the representations and warranties contained in Sections 2.1.5,
2.1.13, 2.1.16, 2.1.19 and 2.1.24 (the "Excluded Representations and
Warranties"), which shall survive indefinitely, and shall in no way be affected
(i) by any investigation of the subject matter thereof made by or on behalf of
the Company or the Purchasers, as the case may be, or (ii) by any notice
delivered pursuant to Section 3.4. Any claim for an Indemnifiable Loss (as
hereafter defined) asserted within such period of survival as herein provided
will be timely made for purposes hereof.
(b) Unless a specified period is set forth in this Agreement (in
which event such specified period will control), the covenants in this Agreement
shall survive the Closing and remain in effect indefinitely.
7.2. Certain Definitions. For purposes of this Agreement, (i) "Indemnity
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, (iv)
"Indemnifiable Losses" means any and all damages, losses, liabilities,
obligations, costs and expenses, and any and all claims, demands or suits (by
any person or entity, including without limitation any Governmental Entity),
including without limitation the costs and expenses of any and all actions,
suits, proceedings, demands, assessments, judgments, settlements and compromises
relating thereto and including reasonable attorneys' fees and expenses in
connection therewith, and (v) "Third Party Claim" means any claim, action or
proceeding made or brought by any person or entity who or which is not a party
to this Agreement or an affiliate of a party to this Agreement.
7.3. Indemnification. (a) The Company agrees to indemnify, defend and
hold harmless the Purchasers and their affiliates and their respective
directors, officers, partners, employees, agents and representatives from and
against any and all Indemnifiable Losses, subject to the limitations and
equitable adjustments set forth Section 7.5 hereof, to the extent relating to,
resulting from or arising out of:
(i) any breach of representation or warranty of the Company
under the terms of this Agreement and any certificate or other document
delivered pursuant hereto; and
(ii) the Company's business relationship with Physicare,
L.L.P., Northshore Orthopedics Assoc., Occupational Medicine Associates of
Houston, P.A. and Xxxxxxx X. Xxxxxxx, M.D. and the termination of such
relationships; and
30
(iii) any breach or nonfulfillment of any agreement or
covenant of the Company under the terms of this Agreement.
(b) The Purchasers, severally and not jointly, agree to indemnify,
defend and hold harmless the Company and its affiliates and their respective
directors, officers, partners, employees, agents, and representatives from and
against any and all Indemnifiable Losses, subject to the limitations set forth
Section 7.5 hereof, to the extent relating to, resulting from and arising out
of:
(i) any breach of representation or warranty by such Purchaser
under the terms of this Agreement and any certificate or other document
delivered pursuant hereto; and
(ii) any breach or nonfulfillment of any agreement or covenant
of such Purchaser under the terms of this Agreement.
7.4. Defense of Claims. (a) If any Indemnitee receives notice of
assertion or commencement of any Third Party Claim against such Indemnitee with
respect to which an Indemnifying Party is obligated to provide indemnification
under this Agreement, the Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event not later than 30
calendar days after receipt of such notice of such Third Party Claim. Such
notice will describe the Third Party Claim in reasonable detail, will include
copies of all material written evidence thereof and will indicate the estimated
amount, if reasonably practicable, of the Indemnifiable Loss that has been or
may be sustained by the Indemnitee. The Indemnifying Party will have the right
to participate in, or, by giving written notice to the Indemnitee, to assume,
the defense of any Third Party Claim at such Indemnifying Party's own expense
and by such Indemnifying Party's own counsel (reasonably satisfactory to the
Indemnitee), and the Indemnitee will cooperate in good faith in such defense.
(b) If, within ten calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 7.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 7.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps or
if the Indemnifying Party has not undertaken fully to indemnify the Indemnitee
in respect of all Indemnifiable Losses relating
31
to the matter, the Indemnitee may assume its own defense, and the Indemnifying
Party will be liable for all reasonable costs or expenses paid or incurred in
connection therewith. Without the prior written consent of the Indemnitee, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
which would lead to liability or create any financial or other obligation on the
part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party will give written notice
to the Indemnitee to that effect. If the Indemnitee fails to consent to such
firm offer within ten calendar days after its receipt of such notice, the
Indemnitee may continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third Party
Claim will not exceed the amount of such settlement offer, plus costs and
expenses paid or incurred by the Indemnitee through the end of such ten calendar
day period.
(c) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 7.4(a) or 7.4(b) will not
affect the rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(d) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article VII.
7.5. Limitation of Liability; Equitable Adjustment. (a) Notwithstanding
any other provision hereof, no Indemnitee will be entitled to make a claim
against an Indemnifying Party in respect of any breach of a representation or
warranty under Section 7.3(a)(i) or 7.3(b)(i) unless and until the aggregate
amount of claims in respect of breaches of representations and warranties
asserted for Indemnifiable Losses under Section 7.3(a)(i) or 7.3(b)(i), as
applicable, exceeds $250,000, in which event the Indemnitee will be entitled to
make a claim against the Indemnifying Party for only those Indemnifiable Losses
in excess of $250,000; provided, however, that in the event a single breach or
series of related breaches results in Indemnifiable Losses in excess of $250,000
then the Indemnitee will be entitled to
32
make a claim against the Indemnifying Party to the extent of the full amount of
the Indemnifiable Losses.
(b) Notwithstanding any other provision hereof, the aggregate amount
of any Indemnifiable Losses recoverable under this Agreement in respect of any
breach of a representation or warranty under Section 7.3(a)(i) or 7.3(b)(i),
excluding the Excluded Representations and Warranties, shall be limited to an
amount equal to the sum of (i) $25,000,000, (ii) an amount equal to an internal
rate of return of 20% on $25,000,000 for the period beginning on the date hereof
and ending on the date of the payment of the Indemnifiable Losses triggering the
provisions of this Section 7.5(b) and (iii) any reasonable legal fees and
expenses incurred by such Indemnitee.
(c) Notwithstanding any other provision hereof, any Indemnifiable
Losses incurred by the Purchasers or their affiliates shall be equitably
adjusted so that the payment of any damages or the taking of any other actions
by the Company to satisfy such Indemnifiable Losses shall not adversely affect
the Purchasers or their affiliates, through their ownership of the Securities or
the Common Stock issuable upon conversion or exercise thereof or otherwise.
ARTICLE VIII. TERMINATION
8.1. Termination. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated at any time prior to the Closing,
(a) by the mutual written consent of the Purchasers and the Company, or (b) if
the party seeking to terminate is not then in material default or breach of this
Agreement:
(i) by either the Purchasers or the Company if the Closing shall not
have occurred on or before December 31, 1997;
(ii) by either the Purchasers or the Company if there shall have been
entered a final, nonappealable order or injunction of any Governmental
Entity restraining or prohibiting the consummation of the transactions
contemplated hereby or any material part thereof; or
(iii) by either the Purchasers or the Company if the other party is
in material breach of any representation, warranty, covenant or agreement
herein contained and such breach shall not be cured within twenty (20) days
of the date of notice of default served by the party claiming such material
default.
33
In no event shall termination of this Agreement relieve any party of any
liability for breaches of this Agreement prior to the date of termination.
ARTICLE IX. MISCELLANEOUS PROVISIONS
9.1. Specific Performance. The parties recognize that if the Company
refuses to perform under the provisions of this Agreement, monetary damages
alone will not be adequate to compensate the Purchasers for their injury. The
Purchasers shall therefore be entitled, in addition to any other remedies that
may be available, to obtain specific performance of the terms of this Agreement.
If any action is brought by the Purchasers to enforce this Agreement, the
Company shall waive the defense that there is an adequate remedy at law. In the
event of a default by the Company which results in the filing of a lawsuit for
damages, specific performances, or other remedies, the Purchasers shall be
entitled to reimbursement by the Company of reasonable legal fees and expenses
incurred by the Purchasers.
9.2. Notices. All notices and other communications required or permitted
hereunder will be in writing and (i) delivered personally, (ii) sent by
telefacsimile, (iii) delivered by a nationally recognized overnight courier
service, or (iv) sent by registered or certified mail, postage prepaid, as
follows:
(a) If to the Company, to:
Integrated Orthopaedics, Inc.
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Chief Executive Officer
with a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
One Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx
34
(b) If to the Purchasers, to:
FW Integrated Orthopaedics Investors, L.P.
FW Integrated Orthopaedics Investors II, L.P.
000 Xxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxx Xxxxxx
Xxxxxx Xxxxxx
with a copy to each of:
Oak Hill Partners
00 X. 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx
Arbor Investors
0000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx
Weil, Gotshal & Xxxxxx LLP
000 Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
Xxxxx X. Xxxx
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 9.2 will (x) if delivered
personally or by overnight courier service, be deemed given upon delivery; (y)
if delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (z) if sent by registered or certified mail,
be deemed given when received. Any party from time to time may change its
address for the purpose of notices to that party by giving a similar notice
35
specifying a new address, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.
9.3. Expenses. At the Closing, the Company agrees to pay all reasonable
expenses incident to the transactions contemplated hereby (including all
document production costs and other expenses, the fees and disbursements of
Weil, Gotshal & Xxxxxx LLP, XxXxxxxxx, Will & Xxxxx and Purchasers' accounting
advisors for their services with relation to such transactions, the expenses of
obtaining private placement numbers for the Securities and all out-of-pocket
expenses in connection with the shipping to and from the Purchasers' office or
the office of Purchasers' nominees of the Securities and upon any exchange or
substitution pursuant to the provisions of this Agreement or the other
Transaction Documents), and to reimburse the Purchasers for any reasonable out-
of-pocket expenses in connection therewith. The Company also agrees to pay all
reasonable expenses incurred by the Purchasers (including reasonable counsel and
financial adviser fees) in connection with the enforcement of this Agreement or
the other Transaction Documents, responding to any subpoena or other legal
process or information investigative demand issued in connection with this
Agreement or the transactions contemplated hereby or by reason of any holder's
having acquired any of the Securities, including without limitation costs and
expenses incurred in any bankruptcy case, and in connection with any amendment
or requested amendment of, or waiver or consent or requested waiver or consent
under or with respect to, this Agreement or any of the other Transaction
Documents, whether or not the same shall become effective (it being understood
and agreed that only one such special counsel for all holders of the Securities
and one local counsel for such holders in each applicable jurisdiction shall be
entitled to reimbursement hereunder). The obligations of the Company under this
Section shall survive the payment of or other performance under any of the
Transaction Documents.
In furtherance of the foregoing, on the Closing Date the Company will
pay or cause to be paid the fees and disbursements of special counsel to the
Purchasers, which shall be reflected in the statement of such special counsel to
be submitted to the Company on or prior to the Closing Date. The Company will
also pay, promptly upon receipt of supplemental statements therefor, additional
fees, if any, and disbursements of such special counsel in connection with the
transactions hereby contemplated (including disbursements unposted as of the
Closing Date).
9.4. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by the Company.
Nothing in this Agreement is intended to limit the ability of the Purchasers to
sell or to transfer any or all of the Securities (and the rights relating
thereto) following the Closing Date.
36
9.5. Waiver. The Purchasers and the Company by written notice to the
others may (a) extend the time for performance of any of the obligations of the
others under this Agreement, (b) waive any inaccuracies in the representations
or warranties of the others contained in this Agreement or in any document
delivered in connection herewith, (c) waive compliance with any of the
conditions or covenants of the others contained in this Agreement, or (d) waive
or modify performance of any of the obligations of the others under this
Agreement; provided, however, that no such party may, without the prior written
consent of the other parties, make or grant such extension of time, waiver of
inaccuracies or compliance or waiver or modification of performance with respect
to its (or any of its affiliates) representations, warranties, conditions or
covenants hereunder. Except as provided in the immediately preceding sentence,
no action taken pursuant to this Agreement will be deemed to constitute a waiver
of compliance with any representations, warranties, conditions or covenants
contained in this Agreement and will not operate or be construed as a waiver of
any subsequent breach, whether of a similar or dissimilar nature.
9.6. Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) supersedes any other agreement, whether written or oral, that
may have been made or entered into by any party or any of their respective
affiliates (or by any director, officer or representative thereof) relating to
the matters contemplated hereby. This Agreement (together with the Exhibits and
Schedules hereto) constitutes the entire agreement by and among the parties
hereto and there are no agreements or commitments by or among such parties or
their affiliates except as expressly set forth herein.
9.7. Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements signed by the parties
hereto.
9.8. Rights of the Parties. Except as provided in Articles I and VII or
in Sections 9.3 and 9.4, nothing expressed or implied in this Agreement is
intended or will be construed to confer upon or give any person or entity other
than the parties hereto and their respective affiliates any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
9.9. Brokers. The Purchasers hereby agree to indemnify and hold harmless
the Company, and the Company hereby agrees to indemnify and hold harmless the
Purchasers, against any liability, claim, loss, damage or expense incurred by
the Purchasers or by the Company, as the case may be, relating to any fees or
commissions owed to any broker, finder, or financial advisor as a result of
actions taken by the other in connection with this Agreement or the transactions
contemplated hereby. Any indemnification payment by the Company required by
this Section shall be equitably adjusted so that the payment of such
37
amount shall not adversely affect the Purchasers, through their ownership of the
Securities or the Common Stock issuable upon conversion or exercise thereof or
otherwise.
9.10. Further Assurances. From time to time, as and when requested by any
party, the other parties will execute and deliver, or cause to be executed and
delivered, all such documents and instruments as may be reasonably necessary to
consummate the transactions contemplated by this Agreement.
9.11. Irrevocable Proxy. Each of Chartwell Capital Investors, L.P., Xxxx
X. Xxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxxxxx X. Xxxxx, Xxxxxxxx Xxxxxx, Xxxxxxx X.
Xxxxxxx, M.D. and Xxxxxx Xxx Xxxxxxx (the "Grantors") agrees to vote all of its,
his or her capital stock of the Company and to take all other necessary actions
within such Grantor's control (including, without limitation, (i) attending all
meetings in person or by proxy for purposes of obtaining a quorum and for
purposes of voting and (ii) executing all written consents in lieu of any
meeting) to approve the adjustment to the Conversion Price (as defined in the
Certificate of Designation) of the Series B Preferred Stock set forth in Section
10.3 of the Certificate of Designation and the adjustment to the Exercise Price
(as defined in the Warrants) of the Warrants set forth in the first paragraph of
the Warrants and to approve any other matter which may be necessary to provide
the Purchasers with the benefits to which they are entitled under this Agreement
or the other Transaction Documents (the "Shareholder Proposals"). In order to
secure the Grantor's obligation to vote as shareholders for the approval of the
Shareholder Proposals, each Grantor hereby appoints Xxxxx X. Xxxxxxx and Xxxx X.
Xxxxxxx as his, her or its true and lawful proxy and attorney-in-fact, with full
power of substitution, to vote all of the Grantor's capital stock of the Company
for the purpose of approving the Shareholder Proposals and to take all such
other actions as are necessary to enforce the rights of the Purchasers under
this Section 9.11. The irrevocable proxy granted hereunder may be exercised at
any time any Grantor fails to comply with the provisions of this Section 9.11.
The proxies and powers granted by each Grantor pursuant to this Section 9.11 are
coupled with an interest and are given to secure the performance of the
Grantors' obligations to the Purchasers under this Section 9.11. Such proxies
and powers shall be effective until the date which is 365 days after the date
hereof; provided, however, that such proxies and powers shall terminate earlier
if both (A) the Shareholder Proposals are approved by a majority of the
shareholders of the Company entitled to vote thereon and (B) the Additional
Listing Application with the American Stock Exchange with respect to all of the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
and exercise of the Warrants has been approved by the American Stock Exchange.
At any time in which the irrevocable proxy granted pursuant to this Section 9.11
shall be in effect, (x) the Grantors shall not sell, pledge, dispose of or
otherwise encumber any shares of capital stock of the Company owned,
beneficially or of record, by such Grantors (except that the Grantors may
transfer or sell shares of capital stock of the Company if the transferee
unconditionally agrees with the
38
Company in writing to be bound by the terms of this Section 9.11 prior to
effecting such transfer or sale) and (y) such proxy shall survive the death,
incompetency and disability of each Grantor.
9.12. Governing Law. This Agreement, including without limitation, the
interpretation, construction and validity hereof, shall be governed by the laws
of the State of Texas, without regard to conflict of law principles thereof.
9.13. Severability. The parties agree that if one or more provisions
contained in this Agreement shall be deemed or held to be invalid, illegal or
unenforceable in any respect under any applicable law, this Agreement shall be
construed with the invalid, illegal or unenforceable provision deleted, and the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected or impaired thereby.
9.14. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
9.15. Titles and Headings. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
9.16. Certain Interpretive Matters and Definitions. (a) Unless the
context otherwise requires, (i) "Transaction Documents" mean, collectively, this
Agreement, the Warrant Agreements, the Warrants, the Certificate of Designation
and the Registration Rights Agreement, (ii) all references to Sections, Articles
or Schedules are to Sections, Articles or Schedules of or to this Agreement,
(iii) each term defined in this Agreement has the meaning assigned to it, (iv)
each accounting term not otherwise defined in this Agreement has the meaning
assigned to it in accordance with GAAP, (v) "or" is disjunctive but not
necessarily exclusive, (vi) words in the singular include the plural and vice
versa, and (vii) the terms "affiliate" and "subsidiary" have the meanings given
to them in Rule 12b-2 of Regulation 12B under the Exchange Act. All references
to "$" or dollar amounts will be to lawful currency of the United States of
America.
(b) No provision of this Agreement will be interpreted in favor of, or
against, either of the parties hereto by reason of the extent to which either
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft
hereof or thereof.
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INTEGRATED ORTHOPAEDICS, INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxx
------------------------------
Title: President
-----------------------------
FW INTEGRATED ORTHOPAEDICS INVESTORS, L.P.
By: GROUP 31, INC.,
its General Partner
By: /s/ Xxxxx X. Xxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxx
--------------------------
Title: Vice President
-------------------------
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
By: FW GROUP GENPAR, INC.,
its General Partner
By: /s/ Xxxxx X. Xxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxx
--------------------------
Title: Vice President
-------------------------
40
ACCEPTED AND AGREED FOR PURPOSES
OF SECTIONS 6.6 and 9.11 HEREOF
CHARTWELL CAPITAL INVESTORS, L.P.
By: CHARTWELL CAPITAL PARTNERS, L.P.,
its General Partner
By: CHARTWELL PARTNERS, L.P.,
its General Partner
By: CHARTWELL, INC.,
its General Partner
By: /s/ Xxxxxx X. Xxxxx
------------------------
Name: Xxxxxx X. Xxxxx
------------------------
Title: Chairman
------------------------
ACCEPTED AND AGREED FOR PURPOSES
OF SECTION 9.11 HEREOF
/s/ Xxxx X. Xxxxxxx
--------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxx
--------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxxxxx X. Xxxxx
--------------------------------------
Xxxxxxxxx X. Xxxxx
/s/ Xxxxxxxx Xxxxxx
--------------------------------------
Xxxxxxxx Xxxxxx
/s/ Xxxxxxx X. Xxxxxxx
--------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx Xxx Xxxxxxx
--------------------------------------
Xxxxxx Xxx Xxxxxxx
41
