EXHIBIT 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CRDENTIA CORP.,
CRDE CORP.,
XXXXX X. XXXXXX,
AND
XXXXX X. XXXXXX
DATED NOVEMBER 14, 2004
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS............................................................................... 2
1.1 Defined Terms................................................................................. 2
1.2 Construction of Certain Terms and Phrases..................................................... 10
ARTICLE II The MERGER................................................................................ 10
2.1 The Merger.................................................................................... 10
2.2 Effective Time................................................................................ 10
2.3 Effect of the Merger.......................................................................... 11
2.4 Articles of Incorporation; Bylaws............................................................. 11
2.5 Directors and Officers........................................................................ 11
2.6 Effect on Capital Stock/Merger Consideration.................................................. 11
2.7 Actions at the Effective Time................................................................. 12
2.8 Exchange Procedure............................................................................ 12
2.9 Registration Rights........................................................................... 13
2.10 Conditional Purchases of Parent Common Stock.................................................. 14
2.11 Closing....................................................................................... 16
2.12 Tax Matters................................................................................... 19
2.13 Authorization of the Shareholder Representative............................................... 19
ARTICLE III Representations and Warranties of HCI holding Co. and the shareholders.................... 20
3.1 Organization.................................................................................. 21
3.2 Ownership of the Company...................................................................... 21
3.3 Ownership of Shares........................................................................... 21
3.4 Authority..................................................................................... 22
3.5 No Affiliates................................................................................. 22
3.6 No Conflicts.................................................................................. 22
3.7 Consents and Governmental Approvals and Filings............................................... 23
3.8 Books and Records............................................................................. 23
3.9 Financial Statements.......................................................................... 23
3.10 Absence of Changes............................................................................ 23
3.11 No Undisclosed Liabilities.................................................................... 23
3.12 Tangible Personal Property.................................................................... 23
3.13 Benefit Plans; ERISA.......................................................................... 24
3.14 Real Property................................................................................. 25
3.15 Intellectual Property Rights.................................................................. 25
3.16 Compliance with Legal Requirements; Governmental Authorizations............................... 25
3.17 Legal Proceedings; Orders..................................................................... 27
3.18 Contracts..................................................................................... 28
3.19 Environmental Matters......................................................................... 29
3.20 Accounts Receivable........................................................................... 31
3.21 Accounts Payable.............................................................................. 31
3.22 Equipment..................................................................................... 31
3.23 Insurance..................................................................................... 31
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TABLE OF CONTENTS
(continued)
PAGE
3.24 Tax Matters................................................................................... 32
3.25 Labor and Employment Relations................................................................ 34
3.26 Certain Employees............................................................................. 35
3.27 Absence of Certain Developments............................................................... 35
3.28 Suppliers..................................................................................... 37
3.29 Bank Accounts................................................................................. 37
3.30 Permits....................................................................................... 37
3.31 Regulatory Compliance......................................................................... 37
3.32 Third Party Consents.......................................................................... 38
3.33 Relationships with Related Persons............................................................ 38
3.34 Certain Payments.............................................................................. 38
3.35 Brokers....................................................................................... 38
3.36 Verification of Credentials................................................................... 39
3.37 Training...................................................................................... 39
3.38 Material Misstatements and Omissions.......................................................... 39
ARTICLE IV Representations and Warranties of Parent and Acquisition Co............................... 39
4.1 Organization.................................................................................. 39
4.2 Authority..................................................................................... 39
4.3 Litigation.................................................................................... 40
4.4 Reports and Financial Statements.............................................................. 40
4.5 Absence of Changes............................................................................ 40
4.6 Brokers....................................................................................... 40
4.7 No Conflicts.................................................................................. 40
4.8 Consents and Governmental Approvals and Filings............................................... 41
4.9 Validity of Merger Shares..................................................................... 41
4.10 Material Misstatements and Omissions.......................................................... 41
ARTICLE V Representations and Warranties of the Shareholders........................................ 42
5.1 Requisite Power and Authority................................................................. 42
5.2 Ownership and Voting.......................................................................... 42
5.3 Investment Representations.................................................................... 42
5.4 Transfer Restrictions......................................................................... 44
ARTICLE VI Additional Agreements..................................................................... 44
6.1 Operation of Business Prior to Closing Date................................................... 44
6.2 No Solicitation or Negotiation................................................................ 45
6.3 Access to Information......................................................................... 45
6.4 Notification of Certain Matters............................................................... 46
6.5 Fees and Expenses............................................................................. 46
6.6 Tax Matters................................................................................... 46
6.7 Formation of HCI Holding Co./Conversion of Company............................................ 47
6.8 Cash Withdrawal............................................................................... 48
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TABLE OF CONTENTS
(continued)
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ARTICLE VII Conditions to Consummation of the SALE.................................................... 48
7.1 Conditions to the Obligations of HCI Holding Co. and the Shareholders......................... 48
7.2 Conditions to the Obligations of Parent and Acquisition Co.................................... 49
ARTICLE VIII Termination; Amendment; Waiver............................................................ 50
8.1 Termination................................................................................... 50
8.2 Effect of Termination......................................................................... 51
8.3 Amendment..................................................................................... 51
ARTICLE IX Actions by the Parties After the Closing.................................................. 51
9.1 Survival of Representations, Warranties, Etc.................................................. 51
9.2 Indemnification............................................................................... 52
9.3 Articles of Incorporation and Bylaws.......................................................... 54
9.4 Exclusivity................................................................................... 54
ARTICLE X Miscellaneous............................................................................. 55
10.1 Further Assurances............................................................................ 55
10.2 Notices....................................................................................... 55
10.3 Entire Agreement.............................................................................. 56
10.4 Waiver........................................................................................ 56
10.5 No Third Party Beneficiary.................................................................... 56
10.6 No Assignment; Binding Effect................................................................. 56
10.7 Severability.................................................................................. 56
10.8 Governing Law................................................................................. 57
10.9 Consent to Jurisdiction and Forum Selection................................................... 57
10.10 Construction.................................................................................. 57
10.11 Counterparts; Future Signatures............................................................... 57
10.12 Attorney's Fees............................................................................... 57
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made
and entered into as of November 14, 2004, by and among (i) Crdentia Corp., a
Delaware corporation ("Parent"), and (ii) CRDE Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Acquisition Co."), on the one hand, and
(i) Xxxxx X. Xxxxxx and Xxxxx X. Xxxxxx, who currently constitute all of the
shareholders (individually a "Shareholder" and collectively, the "Shareholders")
of Healthcare Innovations Private Services, Inc., an Oklahoma corporation and
who, following the HCI Conversion (as hereinafter defined) shall constitute all
of the shareholders of HCI Holding Corporation, a Delaware corporation ("HCI
Holding Co."), and (ii) Xxxxx X. Xxxxxx as the Shareholder Representative (as
hereinafter defined), on the other hand. As contemplated in Section 6.7 herein,
following the date hereof and on or before the Closing Date, the Shareholders
shall cause HCI Holding Co. to become party hereto.
RECITALS:
A. Upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law (the "DGCL"),
Parent, Acquisition Co. and HCI Holding Co. will enter into a business
combination transaction pursuant to which HCI Holding Co. will merge with and
into Acquisition Co. (the "Merger").
B. The Board of Directors of Parent (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Parent and fair to, and in the best interests of, Parent and its
stockholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
C. The Board of Directors of Acquisition Co. (i) has determined that
the Merger is consistent with and in furtherance of the long-term business
strategy of Acquisition Co. and fair to, and in the best interests of,
Acquisition Co. and its stockholder, and (ii) has approved this Agreement, the
Merger and the other transactions contemplated by this Agreement.
D. Pursuant to Section 6.7, at or prior to the Closing, the Board of
Directors of HCI Holding Co. shall (i) have determined that the Merger is
consistent with and in furtherance of the long-term business strategy of HCI
Holding Co. and fair to, and in the best interests of, HCI Holding Co. and its
shareholders, and (ii) have approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
E. At or prior to the Closing, the shareholders of HCI Holding Co.
shall have unanimously approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
F. Parent, as the sole stockholder of Acquisition Co. has approved
this Agreement, the Merger and other transactions contemplated by this
Agreement.
G. The parties desire to make certain representations and warranties
and other agreements in connection with the Merger.
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. In addition to terms defined elsewhere in this
Agreement, the following defined terms have the meanings indicated below:
"Accounts Payable" has the meaning set forth in Section 3.21.
"Accounts Receivable" has the meaning set forth in Section 3.20.
"Acquisition Co." has the meaning set forth in the first paragraph
of this Agreement.
"Acquisition Co. Common Stock" has the meaning set forth in Section
2.7(c).
"Actions or Proceedings" means any action, suit, proceeding,
arbitration, Order, inquiry, hearing, assessment with respect to fines or
penalties or litigation (whether civil, criminal, administrative, investigative
or informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority.
"Affiliate" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
"Assets and Properties" and "Assets or Properties" of any Person
each means all assets and properties of every kind, nature, character and
description (whether real, personal or mixed, whether tangible or intangible,
whether absolute, accrued, contingent, fixed or otherwise and wherever
situated), including the goodwill related thereto, operated, owned or leased by
such Person, including, without limitation, cash, cash equivalents, accounts and
notes receivable, chattel paper, documents, instruments, general intangibles,
real estate, equipment, inventory, goods and Intellectual Property.
"Benefit Plan" means any Plan established, arranged or maintained by
the Company or any corporate group of which the Company is or was a member,
existing at any time prior to the Closing, to which the Company contributes or
has contributed, or under which any employee, officer, director, partner or
former employee, officer, director or partner of the Company or any beneficiary
thereof is covered, is eligible for coverage or has benefit rights.
"Books and Records" of any Person means all files, documents,
instruments, papers, books, computer files (including but not limited to files
stored on a computer's hard drive or on floppy disks), electronic files and
records in any other medium relating to the business, operations or condition of
such Person.
"Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement or any other agreement or
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document will be deemed to have occurred if there is or has been (a) any
material inaccuracy of, or any material failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any third persons not party hereto) or other occurrence or
circumstance that is or was materially inconsistent with such representation,
warranty, covenant, obligation, or other provision, and the term "Breach" means
any such material inaccuracy, breach, failure, claim, occurrence or
circumstance.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Texas are authorized or obligated to close.
"Cash Consideration" has the meaning set forth in Section 2.6(c)(i).
"Closing" has the meaning set forth in Section 2.11(a).
"Closing Date" has the meaning set forth in Section 2.11(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Healthcare Innovations Private Services, Inc., an
Oklahoma corporation to be converted into an Oklahoma limited liability company
pursuant to Section 6.7 on or before the Closing.
"Company Common Stock" has the meaning set forth in Section 3.2(a).
"Consent" means any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
"Contemplated Transactions" means all of the transactions
contemplated by this Agreement, including, without limitation: (a) the Merger;
(b) the execution, delivery, and performance of all agreements contemplated
hereby, including, without limitation, the Registration Rights Agreement,
Non-Competition Agreements and the Releases; (c) the performance by Parent,
Acquisition Co. and the Shareholders of their respective covenants and
obligations under this Agreement; and (d) Parent's acquisition and ownership of
and exercise of control over HCI Holding Co.
"Contract" means any agreement, arrangement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding.
"Copyrights" has the meaning set forth in the definition of
"Intellectual Property."
"Damages" has the meaning set forth in Section 9.2(a).
"DGCL" has the meaning set forth in the Recitals.
"Effective Time" has the meaning set forth in Section 2.2.
"Employment Agreement" has the meaning set forth in Section 2.11(c).
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"Encumbrances" means any mortgage, pledge, assessment, security
interest, deed of trust, lease, lien, adverse claim, equitable interest, levy,
charge, community property interest, right of first refusal or other encumbrance
of any kind, or any conditional sale or title retention agreement or other
agreement to give any of the foregoing in the future.
"Environment" has the meaning set forth in Section 3.19(e)(i).
"Environmental Laws" has the meaning set forth in Section
3.19(e)(iii).
"Environmental Notice" has the meaning set forth in Section
3.19(e)(ii).
"Environmental Permits" has the meaning set forth in Section
3.19(a).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any entity which is a member of a
"controlled group of corporations" or which is or was under "common control"
with the Company as defined in Section 414 of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FASB" has the meaning set forth in GAAP.
"Final Returns" has the meaning set forth in Section 6.6(a).
"GAAP" means United States generally accepted accounting principles,
as currently defined by the Financial Accounting Standards Board ("FASB") and
other agencies permitted by law to issue such pronouncements.
"Governmental Authorization" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental or Regulatory Authority
or pursuant to any Legal Requirement.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or other country, any state, county, city or other political
subdivision.
"Group" means, individually and collectively, (i) HCI Holding Co.,
(ii) the Company and (iii) any individual, trust, corporation, partnership or
any other entity as to which the Company is liable for Taxes incurred by such
individual or entity either as a transferee, or pursuant to Treasury Regulations
Section 1.1502-6, or pursuant to any other provision of federal, territorial,
state, local or foreign law or regulations.
"HCI Conversion" has the meaning set forth in Section 6.7.
"HCI Disclosure Schedule" means the disclosure schedule delivered
pursuant to Article III (and as may be amended as of the Closing Date for events
that transpire between the
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date hereof and the Closing Date) which sets forth the exceptions to the
representations and warranties contained in Article III hereof.
"HCI Financial Statements" means the audited balance sheet as of
August 31, 2004, July 31, 2004, June 30, 2004, May 31, 2004 and April 30, 2004
and the related statement of operations and cash flows for the Company, in each
case for the eight months ended August 31, 2004, the months ended August 31,
2004, July 31, 2004, June 30, 2004 and May 31, 2004 and for the four months
ended April 30, 2004.
"HCI Holding Co." has the meaning set forth in the first paragraph.
"HCI Holding Co. Common Stock" means the common stock of HCI Holding
Co.
"HIPAA" has the meaning set forth in Section 3.37.
"Initial Offering" has the meaning set forth in Section 2.10(a)(i).
"Intellectual Property" means (i) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof (collectively, "Patents"); (ii) trademarks, service
marks, trade dress, logos, trade names and corporate names, together with all
translations, adaptations, derivations and combinations thereof and including
all goodwill associated therewith, and all applications, registrations and
renewals in connection therewith (collectively, "Trademarks"); (iii)
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith and mask works and all applications,
registrations and renewals in connection therewith (collectively, "Copyrights");
(iv) trade secrets and confidential business information (including without
limitation, product specifications, data, know-how, inventions and ideas, past,
current and planned research and development, customer lists, current and
anticipated customer requirements, price lists, market studies, business plans),
however documented (collectively, "Trade Secrets and Other Proprietary
Information"); (v) proprietary computer software and programs (including object
code and source code) and other proprietary rights and copies and tangible
embodiments thereof (in whatever form or medium); (vi) database technologies,
systems, structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information) and any other related
information, however, documented; (vii) any and all information concerning the
business and affairs of a Person (which includes historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel
and personnel training and techniques and materials), however documented; (viii)
any and all notes, analysis, compilations, studies, summaries, and other
material prepared by or for a Person containing or based, in whole or in part,
on any information included in the foregoing, however documented; (ix) all
industrial designs and any registrations and applications therefor; (x) all
databases and data collections and all rights therein; and (xi) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"Interim Period" means with respect to any Taxes imposed on the
Company on a periodic basis for which the Closing Date is not the last day of a
Taxable period, the period of time
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beginning on the first day of the actual Taxable period that includes (but does
not end on) the Closing Date and ending on and including the Closing Date.
"Investigations" has the meaning set forth in Section 9.2(a).
"Knowledge of HCI" means the knowledge of any officer, director or
management level employee of the Company or any Shareholder. An officer,
director or management level employee of the Company or any Shareholder will be
deemed to have knowledge of a particular fact or other matter if: (i) such
individual is actually aware of such fact or other matter; or (ii) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"Knowledge of Parent or Acquisition Co." means the knowledge of any
officer or director of Parent or Acquisition Co. An officer or director of
Parent or Acquisition Co. will be deemed to have knowledge of a particular fact
or other matter if: (i) such individual is actually aware of such fact or other
matter; or (ii) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Material" has the meaning set forth in Section 3.19(e)(iv).
"Material Adverse Effect" means, for any Person, whether
individually or in the aggregate (a) a financial impact or generating damages
greater than $25,000 with respect to the business, operations, financial
condition, Assets and Properties, liabilities or prospects of such Person, or
(b) a material impact on the ability of such Person to consummate the
transactions contemplated hereby.
"Merger" has the meaning set forth in the Recitals.
"Merger Consideration" has the meaning set forth in Section 2.6(c).
"Merger Shares" has the meaning set forth in Section 2.6(c)(ii).
"Non-Competition Agreements" has the meaning set forth in Section
2.11(b)(iv).
"Offering" shall mean the sale by Parent of its equity securities
for the purpose of raising capital pursuant to either (A) a private transaction
exempt from registration pursuant to the Securities Act (a "PIPE") or (B) an
underwritten public offering pursuant to a registration statement under the
Securities Act (a "Public Offering").
"Order" means any award, decision, writ, judgment, decree, ruling,
subpoena, verdict, injunction or similar order of any Governmental or Regulatory
Authority (in each such case whether preliminary or final).
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"Ordinary Course of Business" means the action of a Person that is
(i) consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (ii) not
required to be authorized by the board of directors of such Person; and (iii)
similar in nature and magnitude to actions customarily taken, without the action
of the board of directors, general partner or similar body, in the ordinary
course of the normal day-to-day operations of such Person.
"Outstanding HCI Holding Co. Common Stock" has the meaning set forth
in Section 2.6(a).
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Common Stock" means the shares of common stock of Parent,
$0.0001 par value.
"Parent Common Stock Price" has the meaning set forth in Section
2.6(c)(ii).
"Parent SEC Documents" means each form, report, schedule, statement
and other document required to be filed by the Parent through the date of this
Agreement or the Closing under the Exchange Act or the Securities Act or by the
rules and regulations of the stock exchange or market on which shares of Parent
Common Stock are traded, including any amendment to such document, whether or
not such amendment is required to be so filed.
"Patents" has the meaning set forth in the definition of
"Intellectual Property."
"Permits" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations and similar consents granted or issued
by any Governmental or Regulatory Authority.
"Permitted Encumbrance" means (a) any Encumbrance for taxes not yet
due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (b)
any minor imperfection of title or similar Encumbrance which individually or in
the aggregate with other such Encumbrances does not materially impair the value
of the property subject to such Encumbrance or the use of such property in the
conduct of the business of the Company, and (c) any Encumbrance on the Assets
and Properties of the Company at Closing which is incurred in the Ordinary
Course of Business, including but not limited to Encumbrances due to accounts
receivable financing, other borrowings and landlord liens.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether
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written or oral, including, but not limited to, any "employee benefit plan"
within the meaning of Section 3(3) of ERISA.
"Post-Closing Period" shall mean any Tax period (or portion thereof)
beginning after the close of business on the Closing Date.
"Pre-Closing Period" shall mean any Tax period ending on or before
the close of business on the Closing Date or, in the case of any Tax period
which includes, but does not end on, the Closing Date, the portion of such
period up to and including the Closing Date.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted, or heard by or before,
or otherwise involving, any Governmental or Regulatory Authority.
"Purchase Date" has the meaning set forth in Section 2.10(b).
"Purchaser Representative" has the meaning set forth in Section
5.3(a)(ii).
"Qualified Plan" means each Benefit Plan which is intended to
qualify under Section 401 of the Code.
"Real Property" has the meaning set forth in Section 3.14.
"Regulated Services" has the meaning set forth in Section 3.31(a).
"Related Person" means with respect to a particular individual:
(a) each other member of such individual's Family; and
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such
individual's Family; and
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the
aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one
or more members of such individual's Family serve as a
director, officer, partner, executor, or trustee (or in
a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified
Person; and
(b) any Person that holds a Material Interest in such
specified Person; and
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a
similar capacity); and
(d) any Person in which such specified Person holds a
Material Interest; and
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(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a
similar capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of voting securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
"Release" has the meaning set forth in Section 2.11(b)(v).
"Returns" means all reports, estimates, declarations of estimated
Tax, information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"Rison Management" has the meaning set forth in Section
2.11(b)(iii).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" has the meaning set forth in the first paragraph of
this Agreement.
"Shareholder Representative" has the meaning set forth in Section
2.13(a).
"Stock Certificates" means the certificates which immediately prior
to the Effective Time represented HCI Holding Co. Common Stock.
"Stock Consideration" has the meaning set forth in Section
2.6(c)(ii).
"Surviving Corporation" has the meaning set forth in has the meaning
set forth in Section 2.1.
"Tax" or "Taxes" means, except where the context otherwise requires,
all taxes, however, denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state or local government or any agency or political
subdivision of any such government, which taxes shall include, without limiting
the generality of the foregoing, all income or profits taxes (including, but not
limited to, federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property taxes,
stamp taxes, environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges, and other
obligations of the
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same or of a similar nature to any of the foregoing, which are required to be
paid, withheld or collected.
"Third Party Expenses" has the meaning set forth in Section 6.5.
"Threatened" means a claim, Proceeding, dispute, action or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (in writing) or any notice has been given (in writing), or if any
other event has occurred or any other circumstances exist that would lead a
prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
"Trademarks" has the meaning set forth in the definition of
"Intellectual Property."
"Trade Secrets and Other Proprietary Information" has the meaning
set forth in the definition of "Intellectual Property."
"Treasury Regulations" means the temporary and final regulations
issued by the U.S. Treasury Department under the Code.
1.2 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context of
this Agreement otherwise requires, (a) words of any gender include each other
gender; (b) words using the singular or plural number also include the plural or
singular number, respectively; (c) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (d) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; (e) the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or;" and (f) "including" means
"including without limitation." Whenever this Agreement refers to a number of
days, such number shall refer to calendar days unless Business Days are
specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP.
ARTICLE II
THE MERGER
2.1 THE MERGER. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the applicable provisions of the
DGCL, HCI Holding Co. shall be merged with and into Acquisition Co., the
separate corporate existence of HCI Holding Co. shall cease and Acquisition Co.
shall continue as the surviving corporation. Acquisition Co., as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
2.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by the filing of a
certificate of merger substantially in the form attached hereto as Exhibit A
(the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in accordance with the relevant provisions of the DGCL (the time of
acceptance by the Secretary of State of the State of Delaware of such filing, or
such later time as may be agreed in writing by the parties and specified in the
Certificate of Merger, being the "Effective Time") as soon as practicable on the
Closing Date.
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2.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the property, rights, privileges, powers and
franchises of HCI Holding Co. and Acquisition Co. shall vest in the Surviving
Corporation, and all debts, liabilities and duties of HCI Holding Co. and
Acquisition Co. shall become the debts, liabilities and duties of the Surviving
Corporation.
2.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Acquisition Co. shall be the Certificate of Incorporation of the Surviving
Corporation, except that Article I thereof shall be amended to read in its
entirety as follows: "The name of the Corporation is Healthcare Innovations
Private Services, Inc."
(b) At the Effective Time, the Bylaws of Acquisition Co. shall
be the Bylaws of the Surviving Corporation, except that the Bylaws shall be
amended to reflect that the name of the Surviving Corporation shall be
"Healthcare Innovations Private Services, Inc."
2.5 DIRECTORS AND OFFICERS. The directors of Acquisition Co.
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, to serve until their respective successors are duly
elected or appointed and qualified. The officers of Acquisition Co. immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, to serve until their successors are duly elected or appointed or
qualified.
2.6 EFFECT ON CAPITAL STOCK/MERGER CONSIDERATION.
(a) Conversion of HCI Holding Co. Common Stock. At the
Effective Time, by virtue of the Merger and without any action on the part of
any Person, each share of the HCI Holding Co. Common Stock issued and
outstanding immediately prior to the Effective Time (the "Outstanding HCI
Holding Co. Common Stock") shall be canceled and automatically converted into
the right to receive, upon surrender of the Stock Certificates representing such
shares, a ratable portion of the Merger Consideration. At the Effective Time,
all rights in respect of such Outstanding HCI Holding Co. Common Stock shall
cease to exist, other than the right to receive the Merger Consideration, and
all such shares shall be cancelled and retired.
(b) No Fractional Shares. In lieu of fractional shares that
would otherwise be issued to holders of Outstanding HCI Holding Co. Common Stock
under this Agreement, each holder of Outstanding HCI Holding Co. Common Stock
that would have been entitled to receive a fractional share shall receive such
whole number of shares of Parent Common Stock as is equal to the precise number
of shares of Parent Common Stock to which such person would be entitled rounded
down to the nearest whole number.
(c) Merger Consideration. The merger consideration (the
"Merger Consideration") shall consist of the Cash Consideration and the Stock
Consideration, and shall be paid as set forth below.
(i) Cash Consideration. At Closing, Parent shall make a
cash payment to the Shareholders (the "Cash Consideration"), which shall consist
of Nine Million Dollars
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($9,000,000) to be wired by Parent in immediately available funds to accounts
designated by the respective Shareholders.
(ii) Stock Consideration. At Closing, Parent shall issue
to the Shareholders a number of shares of Parent Common Stock equal to (i)
Nineteen Million Dollars ($19,000,000), divided by (ii) the Parent Common Stock
Price (the "Stock Consideration" or "Merger Shares"). For purposes of this
Agreement, the "Parent Common Stock Price" shall mean the average of the closing
prices of the Parent Common Stock as reported on the primary stock exchange or
market on which shares of Parent Common Stock are traded for the fourteen (14)
calendar day period ending two (2) calendar days prior to the Closing. Subject
to Parent's obligations pursuant to Section 2.9 herein, the issuance of the
Parent Common Stock as Stock Consideration pursuant to this Section 2.6(c)(ii)
will be exempt from registration requirements of the Securities Act pursuant to
the private placement exemption provided by Rule 505 and/or 506 of Regulation D
promulgated under the Securities Act and/or Section 4(2) of the Securities Act,
and applicable state securities laws.
(d) Allocation of Purchase Price. The Cash Consideration and
Stock Consideration shall be allocated among the respective Shareholders on the
same basis that the number of shares in HCI Holding Co. owned by each such
Shareholder bears to the total number of shares in HCI Holding Co. owned by all
Shareholders.
2.7 ACTIONS AT THE EFFECTIVE TIME. At the Effective Time:
(a) Except for the securities referred to in Section 2.7(b)
below, each share of Outstanding HCI Holding Co. Common Stock will
automatically, by virtue of the Merger and without any action on the part of the
holder thereof, be canceled and converted into a right to receive from Parent
the Merger Consideration in the amount as determined pursuant to Section 2.6.
(b) Each share, if any, of HCI Holding Co. Common Stock held
in the treasury of HCI Holding Co. shall be canceled and retired without payment
of any consideration therefor.
(c) Each share of common stock of Acquisition Co.
("Acquisition Co. Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock of the Surviving Corporation
and shall constitute the only shares of capital stock of the Surviving
Corporation outstanding immediately after the Effective Time. Each stock
certificate of Acquisition Co. evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
2.8 EXCHANGE PROCEDURE.
(a) Upon surrender of a Stock Certificate for cancellation to
Parent or to such other agent or agents as may be appointed by Parent, duly
endorsed in blank (or accompanied by duly executed stock powers) and, if
necessary, spousal consents by each spouse, if any, of the holder of such Stock
Certificate, duly executed by such spouses, the holder of such Stock Certificate
shall be entitled to receive in exchange therefor the Merger Consideration to
which
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such holder of HCI Holding Co. Common Stock is entitled pursuant to Section 2.6
above. The Stock Certificates so surrendered shall forthwith be canceled. No
interest will accrue or be paid to the holder of any HCI Holding Co. Common
Stock. From and after the Effective Date, until surrendered as contemplated by
this Section 2.8, each Stock Certificate shall be deemed for all corporate
purposes to evidence the amount of the Merger Consideration into which HCI
Holding Co. Common Stock represented by such Stock Certificate shall have been
converted in the Merger pursuant to this Agreement.
(b) The Merger Consideration delivered upon the surrender for
exchange of HCI Holding Co. Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such HCI Holding Co. Common Stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of HCI Holding Co. Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Stock Certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 2.8, provided that the
presenting holder is listed on HCI Holding Co.'s shareholder list as a holder of
HCI Holding Co. Common Stock.
(c) In the event that any Stock Certificates evidencing HCI
Holding Co. Common Stock shall have been lost, stolen or destroyed, Parent shall
pay in exchange for such lost, stolen or destroyed Stock Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Merger
Consideration as may be required pursuant to Section 2.6 above; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed Stock
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent with respect to the
Stock Certificates alleged to have been lost, stolen or destroyed.
(d) Notwithstanding anything to the contrary in this Section
2.8, none of Parent, the Surviving Corporation or any party hereto shall be
liable to a holder of HCI Holding Co. Common Stock for any amount properly paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Each of the Parent, Acquisition Co. and HCI Holding Co.
will take all such reasonable and lawful acts as may be necessary or desirable
in order to effectuate the Merger in accordance with this Agreement as promptly
as possible. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of HCI Holding Co., the
officers and directors of HCI Holding Co. and Acquisition Co. are fully
authorized in the name of the respective corporations or otherwise to take, and
will take, all such lawful and necessary action so long as such action is not
inconsistent with this Agreement.
2.9 REGISTRATION RIGHTS. Within ninety (90) days after the Closing
Date, Parent shall file a registration statement under the Securities Act to
effect the registration of all of the shares of Parent Common Stock issued to
and held by Shareholders pursuant to Section 2.6(c)(ii) herein, and shall
thereafter cause such registration statement to become and remain effective, all
in accordance with the terms and provisions hereof and a certain registration
rights agreement to
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be negotiated by and executed by and among Parent and the Shareholders at the
Closing (the "Registration Rights Agreement").
2.10 CONDITIONAL PURCHASES OF PARENT COMMON STOCK.
(a) Following the Closing, upon the written request of
Shareholders, Parent shall purchase a number of shares of Parent Common Stock
issued to the Shareholders as part of the Stock Consideration pursuant to
Section 2.6(c)(ii) herein, subject to the terms and conditions herein. A
purchase pursuant to this Section 2.10(a) shall be solely at the option of the
Shareholders, to be exercised in their sole discretion by delivery of the
written request referenced above.
(i) Initial Offering. Following the consummation by
Parent of its initial Offering following the Closing, which is completed on or
before twenty-four (24) months following the Closing (the "Initial Offering"),
Parent shall notify Shareholders of the consummation of such Initial Offering
and, within ten (10) days of receipt of such notification, the Shareholders may
request that Parent purchase up to an aggregate number of Merger Shares equal to
(A) up to twenty-five percent (25%) of the aggregate gross proceeds raised in
the Initial Offering (but in no event less than $7,500,000 and no more than
$7,800,000), divided by (B) the Parent Common Stock Price (as defined in Section
2.6(c)(ii) above), at a purchase price per share equal to the Parent Common
Stock Price.
(ii) Put Right. Within thirty (30) days after the date
that is twenty-four (24) months following the Closing (the "Put Notice Period"),
Shareholders may request that Parent purchase any remaining Merger Shares not
otherwise sold by Shareholders in the open market or purchased by Parent from
proceeds realized in the Initial Offering (the "Put Right"). In the event that
the Shareholders exercise the Put Right by making the request for purchase
referenced in the preceding sentence, Parent shall pay in consideration for the
remaining Merger Shares an amount equal to $19,000,000 less the aggregate
amounts received by the Shareholders (A) through sales in the open market and
(B) in the Initial Offering (such unrealized amount, the "Put Consideration").
In the event that, following such request, Parent is unable to purchase such
Merger Shares, Parent shall either (as elected by the Shareholders) (A) (I)
grant and deliver to the Shareholders a subordinated security interest in all of
Parent's Assets and Properties, and (II) pledge proceeds from any subsequent
offering of Parent's equity securities for the purpose of raising working
capital, or (B) issue to Shareholders an additional number of shares of Parent
Common Stock so that the Shareholders will own Parent Common Stock equal in
value (as valued at the time at which such additional shares are issued) to the
Put Consideration (and shall cause such shares to be registered on the same
terms as provided in Section 2.9).
EXAMPLE: Solely for the purposes of clarifying Parent's obligation to issue
an additional number of shares of Parent Common Stock pursuant to
subsection (B) above, in the event that (A) Parent issued the
Shareholders 19,000,000 shares of Parent Common Stock at Closing
with a Parent Common Stock Price of $1.00 per share, (B) Parent
purchased 7,000,000 shares of Parent Common Stock following the
Initial Offering for aggregate cash proceeds to the Shareholders of
$7,000,000, (C) the Shareholders sold 5,000,000 shares of Parent
Common Stock in the open market for aggregate cash proceeds of
$10,000,000 and (D) Parent were unable to purchase Shareholders'
remaining 7,000,000 shares of Parent Common Stock for
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cash proceeds of $2,000,000 pursuant to their exercise of the Put
Right, then (assuming that the value of the Parent Common Stock at
the time of the exercise of such Put Right were $0.10 per share),
then Parent would issue the Shareholders an aggregate of 13,000,000
shares of Parent Common Stock, such that the Shareholders would hold
(following such issuance) an aggregate of 20,000,000 shares of
Parent Common Stock with a then current fair market value of
$2,000,000.
Following Parent's purchase of Merger Shares from the Shareholders pursuant to
this Section 2.10 (or the Shareholders' failure to provide notice to Parent
within expiration of the Put Notice Period), the Put Right shall terminate such
that neither Parent nor the Shareholders shall have any continuing rights or
obligations under this Section 2.10.
(iii) Change in Control. Upon a Change in Control (as
hereinafter defined) of Parent within twenty-four (24) months of the Closing,
the right of the Shareholders to exercise their Put Rights pursuant to Section
2.10(a)(ii) shall be accelerated and be immediately effective. For purpose of
this Section 2.10, a "Change in Control" shall mean (A) a merger or
consolidation in which Parent is not the surviving entity, (B) the sale of all
or substantially all of the assets of Parent and its subsidiaries, (C) the
acquisition of fifty percent (50%) or more of the total combined voting power of
Parent (excluding sales of Parent Common stock by Parent for the purpose of
raising capital) by persons different than those who held such shares prior to
such transaction or (D) a change in the membership of fifty percent (50%) or
more of the members of the board of directors of Parent.
(iv) Limitations. Notwithstanding anything in this
Section 2.10 to the contrary, in the event that the Shareholders receive
aggregate cash proceeds (either from the public sale of Merger Shares into the
public market before the Put Notice Period or the purchase of Merger Shares by
Parent under Section 2.10(a)(i)) in an amount in excess of Nineteen Million
Dollars ($19,000,000), fifty percent (50%) of the amount in excess of Nineteen
Million Dollars ($19,000,000) shall be paid by the Shareholders to Parent.
(v) Severable Rights. The Put Rights of the Shareholders
and the right to request a purchase of Merger Shares following the Initial
Offering pursuant to Sections 2.10(a)(i) and (ii) shall be several among each
Shareholder, so that one Shareholder can exercise any or all of such rights
without the other Shareholder exercising such rights. In the event that all
Shareholders do not exercise their rights described herein, Parent's purchase
obligations under this Section 2.10 shall be proportionately limited to a
percentage equal to the Stock Consideration received by the exercising
Shareholder over the Stock Consideration received by all Shareholders.
(b) As used in this Section 2.10, the term "Purchase Date"
shall refer to each date on which a purchase is effected pursuant to Section
2.10(a) above. Following receipt by Parent of notice from Shareholders
requesting a purchase of Merger Shares pursuant to Section 2.10(a) above (the
"Purchase Notice"), at least five (5) but no more than thirty (30) days after
receipt of notice from the Shareholders, written notice shall be distributed to
each Shareholder at the address last shown on the records of Parent for such
holder, notifying such Shareholder of the purchase to be effected on the
applicable Purchase Date, specifying the number of Merger Shares to be purchased
from such holder, the Purchase Date (which shall be no later than ten (10)
15
Business Days after the date of such written notice from Parent), the applicable
purchase price, the place at which payment may be obtained and calling upon such
holder to surrender to Parent, in the manner and at the place designated, his,
her or its certificate or certificates representing the Merger Shares to be
purchased. Each Shareholder shall thereafter surrender to Parent the certificate
or certificates representing such Merger Shares, in the manner and at the place
designated, and thereupon the purchase price of such Merger Shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. The purchase price shall be wired by Parent in immediately available
funds to accounts designated by the respective Shareholders.
(c) From and after the purchase of Merger Shares on each
Purchase Date, all rights of the Shareholders with respect to such Merger Shares
designated for purchase on such Purchase Date in the Purchase Notice shall cease
with respect to such Merger Shares, and such Merger Shares shall not thereafter
be transferred on the books of Parent or be deemed to be outstanding for any
purpose whatsoever. If the funds of Parent legally available for purchase of
Merger Shares on a Purchase Date are insufficient to purchase the total number
of such Merger Shares to be purchased on such date, those funds that are legally
available will be used to purchase the maximum possible number of such Merger
Shares ratably among the Shareholders and Parent shall take all actions
necessary to cause funds to be legally available to fund all purchases of Merger
Shares required hereunder. The Merger Shares that are not purchased shall remain
outstanding and subject to all the rights and preferences to which they are
otherwise entitled. At any time thereafter when additional funds of Parent are
legally available for the purchase of the Merger Shares, such funds will
immediately be used to purchase the balance of the Merger Shares that Parent has
become obligated to purchase on any Purchase Date but that it has not purchased.
2.11 CLOSING.
(a) Time and Place. The consummation of the Merger under this
Agreement (the "Closing") shall take place at the offices of Xxxxxxxx & Xxxxxxxx
LLP, 0000 Xxxxxx Xxxxxx Xxxxx, Xxx Xxxxx, XX 00000, at 10:00 a.m. on December
15, 2004, or at such time and in such manner as the parties mutually agree (the
"Closing Date").
(b) Closing Deliveries by HCI Holding Co., the Company and the
Shareholders. At the Closing, unless waived by Parent, HCI Holding Co., the
Company and/or the respective Shareholders, as the case may be, shall have
delivered or caused to be delivered to Parent or Acquisition Co., as the case
may be:
(i) the Stock Certificates evidencing the shares of
Outstanding HCI Holding Co. Common Stock owned by the respective Shareholders,
duly endorsed in blank or accompanied by duly executed stock powers; and
(ii) the Registration Rights Agreement, duly executed by
each of the Shareholders; and
(iii) an acquisition agreement (the "Advisory
Agreement"), to be negotiated in good faith and executed by and between Parent
and Rison Management Services, L.P. ("Rison Management"), pursuant to which
Rison Management shall perform services in
16
connection with identifying acquisition candidates to Parent and its Affiliates
for two (2) years and which will provide for the payment to Rison Management of
$500,000 per year for two (2) years if the Advisory Agreement is not assumed
following a Change in Control (as defined in Section 2.10(a)(iii)); and
(iv) a Non-Competition and Non-Disclosure Agreement by
and between Parent, the Company, each of the Shareholders, and Xxxxxxx X.
Xxxxxx, Xx., substantially in the form of Exhibit B (the "Non-Competition
Agreements"), duly executed by each of such parties; and
(v) a Release, substantially in the form of Exhibit C
attached hereto (the "Release"), duly executed by each of the Shareholders,
Xxxxxxx X. Xxxxxx, Xx., and Xxxx Xxxxxxx; and
(vi) a certificate of an officer of HCI Holding Co. and
the Shareholders, substantially in the form of Exhibit D attached hereto; and
(vii) a certificate of the Secretary of HCI Holding Co.,
substantially in the form of Exhibit E attached hereto, certifying as of the
Closing Date (A) a true and complete copy of the organizational documents of HCI
Holding Co. and the Company certified as of a recent date by the Secretary of
State of Delaware and the Secretary of State of Oklahoma, respectively, (B) a
certificate of each appropriate Secretary of State certifying the good standing
of HCI Holding Co. and the Company in its state of incorporation or organization
and all states in which it is qualified to do business, (C) a true and complete
copy of the resolutions of the board of directors of HCI Holding Co. and the
resolutions of the shareholders of HCI Holding Co., each authorizing the
execution, delivery and performance of this Agreement by HCI Holding Co. and the
consummation of the transactions contemplated hereby and (D) incumbency matters;
and
(viii) resignation letters from the officers and
directors of HCI Holding Co. and the Company, dated effective as of the Closing;
and
(ix) (A) a certificate in the form required by Treasury
Regulations Section 1.1445-2(c)(3) that the stock of HCI Holding Co. is not a
U.S. real property interest; (B) a form of notice to the Internal Revenue
Service in accordance with the requirements of Treasury Regulations Section
1.897-2(h)(2); and (C) an authorization for Parent to deliver such notice form
to the Internal Revenue Service on behalf of HCI Holding Co. upon the Effective
Time; and
(x) such executed agreements as are necessary to
evidence repayment by the Shareholders of any and all outstanding obligations at
Closing owed to (a) Xxxxxxx Xxxxxxx; (b) Xxxxxx Xxxxxxxx; (c) Empire Lending
Co., Inc.; and (d) U.S. Bancorp; and
(xi) such executed agreements as are necessary to
evidence the termination of a certain management services agreement with Rison
Management and the repayment to the Company of any pre-paid management fees or
expenses in connection therewith (net of any amounts due to and from Rison
Management); and
17
(xii) an audited balance sheet for the Company as of
October 31, 2004, and related statement of operations and cash flows for the
Company for the ten-month period ended October 31, 2004; and
(xiii) such other documents as Parent may reasonably
request for the purpose of facilitating the consummation of the Contemplated
Transactions.
(c) Closing Deliveries By Parent. At the Closing, Parent
and/or Acquisition Co., shall have delivered or caused to be delivered to HCI
Holding Co., the Company and/or the Shareholders, as the case may be:
(i) the Merger Consideration (with due issued and
executed stock certificates evidencing the Stock Consideration to follow soon
thereafter);
(ii) the Certificate of Merger, duly executed by
Acquisition Co.;
(iii) the Registration Rights Agreement, duly executed
by Parent;
(iv) the Advisory Agreement, duly executed by Parent;
(v) the Non-Competition Agreements, duly executed by
Parent;
(vi) an Employment Agreement, to be negotiated in good
faith and executed by and between the Company and Xxxx Xxxxxxx (the "Employment
Agreement");
(vii) a certificate of an officer of Parent,
substantially in the form of Exhibit F attached hereto, duly executed by Parent;
(viii) a certificate of the Secretary of Parent
substantially in the form of Exhibit G attached hereto, certifying as of the
Closing Date (A) a true and complete copy of the organizational documents of
Parent and Acquisition Co. certified as of a recent date by the Secretary of
State of Delaware, (B) a true and complete copy of the resolutions of the board
of directors of Parent and Acquisition Co. authorizing the execution, delivery
and performance of this Agreement by Parent and Acquisition Co. and the
consummation of the transactions contemplated hereby and (C) incumbency matters;
(ix) such executed agreements as are necessary to
evidence the termination and release of those certain guaranties of indebtedness
executed by the Shareholders in favor of Xxxxx Xxxxxx and Alamo Capital
Corporation;
(x) such executed consents and agreements of Bridge
Healthcare Finance, LLC ("Bridge") to evidence its consent and agreement to the
execution, delivery and performance of this Agreement and the Contemplated
Transactions, in form and substance reasonably satisfactory to the Shareholders;
and
(xi) such other documents as HCI Holding Co., the
Shareholders and/or the Company may reasonably request for the purpose of
facilitating the consummation of the Contemplated Transactions.
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2.12 TAX MATTERS.
(a) None of Parent, Acquisition Co. or any attorney,
accountant or other advisor of Parent or Acquisition Co. (including Xxxxxxxx &
Xxxxxxxx LLP) has made or makes any representations or warranties to the HCI
Holding Co., Company, the Shareholders or the Shareholder Representative
regarding the Tax treatment of the Merger and any other transactions
contemplated by this Agreement, or any of the Tax consequences to any
Shareholder or any other Person of this Agreement, the Merger or any of the
transactions contemplated hereby or thereby, and the Shareholders acknowledge
that they are relying solely on their own tax advisors in connection with this
Agreement and the transactions contemplated by this Agreement. The Shareholders
understand that each of them and each other Person (and not Parent or
Acquisition Co.) shall be responsible for such Person's Tax liability that may
arise as a result of the Merger or the transactions contemplated by this
Agreement.
(b) None of HCI Holding Co, the Company, the Shareholders or
the Shareholder Representative, or any attorney, accountant or other advisor of
HCI Holding Co, the Company, the Shareholders or the Shareholder Representative
(including Xxxxxxxxxxx & Price LLP and Kroney Xxxxxx, Inc.) has made or makes
any representations or warranties to the Parent or the Acquisition Co. regarding
the Tax treatment of the Merger and any other transactions contemplated by this
Agreement, or any of the Tax consequences to Parent, Acquisition Co. or any
other Person of this Agreement, the Merger or any of the transactions
contemplated hereby or thereby, and Parent and Acquisition Co. acknowledge that
they are relying solely on their own tax advisors in connection with this
Agreement and the transactions contemplated by this Agreement. Parent and
Acquisition Co. understand that each of them and each other Person (and not HCI
Holding Co, the Company, the Shareholders or the Shareholder Representative)
shall be responsible for such Person's Tax liability that may arise as a result
of the Merger or the transactions contemplated by this Agreement.
(c) Each of the parties to this Agreement hereby agrees and
acknowledges that for U.S. federal income Tax purposes (and comparable state and
local Tax purposes), the Merger is intended to qualify as a reorganization
within the meaning of Section 368(a)(2)(D) of the Code, and each of the parties
hereby agrees to report the Merger in a manner consistent with the
characterization of the Merger as a reorganization within the meaning of Section
368(a)(2)(D) of the Code.
2.13 AUTHORIZATION OF THE SHAREHOLDER REPRESENTATIVE.
(a) Xxxxx X. Xxxxxx (and each successor appointed in
accordance with this Section 2.13 hereby is appointed, authorized and empowered
to act as the shareholder representative (when acting in such capacity, the
"Shareholder Representative") on behalf of the Shareholders, in connection with
and to facilitate the consummation of the transactions contemplated by this
Agreement, which powers shall include, without limitation: (i) to deliver all
certificates representing the Stock Certificates to Parent; (ii) to prosecute,
negotiate, defend, agree to, enter into settlements and comprises of, and comply
with orders of courts and awards of arbitrators with respect to indemnification
claims or other disputes arising under this Agreement; (iii) to resolve any
indemnification claims under this Agreement; and (iv) to make, execute,
acknowledge and deliver all such other agreements, guarantees, orders, receipts,
endorsements, notices, requests, instructions, certificates, stock powers,
letters and other writings, and, in
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general, do to any and all things and to take any and all actions that the
Shareholder Representative in her sole and absolute discretion, may consider
necessary or proper or convenient in connection with the consummation of the
transactions contemplated by this Agreement.
Accordingly, the Shareholder Representative shall have unlimited
authority and power to act on behalf of the Shareholders with respect to this
Agreement (except with respect to the exercise of purchase rights or the Put
Rights pursuant to Section 2.10 herein) and the disposition, settlement or other
handling of all disputes and indemnification claims, and other rights or
obligations arising from or taken pursuant to this Agreement. Each Shareholder
will be bound by all actions taken by the Shareholder Representative in
connection with this Agreement. The Shareholder Representative shall not be
liable to Parent, any Shareholder, or any other party hereto for any costs,
damages or expenses incurred in connection with the performance of her
responsibilities hereunder, except to the extent such costs, damages or expenses
arise from the Shareholder Representative's intentional misconduct, gross
negligence or fraudulent acts.
The grant of authority provided for in this Section 2.13 is coupled
with an interest and is being granted, in part, as an inducement to Parent and
Acquisition Co. to enter into this Agreement, and shall be irrevocable and
survive the death, incompetency, bankruptcy or liquidation of any Shareholder
and shall be binding upon any successor thereto.
Parent and Acquisition Co. shall have the right to rely upon all
actions taken or omitted to be taken by the Shareholder Representative pursuant
to this Agreement or any applicable ancillary document, and notwithstanding
anything herein to the contrary, Parent and Acquisition Co. shall not have any
responsibility or obligation whatsoever to any Shareholder or to any other party
with respect to or arising out of the actions taken or any inaction by the
Shareholder Representative.
(b) If the Shareholder Representative is unable or unavailable
to perform his duties hereunder, a successor Shareholder Representative shall be
selected by a majority (based on percentage of stock ownership) of the
Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HCI HOLDING CO.
AND THE SHAREHOLDERS
Except as set forth on the HCI Disclosure Schedule (which shall be
delivered to Parent prior to Closing) and as otherwise provided herein, the
Shareholders, jointly and severally, represent and warrant to Parent and
Acquisition Co. as follows; provided, however, that (i) only the representations
and warranties set forth in Sections 3.1 through 3.5 are made, and shall be
effective, and true, correct and complete, as of the date hereof (except for any
portion of such representation or warranty which expressly speaks as of the
Closing or the Closing Date); provided, however, that subject to the following
clause (ii), each of the representations and warranties set forth in this
Article III shall be effective, and true, correct and complete, as of the
Closing; (ii) any representation or warranty set forth in this Article III
(other than Sections 3.1 through 3.5) which is discovered prior to the Closing
Date to be untrue or incomplete shall not constitute a Breach hereunder and may
be cured at Closing pursuant to the HCI Disclosure
20
Schedule notwithstanding the absence of any reference to an exception or a
Section of the HCI Disclosure Schedule in the representation or warranty; and
(iii) upon the execution of a signature page to this Agreement by HCI Holding
Co. on or before the Closing Date, HCI Holding Co. shall be deemed to have made
each of the representations and warranties in this Article III as of the date
thereof and of the Closing Date (in each case, subject to the provisions of
subsections (i) and (ii) above), as if HCI Holding Co. had executed the
Agreement on the date hereof:
3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Oklahoma.
At the Closing, HCI Holding Co. shall be a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. The
Company is duly authorized to conduct business and is in good standing in
Oklahoma and each jurisdiction in which it conducts business where such
qualification is required except for any jurisdiction where failure to so
qualify would not have a Material Adverse Effect. At Closing, HCI Holding Co.
shall be duly authorized to conduct business and shall be in good standing in
Delaware and each jurisdiction in which it will conduct business where such
qualification is required except for any jurisdiction where failure to so
qualify would not have a Material Adverse Effect. The Company has, and at the
Closing HCI Holding Co. shall have, full power and authority, and, to the
Knowledge of HCI, holds all Permits and authorizations necessary to carry on its
business and to own and use the Assets and Properties owned and used by the
Company except where the failure to have such power and authority or to hold
such Permit or authorization would not have a Material Adverse Effect on the
business of the Company. The Company has delivered to Parent (or counsel for
Parent) correct and complete copies of its charter documents and organizational
documents, each as amended to date.
3.2 OWNERSHIP OF THE COMPANY.
(a) The authorized capital stock of the Company consists of
2,000 shares of common stock, par value $1.00 per share ("Company Common
Stock"), of which 1,000 shares are issued and outstanding as of the date hereof
and no shares of capital stock of Company Common Stock are held in treasury.
Each share of the issued and outstanding Company Common Stock is duly
authorized, validly issued, fully paid and nonassessable. Such shares of Company
Common Stock are held of record by the following Shareholders in the following
amounts: Xxxxx X. Xxxxxx (720) and Xxxxx X. Xxxxxx (280). Immediately prior to
the Effective Time, HCI Holding Co. shall be the record and beneficial owner of,
and have good and valid title to, all outstanding limited liability company
interests in the Company.
(b) There are no subscriptions, options, warrants, calls,
commitments and other rights of any kind for the purchase or acquisition of, and
any securities convertible or exchangeable for, any capital stock of the
Company.
(c) There are no agreements to which the Company or the
Shareholders are party or by which they are bound with respect to the voting
(including voting trusts or proxies), registration under the Securities Act, or
sale or transfer (including agreements relating to pre-emptive rights, rights of
first refusal, co-sale rights or "drag-along" rights) of any securities of the
Company.
3.3 OWNERSHIP OF SHARES. [Intentionally omitted].
21
3.4 AUTHORITY. The Company has all necessary corporate power and
corporate authority and, subject to Section 6.7, has, and at Closing HCI Holding
Co. shall have, taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder and, subject to Section 6.7, as of the Closing Date, no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
On or prior to Closing, this Agreement will have been duly and validly executed
and delivered by HCI Holding Co. and constitute a legal, valid and binding
obligation of HCI Holding Co. enforceable against HCI Holding Co. in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
3.5 NO AFFILIATES. Except for Professional Caregivers Long-Term
Care, Inc., the Shareholders and HCI Holding Co., the Company does not have any
Affiliates or subsidiaries and is not a partner in any partnership or a party to
a joint venture.
3.6 NO CONFLICTS. The execution and delivery by HCI Holding Co. of
this Agreement will not, and the performance by either the Company or HCI
Holding Co. of its obligations under this Agreement and the consummation of the
transactions contemplated hereby will not:
(a) conflict with or result in a violation or Breach of any of
the terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of either HCI Holding Co. or the Company;
(b) to the Knowledge of HCI, conflict with or result in a
violation or Breach of, or give any Governmental or Regulatory Authority the
right to revoke, withdraw, suspend, cancel, terminate or modify any term or
provision of any law, Order, Permit, statute, rule or regulation applicable to
HCI Holding Co. or the Company, the business or Assets or Properties of the
Company or the capital stock or membership interests of HCI Holding Co. or the
Company;
(c) result in a Breach of, or default under (or give rise to
right of termination, modification, cancellation or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, lease or other similar instrument or obligation to which (i)
the Company, (ii) any of the Assets and Properties of the Company or (iii) HCI
Holding Co. Common Stock, Company Common Stock or Company Interests may be
bound;
(d) cause any of the Assets or Properties of the Company to be
reassessed or revalued by any taxing authority or any Governmental or Regulatory
Authority other than in the Ordinary Course of Business;
(e) result in an imposition or creation of any Encumbrance or
Tax on the business or Assets or Properties of HCI Holding Co., the Company, the
HCI Holding Co. Common Stock, Company Common Stock or the Company Interests.
22
3.7 CONSENTS AND GOVERNMENTAL APPROVALS AND FILINGS. Except as set
forth on Section 3.7 of the HCI Disclosure Schedule, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority on
the part of HCI Holding Co. or the Company is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.8 BOOKS AND RECORDS. The minute books and other corporate records
of HCI Holding Co. and the Company as made available to Parent contain a true
and complete record of those actions taken at those meetings and by those
written consents in lieu of meetings of the shareholders, the members, the
boards of directors and committees of the boards of directors of HCI Holding Co.
and the Company. The Company has delivered or made available true and complete
copies of each document which has been requested by Parent or its counsel in
connection with their legal and accounting review of HCI Holding Co. and the
Company, to the extent such document exists or could reasonably be acquired. The
stock transfer ledgers, membership interest ledgers and other similar records of
the Company and HCI Holding Co. accurately reflect all issuances and record
transfers in the equity securities of HCI Holding Co. and the Company. The other
Books and Records of the Company and HCI Holding Co. are in all material
respects true, correct and complete, represent actual, bona fide transactions
and have been maintained in accordance with sound business practices; including
the maintenance of an adequate system of internal controls.
3.9 FINANCIAL STATEMENTS. The Company has previously delivered to
Parent the HCI Financial Statements. Such HCI Financial Statements (i) are true,
correct and complete, (ii) have been prepared in accordance with the Books and
Records of the Company, (iii) have been prepared in conformity with GAAP, and
(iv) fairly present the financial condition and results of operations of the
Company as of the respective dates thereof and for the periods covered thereby.
3.10 ABSENCE OF CHANGES. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, since August 31, 2004, there has not been any material adverse
change, or any event or development (excluding national economic conditions,
international events and other events and developments affecting all
participants in the Oklahoma private duty and advantage waiver services
industry) which, individually or together with other such events, could
reasonably be expected to result in a Material Adverse Effect on the Company.
3.11 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 3.11
of the HCI Disclosure Schedule or in the HCI Financial Statements, there are no
liabilities (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including but not limited to any
liability for Taxes), nor any basis for any claim against the Company for any
such liabilities, relating to or affecting the Company or any of its Assets and
Properties, other than such liabilities incurred after August 31, 2004 in the
Ordinary Course of Business which have not had, and could not reasonably be
expected to result in, individually or in the aggregate, a Material Adverse
Effect on the Company.
3.12 TANGIBLE PERSONAL PROPERTY. The Company is in possession of and
has good and marketable title to, or has valid leasehold interests in or valid
rights under written agreements to use, all tangible personal property,
equipment, plants, buildings, structures and
23
facilities used in or reasonably necessary for the conduct of its business,
including all tangible personal property reflected on the HCI Financial
Statements and any tangible personal property acquired since that date other
than property disposed of since such date in the Ordinary Course of Business.
All such tangible personal property, equipment, plants, buildings, structures
and facilities are free and clear of all Encumbrances, other than Permitted
Encumbrances which have not had a Material Adverse Effect on the Company.
3.13 BENEFIT PLANS; ERISA.
(a) Section 3.13(a) of the HCI Disclosure Schedule lists each
Benefit Plan together with a brief description of the type of plan and benefit
provided thereunder. The Company does not have any commitment, proposal, or
communication to employees regarding the creation of an additional Benefit Plan
or any increase in benefits under any Benefit Plan. The Company has provided to
Parent (i) a copy of each Benefit Plan (including amendments) or, where
substantially similar arrangements exist, a sample copy and a list of persons
participating in such arrangement, (ii) the most recent annual report on the
Form 5500 series for each Benefit Plan required to file such report and (iii)
the most recent trustee's report for each Benefit Plan funded through a trust.
(b) Neither the Company, an ERISA Affiliate nor any
predecessor thereof has ever maintained, contributed to or been obligated to
contribute to any Defined Benefit Plan or multiemployer plan (as defined in
Section (3)(37) or 4001(a)(3) of ERISA) and no condition exists that presents a
material risk to the Company or an ERISA Affiliate of incurring a liability
under Title IV of ERISA.
(c) Each Benefit Plan has been operated and administered in
all material respects in accordance with its terms and, as of the Closing Date,
will be in material compliance, in form and operation, with all applicable laws
(including but not limited to ERISA and the Code). The reserves reflected in the
HCI Financial Statements for the obligations of the Company under all Benefit
Plans are adequate and were determined in accordance with GAAP.
(d) Each Qualified Plan utilized by the Company has received a
determination letter from the Internal Revenue Service confirming that it
qualifies as to form under Section 401(a) of the Code and, to the Knowledge of
HCI, nothing has occurred since the issuance of that letter which would
adversely affect such qualified status or the plan sponsor's ability to rely on
such determination letter.
(e) No Benefit Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees of the Company or any ERISA Affiliate beyond their
termination of service (other than (i) coverage mandated by applicable law, (ii)
benefits under a Qualified Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or any ERISA Affiliate or (iv) benefits
the full cost of which is borne by any current or former employee (or his or her
beneficiary)).
(f) The consummation of the transactions contemplated by this
Agreement will not, (i) entitle any current or former employee, officer,
director or partner of the Company or any ERISA Affiliate to severance pay, or
any other material payment, or (ii) accelerate the time
24
of payment or vesting, or increase the amount of compensation otherwise due any
such individual.
(g) There are no pending or, to the Knowledge of HCI,
anticipated or threatened claims by or on behalf of any Benefit Plan, by any
employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than claims for benefits).
3.14 REAL PROPERTY. The Company does not own any real property.
Section 3.14 of the HCI Disclosure Schedule contains a reference to each parcel
of real property leased by the Company (as lessee or lessor) (the "Real
Property"). The Company has a valid leasehold interest in, all such real
property leased to it.
3.15 INTELLECTUAL PROPERTY RIGHTS.
(a) Section 3.15(a) of the HCI Disclosure Schedule sets forth,
for the Intellectual Property owned, in whole or in part, including jointly with
others (such schedule specifies if such Intellectual Property is owned jointly),
by the Company, a complete and accurate list of all United States and foreign
(a) Patents and Patent applications; (b) Trademark registrations and
applications and unregistered Trademarks; (c) copyright registrations and
applications, indicating for each, the applicable jurisdiction, registration
number (or application number) and date issued (or date filed); and (d) all
other Intellectual Property to which the Company has any ownership rights
(including common law rights).
(b) Except as provided in Section 3.15(a) of the HCI
Disclosure Schedule, the Company owns or possesses adequate licenses,
re-marketing or sublicensing rights, or other rights to use, free and clear of
Encumbrances, Orders and arbitration awards, all of the Intellectual Property
used in the business of the Company. To the Knowledge of HCI, the products used,
manufactured, marketed, sold or licensed by the Company, and all Intellectual
Property used in the conduct of the business of the Company as currently
conducted, do not infringe upon, violate or constitute the unauthorized use of
any rights owned or controlled by any third party, including any Intellectual
Property of any third party.
(c) No litigation is now or was pending and no notice or other
claim in writing has been received by the Company, (A) alleging that the Company
has engaged in any activity or conduct that infringes upon, violates or
constitutes the unauthorized use of the Intellectual Property rights of any
third party or (B) challenging the ownership, use, validity or enforceability of
any Intellectual Property owned or exclusively licensed by or to the Company.
(d) To the Knowledge of HCI, no third party is
misappropriating, infringing, diluting or violating any Intellectual Property
owned or licensed by the Company, and no such claims have been brought against
any third party by the Company.
3.16 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.
(a) Except as set forth in Section 3.16(a) of the HCI
Disclosure Schedule:
25
(i) the Company is, and at all times since its
incorporation or formation has been, in compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its Assets, except where such failure to
comply would not have a Material Adverse Effect upon the Company; and
(ii) to the Knowledge of HCI, no event has occurred
or circumstance exists that (with or without notice or lapse of time) (A) may
constitute or result in a material violation by the Company of, or failure on
the part of the Company to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of the Company to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature; and
(iii) the Company has not received any notice or
other communication (whether oral or written) from any Governmental or
Regulatory Authority or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation on
the part of the Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature.
(b) Section 3.16(b) of the HCI Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that is held by
the Company or that otherwise relates to the business of, or to any of the
assets owned or used by the Company. To the Knowledge of HCI, each Governmental
Authorization listed in Section 3.16(b) of the HCI Disclosure Schedule is as of
the Closing Date valid and in full force and effect. Except as set forth on
Section 3.16(b) of the HCI Disclosure Schedule:
(i) the Company is, and at all times has been, in
compliance with all of the terms and requirements of each Governmental
Authorization identified in Section 3.16(b) of the HCI Disclosure Schedule,
except where such failure to comply would not have a Material Adverse Effect
upon the Company; and
(ii) to the Knowledge of HCI, no event has occurred
or circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization listed in
Section 3.16(b) of the HCI Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental Authorization listed in
Section 3.16(b) of the HCI Disclosure Schedule; and
(iii) the Company has not received any notice or
other communication (whether oral or written) from any Governmental or
Regulatory Authority or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) except as set forth in Section 3.16(b) of the
HCI Disclosure Schedule, as of the Closing Date and to the Knowledge of HCI, all
applications required to have been filed for the renewal of the Governmental
Authorizations listed in Section 3.16(b) of the
26
HCI Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental or Regulatory Authority, and all other filings required
to have been made with respect to such Governmental Authorizations have been
duly made on a timely basis with the appropriate Governmental or Regulatory
Authority, except where such failure to file would not have a Material Adverse
Effect upon the Company.
To the Knowledge of HCI, the Governmental Authorizations listed in
Section 3.16(b) of the HCI Disclosure Schedule collectively constitute all of
the Governmental Authorizations necessary to permit the Company to lawfully
conduct and operate the business of the Company in the manner it is currently
conducted and operated and to permit the Company to own and use its assets in
the manner in which it currently owns and uses such assets.
3.17 LEGAL PROCEEDINGS; ORDERS.
(a) Other than the Investigations, there is no pending
Proceeding:
(i) that has been commenced by or against the Company
or that to the Knowledge of HCI otherwise relates to or may affect the business
of, or any of the assets owned or used by the Company; or
(ii) that challenges, or that to the Knowledge of HCI
may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
To the Knowledge of HCI, (1) no such Proceeding has been Threatened,
and (2) no event has occurred or circumstance exists that may reasonably give
rise to or serve as a basis for the commencement of any such Proceeding. The
Company has delivered to Parent copies of all pleadings, correspondence, and
other documents relating to each such Proceeding. Any such Proceeding will not
have a Material Adverse Effect on the business, operations, assets, condition,
or prospects of the Company.
(b) Except as set forth herein:
(i) there is no Order to which the Company, or any of
the assets owned or used the Company, is subject;
(ii) the Company is not subject to any Order that
relates to the business of, or any of the assets owned or used by the Company;
and
(iii) no officer, director, agent, or employee of the
Company is subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or practice
relating to the business of the Company.
(c) Except as set forth herein:
(i) the Company is, and at all times has been, in
full compliance with all of the terms and requirements of each Order to which
it, or any of the assets owned or used by it, is or has been subject, except
where such non-compliance does not have a Material Adverse Effect upon the
Company;
27
(ii) to the Knowledge of HCI, no event has occurred
or circumstance exists that may constitute or result in (with or without notice
or lapse of time) a material violation of or failure to comply with any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is subject; and
(iii) the Company has not received any notice or
other communication (whether oral or written) from any Governmental or
Regulatory Authority or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
3.18 CONTRACTS.
(a) Section 3.18 of the HCI Disclosure Schedule contains a
true and complete list or general description of each of the following Contracts
to which the Company is a party or by which any of its Assets and Properties is
bound (and, to the extent oral, accurately describes the terms of such
contracts, agreements and arrangements):
(i) all collective bargaining or similar labor
agreements;
(ii) all Contracts for the employment of any officer,
employee or other person or entity on a full time, part time, consulting or
other basis;
(iii) all Contracts (including loan agreements,
indentures, debentures, notes or letters of credit) relating to the borrowing of
money or to mortgaging, pledging or otherwise placing a lien on any material
asset or material group of assets of the Company;
(iv) each written warranty, guaranty, or other
similar undertaking with respect to contractual performance extended by the
Company;
(v) all leases or agreements under which the Company
is lessee or lessor of, or holds, or operates, any property, real or personal,
owned by any other party;
(vi) all Contracts (including sales contracts,
purchase orders, mortgage agreements or groups of related agreements) with the
same party or any group or affiliated parties which require or may in the future
require payment of any consideration by the Company in excess of $25,000;
(vii) each Contract for capital expenditures in
excess of $10,000;
(viii) all Contracts or commitments that in any way
restrict the Company from carrying on its business anywhere in the world;
(ix) all other Contracts that (A) involve the payment
or potential payment in excess of $10,000 in any calendar year, pursuant to the
terms of any such contract or agreement, by the Company and (B) cannot be
terminated within 30 days after giving notice of termination without resulting
in any cost or penalty to the Company; and
28
(x) each amendment, supplement, and modification
(whether oral or written) in respect to any of the foregoing.
(b) A correct and complete copy of each Contract disclosed in
the HCI Disclosure Schedule has been previously provided or made available to
Parent. Except as set forth in Section 3.18 of the HCI Disclosure Schedule, each
Contract disclosed in the HCI Disclosure Schedule is in full force and effect,
and constitutes a legal, valid and binding agreement, enforceable in accordance
with its terms, of the Company, and to the Knowledge of HCI, the other parties
thereto; and to the Knowledge of HCI, the Company has performed all of its
required obligations under, and is not in violation or breach of or default
under, any such Contract, except where such violation, breach or default would
not have a Material Adverse Effect upon the Company. To the Knowledge of HCI,
and except for payment on delinquent accounts receivables, the other parties to
any such Contract are not in violation or Breach of or default under any such
Contract. Except as set forth in Section 3.18 of the HCI Disclosure Schedule,
and to the Knowledge of HCI, none of the present or former employees, officers,
directors, shareholders or partners of the Company is a party to any Contract
prohibiting any of them from freely competing with other parties or engaging in
the business of the Company as now operated. To the Knowledge of HCI, no event
has occurred or circumstance exists that (with or without notice or the lapse of
time) may contravene, conflict with, or result in a violation or Breach of, or
give the Company or any other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Contract to which the Company is a party. The Company
has not given to or received from any other Person any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under any Contract. There are no
renegotiations of, attempts to renegotiate or outstanding rights to renegotiate
any material amounts paid or payable to the Company under current or completed
Contract with any Person and, to the Knowledge of HCI, no such Person has made
written demand for such renegotiation. The Contracts relating to the provision
of services of the Company have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that would be in violation of any Legal Requirement.
3.19 ENVIRONMENTAL MATTERS.
(a) The Company is in compliance with all applicable
"Environmental Laws" (as defined below) and there are no circumstances which may
materially prevent or interfere with such compliance in the future. The Company
has not received any communication (whether written or oral), whether from a
Governmental or Regulatory Authority, citizen group, employee or otherwise, that
alleges that either the Company or any of the Assets or Properties used in the
business of the Company is not in full compliance with Environmental Laws. All
Permits, registrations and other governmental authorizations currently held by
the Company pursuant to Environmental Laws (collectively, "Environmental
Permits") are identified in Section 3.19(a) of the HCI Disclosure Schedule and
represent all Environmental Permits necessary for the conduct of its business as
currently conducted. The Company has not been notified by any relevant
Governmental or Regulatory Authority that any Environmental Permit will be
modified, suspended or revoked or cannot be renewed in the Ordinary Course of
Business, and, to the
29
Knowledge of HCI, no Environmental Permit will be modified, suspended or
revoked, or cannot be renewed in the Ordinary Course of Business of the Company.
(b) There is no "Environmental Notice" (as defined below) that
is (i) pending or, to the Knowledge of HCI, threatened against the Company or
(ii) to the Knowledge of HCI, pending or threatened against any Person whose
liability for such Environmental Notice may have been retained or assumed by or
could reasonably be imputed or attributed to the Company.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents arising from the operation,
ownership or use of any property currently or formerly owned, operated or used
by the Company(or any entity formerly an Affiliate of any of them), including,
without limitation, the release, emission, discharge or disposal of any
"Material" (as defined below) into the "Environment" (as defined below), that
(i) could reasonably be expected to result in the incurrence of costs under
Environmental Laws or (ii) could reasonably be expected to form the basis of any
Environmental Notice against or with respect to the Company or against any
Person whose liability for any Environmental Notice may have been retained or
assumed by or could be imputed or attributed to the Company.
(d) Without in any way limiting the generality of the
foregoing, (i) all underground storage tanks, and the capacity and contents of
such tanks, located on property at any time owned, leased or used by the Company
are identified in Section 3.19(d) of the HCI Disclosure Schedule, (ii) there is
no asbestos contained in or forming part of any building, building component,
structure or office space owned, leased or used by the Company, (iii) no
polychlorinated biphenyls (PCB's) are used or stored on any property owned,
leased or used by the Company and (iv) all locations currently or formerly
owned, leased or used by the Company(or any former Affiliate of any of them) at
which any Material generated, used, owned or controlled by the Company or any
former Affiliate of any of them (or by any previous owner or operator) may have
been disposed of or released into the Environment are identified and described
in Section 3.19(d) of the HCI Disclosure Schedule.
(e) For purposes of this Section 3.19:
(i) "Environment" means any surface water, ground
water, drinking water supply, land surface or subsurface strata, ambient air and
any indoor workplace.
(ii) "Environmental Notice" means any written notice
by any Person alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental costs,
harm or damages to person, property, natural resources or other fines or
penalties) arising out of, based on or resulting from (a) the emission,
discharge, disposal, release or threatened release in or into the Environment of
any Material or (b) circumstances forming the basis of any violation, or alleged
violation, of any applicable Environmental Law.
(iii) "Environmental Laws" means all national, state,
local and foreign laws, codes, regulations, common law, requirements,
directives, Orders, and administrative or judicial interpretations thereof, all
as in effect on the date hereof or on the Closing Date, that may be enforced by
any Governmental or Regulatory Authority, relating to pollution, the protection
30
of the Environment or the emission, discharge, disposal, release or threatened
release of Materials in or into the Environment.
(iv) "Material" means pollutants, contaminants or
chemical, industrial, hazardous or toxic materials or wastes, including, without
limitation, petroleum and petroleum products.
3.20 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
that are reflected on the HCI Financial Statements or the accounting records of
the Company as of the Closing (collectively, the "Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing, the Accounts Receivable are or will be as of the Closing
current and collectible, net of the respective reserves shown on the HCI
Financial Statements or on the accounting records of the Company as of the
Closing (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserve as of the Closing, will not represent a
greater percentage of the Accounts Receivable as of the Closing than the reserve
reflected in the HCI Financial Statements and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of
aging).
3.21 ACCOUNTS PAYABLE. Set forth in Section 3.21 of the HCI
Disclosure Schedule is a complete and accurate list of all accounts payable of
the Company as of the Closing (collectively, the "Accounts Payable") which
represent or will represent obligations of the Company arising from purchases
actually made, services actually received or obligations otherwise incurred by
the Company.
3.22 EQUIPMENT. The tangible personal property and equipment used by
the Company necessary in the conduct of its business are structurally sound with
no known material defects and are in good operating condition and repair
(subject to normal wear and tear) so as to permit the operation of its business
as presently conducted, (ii) no such equipment or tangible personal property is
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs which are not material in nature or cost, and (iii) with respect to each
item of equipment and tangible personal property, the Company has not received
notification that it is in violation, in any material respect, of any applicable
building, zoning, subdivision, fire protection, health or other law, Order,
ordinance or regulation and to the Knowledge of HCI no such violation exists.
3.23 INSURANCE. Set forth in Section 3.23 of the HCI Disclosure
Schedule is a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of and/or providing insurance coverage to the Company or the Assets and
Properties of the Company(or any of their respective directors, officers,
partners, salespersons, agents or employees), including the following
information for each such policy: (a) type(s) of insurance coverage provided;
(b) the name of insurer; (c) the effective dates; (d) the policy number(s); (e)
per occurrence and annual aggregate deductibles or self-insured retentions; (f)
per occurrence and annual aggregate limits of liability and the extent, if any,
to which the limits of liability have been exhausted. All policies set forth on
the HCI Disclosure Schedule are in full force and effect, and with respect to
such policies, all premiums currently payable or previously due have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy.
31
3.24 TAX MATTERS.
(a) All Returns required to be filed by or on behalf of the
Group have been duly filed on a timely basis and to the Knowledge of HCI such
Returns are true, complete and correct. Except as set forth in Section 3.24 of
the HCI Disclosure Schedule, all Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no other Taxes are due and payable by the Group with respect to items
or periods covered by such Returns (whether or not shown on or reportable on
such Returns) or with respect to any Pre-Closing Period. The Group has withheld
and paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of any member of the
Group with respect to Taxes, other than liens for Taxes not yet due and payable.
The Group is not currently the beneficiary of any extension of time within which
to file any Return.
(b) The amount of the Group's liability for unpaid Taxes for
all periods ending on or before August 31, 2004 does not, in the aggregate,
exceed the amount of the current liability accruals, if any, for Taxes
(excluding reserves for deferred Taxes), reflected on the HCI Financial
Statements, and the amount of the Group's liability for unpaid Taxes for all
periods ending on or before the Closing Date shall not, in the aggregate, exceed
the amount of the current liability accruals, if any, for Taxes (excluding
reserves for deferred Taxes), as such accruals are reflected on the HCI
Financial Statements, as adjusted for operations and transactions in the
Ordinary Course of Business since August 31, 2004 in accordance with past custom
and practice. There are no contracts, agreements, arrangements, commitments or
undertakings relating to any prior audit of the Group, and there are no
contracts, agreements, arrangements, commitments or undertakings with the
Internal Revenue Service or any other Governmental or Regulatory Authority that
have or are reasonably likely to have a material and adverse impact on the
Group's Taxes that are not reflected in the HCI Financial Statements.
(c) To the extent such documents exist, Parent has been
furnished by the Group true and complete copies of (i) relevant portions of
income tax audit reports, statements of deficiencies, closing or other
agreements received by the Group or on behalf of the Group relating to Taxes for
all periods ending on or after December 31, 2001, and (ii) except as set forth
in Section 3.24 of the HCI Disclosure Schedule, all federal and state income or
franchise tax returns for the Group for all periods ending on and after July
2002.
(d) The Returns of the Group have never been audited by a
Governmental or Regulatory Authority, nor is any such audit in process, pending
or threatened (either in writing or verbally, formally or informally). To the
Knowledge of HCI, no deficiencies exist or have been asserted (either in writing
or verbally) or are expected to be asserted with respect to Taxes of the Group,
and no member of the Group has received notice (either in writing or verbally)
or expects to receive notice that it has not filed a Return or paid Taxes
required to be filed or paid by it. The Group is neither a party to any action
or proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally) against the Group or any
of its assets. No waiver or extension of any statute of limitations is in effect
with respect to Taxes or Returns of the Group.
32
(e) No member of the Group is (or has it ever been) a party to
any Tax sharing agreement or Tax indemnity agreement and has not assumed the Tax
liability of any other Person under contract. No member of the Group is or has
ever been a member of an affiliated group filing a consolidated federal income
tax Return, and no member of the Group has any liability for the Taxes of any
individual or entity under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law) as a transferee or successor,
by contract or otherwise.
(f) The Group has not agreed to make or is required to make
any adjustment under Section 481 of the Code by reason of a change in accounting
method. The Group has not made and will not make a consent dividend election
under Section 565 of the Code. The Group has not made an election, or is
required, to treat any asset as owned by another person pursuant to the
provisions of former Section 168(f)(8) of the Code or as "tax-exempt use
property" within the meaning of Section 168 of the Code. None of the assets of
the Group directly or indirectly secures any debt the interest on which is
tax-exempt under Section 103(a) of the Code. Neither HCI Holding Co. nor the
Company is nor has it been a "United States real property holding corporation,"
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code and Parent is not required to
withhold tax pursuant to the Merger by reason of Section 1445 of the Code. No
member of the Group has entered into any compensatory agreements with respect to
the performance of services which payment thereunder would result in a
nondeductible expense to the Group pursuant to Sections 162(m) or 280G of the
Code or an excise tax to the recipient of such payment pursuant to Section 4999
of the Code. No member of the Group has been the "distributing corporation"
(within the meaning of Section 355(c)(2) of the Code) with respect to a
transaction described in Section 355 of the Code within the 3-year period ending
as of the date of this Agreement. No member of the Group has participated in an
international boycott as defined in Code Section 999. No member of the Group has
a "permanent establishment" in any foreign country, as defined in any applicable
Tax treaty or convention between the United States of America and such foreign
country. No member of the Group is a party to any other joint venture,
partnership or other agreement, contract or arrangement (either in writing or
verbally) which could be treated as a partnership for federal income tax
purposes. The Group is in compliance with the terms and conditions of any
applicable Tax exemptions, Tax agreements or Tax orders of any government to
which it may be subject, and the transactions contemplated by this Agreement
will not have any adverse effect on such compliance. Other than HCI Holding Co.
and the Company, no member of the Group has ever claimed to be an S corporation
for federal income tax purposes. No indebtedness of the Group is "corporate
acquisition indebtedness" within the meaning of Section 279(b) of the Code. The
Group has not disposed of any property in a transaction accounted for under the
installment method pursuant to Section 453 of the Code. Each member of the Group
has made timely and valid tax identification of any and all hedge transactions,
including the hedged assets and/or liabilities. Each member of the Group has
made timely and valid tax identification of any securities held for sale in its
capacity as a dealer in securities as defined in Section 475 of the Code.
(g) The Group has not received a tax opinion with respect to
any transaction other than a transaction in the Ordinary Course of Business. The
Group is not (nor has it ever been) the direct or indirect beneficiary of a
guaranty of Tax benefits or any other arrangement that has the same economic
effect or tax opinion relating to it. The Group is not a party to an
33
understanding or arrangement described in Section 6111(d) or Section
6662(d)(2)(C)(iii) of the Code. The Group is not a party to a lease arrangement
involving a defeasance of rent, interest or principal. The Group has not engaged
in a "reportable transaction," within the meaning of Section 1.6011-4 of the
Treasury Regulations as in effect on March 1, 2003, regardless of whether such
transaction was in fact reported to the Internal Revenue Service or occurred
prior to such date.
(h) The Group does not have any deferred income or gains
reportable for Tax purposes in a Post-Closing Period ending after the Closing
Date but that is attributable to a transaction occurring in, or resulting from a
change in accounting method for a Pre-Closing Period.
(i) The Group's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Tax books and records provided to
Parent.
(j) All of the Shareholders are "United States persons,"
within the meaning of Section 7701(a)(30) of the Code.
(k) Since its formation, the Company has qualified as an "S
corporation" for federal and applicable state tax purposes, and through the
Closing Date, will qualify as either an "S corporation," a qualified "subchapter
S subsidiary," or a disregarded entity.
3.25 LABOR AND EMPLOYMENT RELATIONS. To the Knowledge of HCI, no
officer, executive or group of five or more employees of the Company has or have
any plans to terminate his, her or their employment with the Company. The
Company is not a party to or bound by any collective bargaining agreement with
any labor organization, group or association covering any of its employees, and
to the Knowledge of HCI, there are no attempts to organize any of the employees
of the Company by any person, unit or group seeking to act as their bargaining
agent. The Company has complied with all applicable laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining, discrimination against race, color,
national origin, religious creed, physical or mental disability, sex, age,
ancestry, medical condition, marital status or sexual orientation, occupational
health and safety and the withholding and payment of social security and other
Taxes, except to the extent any such failure to comply does not have a Material
Adverse Effect on the Company. Except as set forth in Section 3.25 of the HCI
Disclosure Schedule and to the Knowledge of HCI, the Company is not liable for
the payment of any compensation, damages, taxes, fines, penalties or other
amounts, however designated, for the failure to comply with any of the foregoing
Legal Requirements. To the Knowledge of HCI, no employees of the Company are in
violation of any term of any employment contract, patent disclosure agreement,
non-competition agreement, or any restrictive covenant to a former employer
relating to any such employee to be employed by the Company because of the
nature of the business conducted or presently proposed to be conducted by the
Company or the use of trade secrets or proprietary information of others.
Section 3.25 of the HCI Disclosure Schedule sets forth the names of all
officers, employees and consultants of the Company that have signed a
proprietary rights and confidentiality agreement. Except as set forth in Section
3.25 of the HCI Disclosure Schedule, there are no pending or, to the Knowledge
of HCI, threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of any
other wrongful
34
action with respect to any aspect of employment of any person employed or
formerly employed by HCI Holding Co. or the Company. To the Knowledge of HCI, no
union representation elections relating to the employees of the Company have
been scheduled by any Governmental or Regulatory Authority, no organizational
effort is being made with respect to any of such employees, and no investigation
of the employment policies or practices of the Company by any Governmental or
Regulatory Authority is pending or threatened. The Company is not currently, nor
in the past has ever been, involved in labor negotiations with any unit or group
seeking to become the bargaining unit for any employees of the Company. The
Company has never experienced any work stoppages and to the Knowledge of HCI, no
work stoppage has been threatened or is planned.
3.26 CERTAIN EMPLOYEES. Set forth in Section 3.26 of the HCI
Disclosure Schedule is a list of the names of the employees and consultants of
the Company as of the date hereof involved in the management and operation of
their business, together with the title or job classification of each such
person and the total compensation (with wages and bonuses, if any, separately
detailed) paid in 2003 (if applicable) and the current rate of pay for each such
person on the date of this Agreement. Except as set forth in Section 3.26 of the
HCI Disclosure Schedule, none of such persons has an employment agreement or
understanding, whether oral or written, with the Company which is not terminable
on notice by the Company without cost or other liability to the Company.
3.27 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in Section
3.27 of the HCI Disclosure Schedule or in connection with the HCI Conversion,
since August 31, 2004, the Company has not:
(a) issued any stock, bonds, corporate securities or
partnership interests or any right, options or warrants with respect thereto;
(b) borrowed any amount, obtained any letters of credit or
incurred or become subject to any liabilities in excess of $25,000 in the
aggregate;
(c) discharged or satisfied any lien or Encumbrance or paid
any obligation or liability, other than current liabilities paid in the Ordinary
Course of Business and other than current federal income Tax liabilities;
(d) declared or made any payment or distribution of cash or
other property to stockholders or partners with respect to its stock or
partnership interests, or purchased or redeemed any shares of its capital stock
or partnership interests;
(e) mortgaged or pledged any of its Assets or Properties, or
subjected them to any lien, charge or any other Encumbrance, except liens for
current property Taxes not yet due and payable;
(f) sold, leased, subleased, assigned or transferred any of
its Assets or Properties, except in the Ordinary Course of Business, or
cancelled any debts or claims;
(g) made any changes in any employee compensation, severance
or termination agreement, commitment or transaction other than routine salary
increases consistent
35
with past practice, paid any bonuses, or offer employment to any individuals
other than in the Ordinary Course of Business;
(h) entered into any material transaction, or modified any
existing transaction (the aggregate consideration for which is in excess of
$25,000);
(i) suffered any damage, destruction or casualty loss, whether
or not covered by insurance;
(j) made any capital expenditures, additions or improvements
or commitments for the same, except those made in the Ordinary Course of
Business which in the aggregate do not exceed $25,000;
(k) entered into any transaction or operated its business, not
in the Ordinary Course of Business;
(l) made any change in its accounting methods or practices or
ceased making accruals for Taxes, obsolete inventory, vacation and other
customary accruals;
(m) ceased from reserving cash to pay Taxes, if applicable,
principal and interest on borrowed funds, and other customary expenses and
payments;
(n) caused to be made any reevaluation of any of its Assets or
Properties;
(o) caused to be entered into any amendment or termination of
any lease, customer or supplier contract or other material contract or agreement
to which it is a party, other than in the Ordinary Course of Business;
(p) made any material change in any of its business policies,
including, without limitation, advertising, distributing, marketing, pricing,
purchasing, personnel, sales, returns, budget or product acquisition or sale
policies;
(q) terminated or failed to renew, or received any written
threat (that was not subsequently withdrawn) to terminate or fail to renew, any
contract or other agreement that is or was material to its business or its
financial condition;
(r) permitted to occur or be made any other event or condition
of any character which has had a Material Adverse Effect on it;
(s) waived any rights material to its financial or business
condition;
(t) made any illegal payment or rebates;
(u) entered into any agreement to do any of the foregoing;
(v) incurred any bad debt expenses; or
(w) made or changed any election in respect of Taxes, amended
any Return, adopted or changed any accounting method in respect of Taxes,
entered into any tax allocation
36
agreement, tax sharing agreement, tax indemnity agreement or closing agreement,
settlement or compromise of any claim or assessment in respect of Taxes, or
consented to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes with any Governmental or Regulatory
Authority or otherwise.
3.28 SUPPLIERS. The Company has not received any notice or has any
reason to believe that any significant supplier will not sell supplies,
merchandise and other goods to the Company at any time after the Effective Time
on terms and conditions substantially similar to those used in its current sales
to the Company, subject only to general and customary price increases, unless
comparable supplies, merchandise or other goods are readily available from other
sources on comparable terms and conditions.
3.29 BANK ACCOUNTS. Section 3.29 of the HCI Disclosure Schedule
contains a complete and accurate list of each deposit account or asset
maintained by or on behalf of the Company with any bank, brokerage house or
other financial institution, specifying with respect to each: (a) the name and
address of the institution; (b) the name under which the account is maintained;
(c) the account number; and (d) the name and title or capacity of each Person
authorized to have access thereto.
3.30 PERMITS. Section 3.30 of the HCI Disclosure Schedule contains a
true and complete list of all Permits used in and material, individually or in
the aggregate, to the business of the Company. To the Knowledge of HCI, all such
Permits are as of the Closing Date effective and valid and, to the Knowledge of
HCI, have been validly issued. To the Knowledge of HCI, no additional Permits
are necessary to enable the Company to conduct its business in material
compliance with all applicable federal, state and local laws. To the Knowledge
of HCI, neither the execution, delivery or performance of this Agreement nor the
mere passage of time will have any effect on the continued validity or
sufficiency of the Permits, nor will any additional Permits be required by
virtue of the execution, delivery or performance of this Agreement to enable the
Company to conduct its business as now operated. To the Knowledge of HCI, there
is no pending Action or Proceeding by any Governmental or Regulatory Authority
which could affect the Permits or their sufficiency for the current conduct of
business by the Company or of the conduct of business by the Company after the
Closing. The Company has provided Parent with true and complete copies of all
Permits listed in the HCI Disclosure Schedule.
3.31 REGULATORY COMPLIANCE. To the Knowledge of HCI:
(a) The Company has timely filed or otherwise provided all
registrations, reports, data, and other information and applications with
respect to its health care and other governmentally regulated services (the
"Regulated Services") required to be filed with or otherwise provided to any
Governmental or Regulatory Authority with jurisdiction over the Regulated
Services, has complied with all applicable requirements of any Governmental or
Regulatory Authority with respect to the Regulated Services (including but not
limited to the Medicare Anti-Kickback Statute, the Health Insurance Portability
and Accountability Act, the Federal False Claims Act, the federal laws
concerning physician self-referral known as "Xxxxx I" and "Xxxxx II", and the
rules and regulations of the Joint Commission on Accreditation of Healthcare
Organizations), and all regulatory licenses or approvals in respect thereof are
in full force and effect.
37
(b) Section 3.31(b) of the HCI Disclosure Schedule sets forth
a list of each Regulated Service, marketed by or on behalf of the Company as of
the date of this Agreement.
(c) Neither the Company, nor any officer, employee or, to the
Knowledge of HCI, agent of the Company has made an untrue statement of a
material fact or fraudulent statement to any Governmental or Regulatory
Authority, failed to disclose a material fact required to be disclosed to any
Governmental or Regulatory Authority, or committed an act, made a statement, or
failed to make a statement that, at the time such disclosure was made, could
reasonably be expected to provide a basis for any Governmental or Regulatory
Authority to invoke its policies respecting fraud, untrue statements of material
facts, bribery or illegal gratuities or any similar policies.
3.32 THIRD PARTY CONSENTS. Except as set forth in Section 3.32 of
the HCI Disclosure Schedule, no consent, approval or authorization of any third
party on the part of the Company is required in connection with the consummation
of the transactions contemplated hereunder.
3.33 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in
Section 3.33 of the HCI Disclosure Schedule, no Shareholder or any Related
Person of them has or since December 31, 2001 has had, any interest in the
property, whether real, personal or mixed, or whether tangible or intangible,
used in or pertaining to the business of the Company. To the Knowledge of HCI,
and except as set forth in Section 3.33 of the HCI Disclosure Schedule, no
Shareholder or any Related Person of them owns, or since December 31, 2001 has
owned (of record or as beneficial owner) an equity interest or any other
financial or profit interest in a Person that has (i) had business dealings or a
material financial interest in any transaction with the Company or (ii) engaged
in competition with the Company with respect to any line of the products or
services of the Company. Except as set forth in Section 3.33 of the HCI
Disclosure Schedule, no Shareholder or any Related Person of them is a party to
any Contract with, or to the Knowledge of HCI has any right or claim against,
the Company arising from the business of the Company.
3.34 CERTAIN PAYMENTS. Neither the Company nor any director, officer
or employee, or to the Knowledge of HCI, any agent or any other Person
associated with or acting for or on behalf of the Company has directly or
indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence
payment, kick-back or other payment to any Person, private or public, regardless
of any form, whether in money, property or services (A) to obtain favorable
treatment in securing business, (B) to pay for favorable treatment for business
secured, (C) to obtain special concessions or for special concessions already
obtained for or in respect of the Company or any affiliate thereof, or (D) in
violation of any Legal Requirement, (ii) established or maintained any fund or
asset that has not been recorded in the Books and Records of the Company.
3.35 BROKERS. Neither the Company nor any Shareholder has retained
any broker in connection with the transactions contemplated hereunder. Parent
has, and will have, no obligation to pay any broker's, finder's, investment
banker's, financial advisor's or similar fee in connection with this Agreement
or the transactions contemplated hereby by reason of any action taken by or on
behalf of the Company or any Shareholder.
38
3.36 VERIFICATION OF CREDENTIALS. The Company has implemented
policies and procedures to verify the credentials (including, but not limited
to, with respect to education and licensure) of personnel that the Company place
with their clients and to collect, maintain and update such credentialing
information. To the Knowledge of HCI, employees and consultants of the Company
each consistently follow and have followed such policies and procedures.
3.37 TRAINING. The Company has had in place, and currently has in
place, a training program for personnel who provide services to clients of the
Company that satisfy their training obligations to their clients. To the extent
that the Health Insurance Portability and Accountability Act of 1996 ("HIPPA")
currently applies or applied to the Company, the Company has developed a plan to
comply with any obligations it may have under the privacy standards of HIPPA.
3.38 MATERIAL MISSTATEMENTS AND OMISSIONS. To the Knowledge of HCI,
the statements, representations and warranties of each of HCI Holding Co. and
the Company contained in this Agreement (including the exhibits and schedules
hereto) and in each document, statement, certificate or exhibit furnished or to
be furnished by or on behalf of HCI Holding Co. and the Company pursuant hereto,
or in connection with the transactions contemplated hereby, taken together, do
not contain and will not contain any untrue statement of a material fact and do
not or will not omit to state a material fact necessary to make the statements
or facts contained herein or therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION CO.
Parent and Acquisition Co., jointly and severally, represent and
warrant to the Shareholders as of the date hereof and as of the Closing Date, as
follows:
4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of the Delaware.
Acquisition Co. is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Each of Parent and Acquisition
Co. is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required except for any
jurisdiction where failure so to qualify would not have a Material Adverse
Effect upon Parent or Acquisition Co., as the case may be.
4.2 AUTHORITY. Each of Parent and Acquisition Co. has all necessary
corporate power and corporate authority and has taken all corporate actions
necessary to enter into this Agreement and the other documents and agreements
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its respective obligations hereunder and thereunder, and
no other proceedings on the part of Parent or Acquisition Co. or their
respective directors and shareholders are necessary to authorize this Agreement
or such other documents and agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement has been and all other documents
and agreements to be executed and delivered by Parent or Acquisition Co. have
been and will be duly and validly executed and delivered by each of Parent and
Acquisition Co. and constitute legal, valid and binding obligations of Parent
and Acquisition Co., respectively, enforceable against each of Parent and
Acquisition Co. in
39
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4.3 LITIGATION. There are no Actions or Proceedings pending or, to
the Knowledge of Parent or Acquisition Co., threatened or anticipated against,
relating to or affecting the transactions contemplated by this Agreement, and,
to the Knowledge of Parent or Acquisition Co., there is no basis for any such
Action or Proceeding.
4.4 REPORTS AND FINANCIAL STATEMENTS. Parent has furnished or made
available to the Company true and complete copies of all Parent SEC Documents.
As of their respective filing dates, all such Parent SEC Documents complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, and none of such Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC. The financial
statements of Parent contained within the Parent SEC Documents comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) and present fairly the consolidated
financial position of the Parent at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal audit adjustments). As of the date
hereof, there has been no change in the Parent accounting policies except as
described in the notes to the Parent financial statements.
4.5 ABSENCE OF CHANGES. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, since the date of the most recent Parent SEC Documents, there
has not been any material adverse change, or any event or development relating
to Parent (but excluding national economic conditions, international events, and
other events and developments affecting all participants in the nurse staffing
industry) which, individually or together with other such events, could
reasonably be expected to result in a Material Adverse Effect on Parent.
4.6 BROKERS. Neither Parent nor Acquisition Co. has retained any
broker in connection with the transactions contemplated hereunder. Neither HCI
Holding Co., the Company nor the Shareholders have, or will have, any obligation
to pay any broker's, finder's investment banker's, financial advisor's or
similar fee in connection with this Agreement or the transactions contemplated
hereby by reason of any action taken by or on behalf of Parent or Acquisition
Co.
4.7 NO CONFLICTS. The execution and delivery by Parent or
Acquisition Co. of this Agreement will not, and the performance by either Parent
or Acquisition Co. of its obligations under this Agreement and the consummation
of the transactions contemplated hereby will not:
40
(a) conflict with or result in a violation or Breach of any of
the terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of either Parent or Acquisition Co.;
(b) conflict with or result in a violation or Breach of, or
give any Governmental or Regulatory Authority the right to revoke, withdraw,
suspend, cancel, terminate or modify any term or provision of any law, Order,
Permit, statute, rule or regulation applicable to Parent or Acquisition Co., the
business or Assets or Properties of Parent or Acquisition Co. or the capital
stock of Parent or Acquisition Co.;
(c) subject to obtaining any necessary consents and/or
waivers, all of which will be obtained prior to Closing, result in a Breach of,
or default under (or give rise to right of termination, modification,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement, lease or other
similar instrument or obligation to which (i) Parent, or (ii) any of the Assets
and Properties of Parent may be bound;
(d) cause any of the Assets or Properties of Parent or
Acquisition Co. to be reassessed or revalued by any taxing authority or any
Governmental or Regulatory Authority other than in the ordinary course of
business; or
(e) result in an imposition or creation of any Encumbrance or
Tax on the business or Assets or Properties of Parent or Acquisition Co..
4.8 CONSENTS AND GOVERNMENTAL APPROVALS AND FILINGS. Except for such
approvals and/or waivers that will be obtained by Parent prior to the Closing,
no consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person on the part of Parent or Acquisition Co. is
required in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby.
4.9 VALIDITY OF MERGER SHARES. When issued in accordance with this
Agreement, the Merger Shares shall be duly and validly authorized, issued and
outstanding, fully paid and non-assessable and shall not have been issued in
violation of the preemptive rights of any Person.
4.10 MATERIAL MISSTATEMENTS AND OMISSIONS. To the Knowledge of
Parent or Acquisition Co., the statements, representations and warranties of
Parent or Acquisition Co. contained in this Agreement (including the exhibits
and schedules hereto) and in each document, statement, certificate or exhibit
furnished or to be furnished by or on behalf of Parent and Acquisition Co.
pursuant hereto, or in connection with the transactions contemplated hereby,
taken together, do not contain and will not contain any untrue statement of a
material fact and do not or will not omit to state a material fact necessary to
make the statements or facts contained herein or therein, in light of the
circumstances under which they were made, not misleading.
41
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants, severally, but not
jointly, to Parent and Acquisition Co. as follows (and such representations and
warranties do not lessen or obviate the representations and warranties of HCI
Holding Co. and the Shareholders set forth in Article III above):
5.1 REQUISITE POWER AND AUTHORITY. Such Shareholder has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All action on such
Shareholder's part required for his or her lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon
execution and delivery, this Agreement will be the valid and binding obligation
of such Shareholder, enforceable against such Shareholder in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
5.2 OWNERSHIP AND VOTING. At Closing. such Shareholder shall be the
record and beneficial owner of, and have good and valid title to, his, her or
its shares of HCI Holding Co. Common Stock, free and clear of any and all
security interests, liens, charges, claims, agreements, obligations and
encumbrances of any nature. At Closing, the delivery of the Stock Certificate(s)
or other documents representing the Outstanding HCI Holding Co. Common Stock
owned by such Shareholder in the manner provided in Section 2.8 will transfer to
the Parent good and valid title thereto free and clear of all Encumbrances.
There are no agreements to which such Shareholder is party or by which he, she
or it is bound with respect to the voting (including voting trusts or proxies),
registration under the Securities Act, or sale or transfer (including agreements
relating to pre-emptive rights, rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of HCI Holding Co. or the Company.
5.3 INVESTMENT REPRESENTATIONS. Such Shareholder understands that
the shares of Parent Common Stock have not been registered under the Securities
Act. Such Shareholder also understands that the shares of Parent Common Stock
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon such Shareholder's representations and
warranties contained in this Agreement. Such Shareholder hereby represents and
warrants as follows:
(a) Such Shareholder:
(i) is an "accredited investor" as defined in Rule
501(a) of the Securities Act; and/or
(ii) either alone, or with his, her or its purchaser
representative (a "Purchaser Representative"), has such knowledge and experience
in financial and business matters and investing in private placement
transactions of securities in companies similar to Parent so that he, she or it
is capable of evaluating the merits and risks of his, her or its investment in
Parent and has the capacity to protect his, her or its own interests. To the
extent
42
that such Shareholder has evaluated the merits and risk of his, her or its
investment in Parent with a Purchaser Representative, such Purchaser
Representative: (i) is not an Affiliate, director, officer or other employee of
Parent, or the beneficial owner of ten percent (10%) or more of the equity
interests of Parent; (ii) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating, alone or together with
other purchaser representatives of the Shareholder, or together with the
Shareholder, the merits and risks of his, her or its investment in Parent; (iii)
has been acknowledged in writing to be such Shareholder's purchaser
representative in connection with evaluating the merits and risks of the
prospective investment in Parent; and (iv) has disclosed to such Shareholder in
writing a reasonable time prior to the issuance of the Parent Common Stock any
material relationship between himself or herself or his Affiliates and Parent
that currently exists, that is mutually understood to be contemplated or that
has existing at any such time during the previous two years, and any
compensation received or to be received as a result of such relationship.
(b) Subject to Parent's obligations pursuant to Section 2.9,
(i) such Shareholder must bear the economic risk of this investment indefinitely
unless and until the shares of Parent Common Stock are registered pursuant to
the Securities Act, or an exemption from registration is available, and (ii)
such Shareholder also understands that there is no assurance that such
registration or any exemption from registration under the Securities Act will be
available and that, even if available, such registration or exemption may not
allow such Shareholder to transfer all or any portion of the shares of Parent
Common Stock under the circumstances, in the amounts or at the times such
Shareholder might propose.
(c) Subject to Parent's obligations pursuant to Section 2.9,
such Shareholder is acquiring the shares of Parent Common Stock for such
Shareholder's own account for investment only, and not with a view towards their
distribution.
(d) Such Shareholder represents that by reason of his, her or
its business or financial experience, either alone or together with his, her or
its Purchaser Representative, such Shareholder has the capacity to protect his,
her or its own interests in connection with the transactions contemplated in
this Agreement.
(e) Such Shareholder has received and read the Parent SEC
Documents and has had an opportunity to discuss Parent's business, management
and financial affairs with directors, officers and management of Parent and has
had the opportunity to review Parent's operations and facilities. Such
Shareholder has also had the opportunity to ask questions of and receive answers
from Parent and its management regarding the terms and conditions of this
investment.
(f) Such Shareholder acknowledges and agrees that the shares
of Parent Common Stock must be held indefinitely unless and until they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Shareholder has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information about
Parent, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being through an unsolicited
"broker's transaction" or in transactions directly with a market (as said term
is
43
defined under the Exchange Act) and the number of shares being sold during any
three month period not exceeding specified limitations.
5.4 TRANSFER RESTRICTIONS. Such Shareholder acknowledges and agrees
that the shares of Parent Common Stock are subject to restrictions on transfer
set forth in this Section 5.4. Such Shareholder agrees not to make any
disposition of all or any portion of the shares of Parent Common Stock (other
than sales to Parent pursuant to Section 2.10) unless and until: (i) there is
then in effect a registration statement under the Securities Act covering such
proposed disposition and such disposition is made in accordance with such
registration statement; or (ii) the transferee (except for transfers in
compliance with Rule 144) has agreed in writing to be bound by the terms of this
Section 5.4, such Shareholder shall have notified Parent of the proposed
disposition and shall have furnished Parent with a detailed statement of the
circumstances surrounding the proposed disposition and if reasonably requested
by Parent, such Shareholder shall have furnished Parent with an opinion of
counsel, reasonably satisfactory to Parent, that such disposition will not
require registration of such shares under the Securities Act; or (iii) the sale
is made in compliance with Rule 144. Notwithstanding the provisions of clauses
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by such Shareholder to a family member of such
Shareholder or trust for the benefit of such Shareholder or family member;
provided, however, that in each case the transferee will be subject to the terms
of this Section 5.4 to the same extent as if he, she or it were an original
Shareholder hereunder. Parent shall be entitled to impose stop transfer
instructions with respect to the Parent Common Stock in order to enforce the
foregoing restrictions.
The certificates representing the Parent Common Stock (when issued
pursuant to this Agreement) shall bear the following legend restricting
transfer, and such other legends as may be required by any applicable state
securities law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED
NOVEMBER 14, 2004 BY AND AMONG CRDENTIA CORP., CRDE CORP., HCI HOLDING
CORPORATION ("HCI HOLDING CO."), AND THE SHAREHOLDERS OF HCI HOLDING CO.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 OPERATION OF BUSINESS PRIOR TO CLOSING DATE. Except as otherwise
provided herein, between the date hereof and the Closing Date, the Shareholders
will cause each of HCI Holding Co. and the Company to operate its respective
business in the Ordinary Course of
44
Business and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, use all
commercially reasonable efforts to seek to preserve intact its current business
organizations, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers, distributors, lessors,
creditors, employees, contractors and others having business dealings with it
with the intention that its goodwill and ongoing businesses shall be unimpaired
at the Closing Date.
6.2 NO SOLICITATION OR NEGOTIATION. Between the date hereof and the
earlier of (a) the termination of this Agreement, (b) the Closing and (c) the
date that is seventy-five (75) days from the date hereof, neither HCI Holding
Co., the Company nor the Shareholders will (nor will HCI Holding Co., the
Company or the Shareholders permit any of the officers, directors, employees,
agents, representatives or Affiliates of HCI Holding Co. or the Company to)
directly or indirectly, take any of the following actions with any person other
than Parent and Acquisition Co.: (i) solicit, initiate, entertain or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with any person (other than Parent and Acquisition Co.) relating to
any possible acquisition of HCI Holding Co. or the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in HCI Holding Co. or the Company; (ii) provide
information with respect to it or any of its subsidiaries to any person, other
than Parent and Acquisition Co., relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard to,
any possible acquisition of HCI Holding Co. or the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any portion
of its or their capital stock or any material portion of its or their assets or
any equity interest in HCI Holding Co. or the Company; or (iii) enter into any
agreement with any person (other than Parent and Acquisition Co.) providing for
the possible acquisition of HCI Holding Co. or the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any portion of its or their capital stock or any material
portion of its or their assets or any equity interest in HCI Holding Co. or the
Company. The foregoing shall not prevent or prohibit the HCI Conversion.
6.3 ACCESS TO INFORMATION. Between the date hereof and the Closing
Date, the Shareholders shall cause HCI Holding Co. and the Company to give
Parent and its authorized representatives (including, without limitation, its
attorneys and accountants), upon reasonable notice from Parent, reasonable
access to all employees, customers, suppliers, plants, offices, warehouses and
other facilities, to (and where necessary, provide copies of) all books and
records, Returns, contracts and all personnel files of current employees of HCI
Holding Co. and the Company and its respective subsidiaries as Parent may
reasonably require, and will cause its officers and those of its subsidiaries to
furnish Parent with such financial and operating data and other information with
respect to the business and properties of HCI Holding Co. and the Company and
its respective subsidiaries as Parent may from time to time reasonably request;
provided, however, that notwithstanding the foregoing Parent shall not contact
any of such employees, customers or suppliers, or receive any customer or
supplier list, or specific financial or health-related information regarding any
single customer or supplier without the prior written consent of Xxxxxxx X.
Xxxxxx, Xx., which such consent shall not be unreasonably withheld.
45
6.4 NOTIFICATION OF CERTAIN MATTERS. Subject to the provisions of
the preamble of Article III, each of Parent, on the one hand, and HCI Holding
Co. and/or the Shareholders, on the other hand, shall give prompt notice to the
other of (i) the occurrence or nonoccurrence of any event of which they obtain
knowledge the occurrence or nonoccurrence of which has caused or would be likely
to cause any representation or warranty contained in this Agreement by (a)
Parent or Acquisition Co. to be untrue or inaccurate at or prior to the Closing
Date, or (b) subject to the provisions of the preamble of Article III, HCI
Holding Co., the Company or the Shareholders to be untrue or inaccurate at or
prior to the Closing Date, or (ii) any failure of which they obtain knowledge by
Parent or Acquisition Co., on the one hand, or HCI Holding Co., the Company or
the Shareholders, on the other hand, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that, subject to the provisions of the preamble
of Article III, the delivery of any notice pursuant to this Section 6.4 shall
not cure such breach or non-compliance by Parent or Acquisition Co., on the one
hand, or HCI Holding Co., the Company or the Shareholders, on the other hand,
shall not limit or otherwise affect the remedies available hereunder to the
other party, or constitute an amendment of any representation, warranty or
statement in this Agreement or the HCI Disclosure Schedule.
6.5 FEES AND EXPENSES. Whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger, this Agreement
and the other agreements and transactions contemplated hereby and thereby,
including all legal, accounting, financial advisory, broker's, consulting and
other fees and expenses of third parties incurred by a party in connection with
the negotiation, documentation and effectuation of the terms and conditions of
the Merger, this Agreement and the other agreements and transactions
contemplated hereby and thereby ("Third Party Expenses"), shall be the
obligation of the respective party incurring such Third Party Expenses.
6.6 TAX MATTERS.
(a) At their own expense, the Shareholders shall cause the
Group's accountants to prepare and the Group to timely file all Group federal
tax returns and state tax returns not already filed for all Pre-Closing Periods
(the "Final Returns"), if legally required to do so. The Shareholders shall pay
any Tax due and be entitled to any refunds due with respect to the Final
Returns. The Final Returns shall be prepared in a manner consistent with
previously filed Group Returns, and, without limiting the foregoing, the
Shareholders shall maintain HCI Holding Co.'s S corporation status for federal
and applicable state tax purposes through the Closing Date and on the Final
Returns. The Shareholders shall cause a copy of all Final Returns to be sent to
Parent for its review and comment and, if required, appropriate execution, at
least fifteen (15) days prior to the filing thereof.
(b) The Shareholders shall, if legally required to do so, pay
all Taxes of the Group that may be due after the Closing Date that are allocable
to such Shareholders for the period prior to and including the Closing Date. In
order appropriately to apportion any of these Taxes relating to a period that
includes (but that would not, but for this Section 6.6(b), close on) the Closing
Date, the parties hereto will, to the extent permitted by applicable law, elect
with the relevant Government or Regulatory Authorities to treat for all purposes
the Closing Date as the last day of a Tax period of HCI Holding Co. or the
Company, and such period shall be treated as a Pre-Closing Period for purposes
of this Agreement. In any case where applicable law does not
46
permit HCI Holding Co. or the Company to treat the Closing Date as the last day
of a Tax period, then for purposes of this Agreement, the portion of such Taxes
that is attributable to the operations of HCI Holding Co. or the Company for the
Interim Period shall be (i) in the case of Taxes that are not based on income or
gross receipts, the total amount of such Taxes for the period in question
multiplied by a fraction, the numerator of which is the number of days in the
Interim Period, and the denominator of which is the total number of days in the
entire period in question, and (ii) in the case of Taxes that are based on
income or gross receipts, the Taxes that would be due with respect to the
Interim Period, if such Interim Period were a Tax period.
(c) At their own expense, Parent and Acquisition Co. shall
prepare and timely file all Group federal tax returns and state tax returns not
already filed for all Post-Closing Periods and for Interim Periods not otherwise
treated as Pre-Closing Periods pursuant to Section 6.6(b) hereof. Parent and
Acquisition Co. shall pay any tax due with respect to Post-Closing Periods. To
the extent that Parent and Acquisition Co. are preparing returns for an Interim
Period that is not treated as a Pre-Closing Period pursuant to Section 6.6(b)
hereof, Parent and Acquisition Co. shall cause a copy of such Return to be sent
to the Shareholders for their review and comment and, if required, appropriate
execution at least fifteen (15) days prior to the filing thereof.
(d) Without the prior written consent of the Shareholders,
neither Parent nor Acquisition Co. shall, to the extent it may affect or relate
to HCI Holding Co. or the Company, surrender any right to claim a Tax refund,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment or take or omit to take any other action (including
amending a Tax Return), if any such action or omission would affect a
Pre-Closing Tax Period or Interim Period, unless required by applicable law.
(e) Parent will cause all Books and Records of HCI Holding
Co., the Company and any subsidiary of the Company relating to any period at or
prior to the Closing Date, to be preserved for a period of at least seven (7)
years after Closing and shall make all such Books and Records available
(including for copying at the Shareholders' expense) to the Shareholders and
their respective representatives from time to time upon reasonable notice and
request.
(f) None of the parties to this Agreement shall take any
action that would prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
6.7 FORMATION OF HCI HOLDING CO./CONVERSION OF COMPANY. At or prior
to the Closing, the Shareholders shall (a) cause HCI Holding Co. to be
incorporated in the State of Delaware and to issue shares of its common stock to
the Shareholders so that, immediately prior the Closing, Xxxxx X. Xxxxxx owns
seventy-two percent (72%) of the Outstanding HCI Holding Co. Common Stock and
Xxxxx X. Xxxxxx owns twenty-eight percent (28%) of the Outstanding HCI Holding
Co. Common Stock, (b) effect the conversion of the Company from an Oklahoma
corporation to an Oklahoma limited liability company and (c) transfer and assign
all of their respective ownership interests in the Company to HCI Holding Co.,
so as to make the Company a wholly-owned subsidiary of HCI Holding Co. (such
transactions collectively, the "HCI Conversion"). The HCI Conversion and the
documents and agreements entered into or adopted to effect the same shall be
reasonably satisfactory to Parent and the Shareholders. At or prior to
47
the Closing, the Shareholders shall cause HCI Holding Co. to execute and deliver
a written joinder, in form and substance reasonably satisfactory to Parent and
the Shareholders, pursuant to which HCI Holding Co. joins in, becomes party to
and agrees to be bound by this Agreement. The Shareholders hereby covenant and
agree that, except as expressly contemplated by this Agreement, prior to the
Closing, HCI Holding Co. shall not enter into any material transactions or incur
any material liabilities other than the HCI Conversion and the transactions and
liabilities entered into or incurred in connection with the HCI Conversion.
6.8 CASH WITHDRAWAL. Subject to the provisions of Section
2.11(b)(xi), herein, at or within a reasonable time prior to Closing, the
Shareholders shall be permitted to withdraw the cash balances held by HCI
Holding Co., the Company, and/or the subsidiary of the Company generated in the
Ordinary Course of Business by HCI Holding Co., the Company and/or the
subsidiary of the Company.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE SALE
7.1 CONDITIONS TO THE OBLIGATIONS OF HCI HOLDING CO. AND THE
SHAREHOLDERS. The obligation of HCI Holding Co. and the Shareholders to effect
the Closing and the Merger are subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) the representations and warranties of Parent and
Acquisition Co. contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same effect as if made
at and as of the Closing Date (except (i) to the extent such representations
specifically relate to an earlier date, in which case such representations shall
be true and correct in all material respects as of such earlier date, and (ii)
for changes, transactions or matters made or entered into pursuant to or as
permitted or contemplated by this Agreement) and, at the Closing, Parent shall
have delivered to the Shareholders a certificate to that effect, executed by an
officer of Parent; and
(b) each of the covenants and obligations of Parent and
Acquisition Co. to be performed at or before the Closing Date pursuant to the
terms of this Agreement shall have been duly performed in all material respects
at or before the Closing Date and, at the Closing, Parent and Acquisition Co.
shall have delivered to HCI Holding Co. and the Shareholders a certificate to
that effect, executed by an officer of Parent; and
(c) Parent shall have raised aggregate, gross cash proceeds of
at least Fourteen Million Dollars ($14,000,000) (solely or through a combination
of an Offering, lending, or otherwise) after the date hereof on terms reasonably
satisfactory to the Shareholders; and
(d) Parent shall have delivered all of the Closing deliveries
set forth in Section 2.11(c) above; and
(e) all consents, approvals and authorizations required for
the execution, delivery and performance of this Agreement and the Contemplated
Transactions by Parent and Acquisition Co. shall have been obtained and evidence
of same shall have been delivered to the Shareholders; and
48
(f) except as contemplated or disclosed herein prior to
closing, there shall have been no events, changes or effects, individually or in
the aggregate, with respect to Parent or Acquisition Co. having, or that would
reasonably be expected to have, a Material Adverse Effect on Parent or
Acquisition Co.; and
(g) the results of the Shareholders' and the Company's due
diligence investigation of Parent and its subsidiaries and the Contemplated
Transactions shall be satisfactory to the Shareholders, as determined in their
reasonable discretion (including (i) meetings between the Shareholders or their
representatives and Xxxx Xxxxx to discuss his assessment of Parent and related
matters as well as a commitment of Xx. Xxxxx or his Affiliates to contribute a
minimum of $2,000,000 to Parent, (ii) meetings with Bridge, (iii) meetings with
the proposed underwriters for any Offering referred to in Section 7.1(c), and
(iv) receipt of a stock capitalization schedule of Parent reflecting the
ownership of the common shares of Parent on a fully diluted basis following
completion of the Offering referred to in Section 7.1(c) provided by Parent's
counsel; and
(h) the board of directors of Parent shall have approved the
grant of options to purchase shares of Parent's Series C Convertible Preferred
Stock to Xxxxx X. Xxxxxx and Xxxxxx Xxxxxxxx in an amount equal to seven percent
(7%) of the after-issuance Series C Convertible Preferred Stock, to be divided
between them, and with such terms, as to be determined by the board of
directors; and
(i) all proceedings taken by Parent and Acquisition Co. and
all instruments executed and delivered by Parent and Acquisition Co. on or prior
to the Closing in connection with the Contemplated Transactions shall be
reasonably satisfactory in form and substance to counsel for HCI Holding Co. and
the Shareholders.
7.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION CO. The
respective obligations of Parent and Acquisition Co. to effect the Merger are
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) the representations and warranties of HCI Holding Co., the
Company and the Shareholders contained in this Agreement (subject to the
provisions contained in the preamble to Article III) shall be true and correct
in all material respects at and as of the Closing Date with the same effect as
if made at and as of the Closing Date (except to the extent such representations
specifically relate to an earlier date, in which case such representations shall
be true and correct in all material respects as of such earlier date) and, at
the Closing, HCI Holding Co. and the Shareholders shall have delivered to Parent
and Acquisition Co. a certificate to that effect, executed by an officer of HCI
Holding Co. and the Shareholders; and
(b) each of the covenants and obligations of HCI Holding Co.,
the Company and the Shareholders to be performed at or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed in all
material respects at or before the Closing Date and, at the Closing, HCI Holding
Co. shall have delivered to Parent and Acquisition Co. a certificate to that
effect, executed by an officer of HCI Holding Co.; and
(c) all consents, approvals and authorizations required for
the execution, delivery and performance of this Agreement and the Contemplated
Transactions by HCI Holding
49
Co., the Company and the Shareholders shall have been obtained and evidence of
same shall have been delivered to Parent and Acquisition Co.; and
(d) HCI Holding Co., the Company and the Shareholders, as the
case may be, shall have delivered all of the Closing deliveries set forth in
Section 2.11(b) above; and
(e) except as contemplated or disclosed herein or in the HCI
Disclosure Schedule, there shall have been no events, changes or effects,
individually or in the aggregate, with respect to HCI Holding Co. or the Company
having, or that would reasonably be expected to have, a Material Adverse Effect
on HCI Holding Co. or the Company; and
(f) no key employee of HCI Holding Co. or the Company (as
determined by Parent in its sole discretion) shall have terminated their
employment or given written or oral notice to HCI Holding Co., the Company or
Parent of their intention to do so after the consummation of the Merger; and
(g) the results of Parent's due diligence investigation of HCI
Holding Co. and the Company shall be satisfactory to Parent, as determined in
its reasonable discretion; and
(h) all proceedings taken by HCI Holding Co., the Company and
the Shareholders and all instruments executed and delivered by HCI Holding Co.,
the Company and the Shareholders on or prior to the Closing in connection with
the Contemplated Transactions shall be reasonably satisfactory in form and
substance to counsel for Parent and Acquisition Co.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1 TERMINATION. This Agreement may be terminated and this Agreement
and the Merger may be abandoned at any time prior to the Effective Time whether
before or after approval and adoption of this Agreement:
(a) by written consent of Parent and Acquisition Co., on the
one hand, and HCI Holding Co. and/or the Shareholders, on the other hand;
(b) by Parent and Acquisition Co. on the one hand, and HCI
Holding Co. and/or the Shareholders, on the other hand, if (i) any court of
competent jurisdiction in the United States or other United States federal or
state governmental entity shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become non-appealable, or (ii) the Merger has not been consummated by the date
that is seventy-five (75) days from the date hereof; provided that no party may
terminate this Agreement pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement shall have been a principal
reason that the Merger shall not have occurred on or before said date;
(c) by HCI Holding Co. or the Shareholders if (i) there shall
have been a material Breach of any representations or warranties on the part of
Parent or Acquisition Co. set forth in this Agreement or if any representations
or warranties herein of Parent or Acquisition
50
Co. shall have become untrue in any material respect as of the Closing Date,
provided that neither HCI Holding Co., the Company nor any of the Shareholders
shall have breached any of its obligations hereunder in any material respect; or
(ii) there shall have been a breach by Parent or Acquisition Co. of any of their
respective covenants or agreements hereunder in any material respect or
materially adversely affecting (or materially delaying) the ability of Parent
and Acquisition Co., on the one hand, or HCI Holding Co. or the Shareholders, on
the other hand, to consummate the Merger, and either Parent or Acquisition Co.,
as the case may be, has not cured such breach within ten (10) Business Days
after notice by HCI Holding Co. thereof, provided that neither HCI Holding Co.,
the Company nor any of the Shareholders has breached any of its obligations
hereunder in any material respect, or (iii) the results of the Shareholders' or
the Company's due diligence investigations of Parent, its subsidiaries and the
Contemplated Transactions are not satisfactory to the Shareholders for any
reason in their sole discretion; or
(d) by Parent if (i) there shall have been a material Breach
of any representations or warranties under Sections 3.1 through 3.5 or Article V
on the part of HCI Holding Co. or the Shareholders or, following delivery of the
HCI Disclosure Schedule as contemplated by the preamble to Article III, there
has been a material Breach of any other representations or warranties herein of
HCI Holding Co. or the Shareholders, provided that neither Parent nor
Acquisition Co. has breached any of its respective obligations hereunder in any
material respect; (ii) there shall have been a breach by HCI Holding Co. or the
Shareholders of one or more of its covenants or agreements hereunder in any
material respect or materially adversely affecting (or materially delaying) the
ability of Parent or Acquisition Co. to consummate the Merger, and neither HCI
Holding Co. nor any of the Shareholders has cured such breach within ten (10)
Business Days after notice by Parent or Acquisition Co. thereof, provided that
neither Parent nor Acquisition Co. has breached any of its respective
obligations hereunder in any material respect; or (iii) the results of Parent's
due diligence investigations of HCI Holding Co. and the Company are not
satisfactory to Parent for any reason in its sole discretion.
8.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 above, this Agreement
shall forthwith become void and have no effect without liability on the part of
any party hereto or its Affiliates, directors, officers or stockholders other
than the provisions of this Section 8.2 and Sections 6.5, 8.3, 10.8, and 10.10.
8.3 AMENDMENT. This Agreement may be amended by action taken by
Parent and Acquisition Co., on the one hand, and HCI Holding Co. and the
Shareholders, on the other hand, at any time before or after approval of the
Merger by the Shareholders but after any such approval no amendment shall be
made that requires the approval of such Shareholders under applicable law
without such approval. This Agreement (including, except as otherwise provided
in the preamble to Article III, the HCI Disclosure Schedule) may be amended only
by an instrument in writing signed on behalf of the parties hereto.
ARTICLE IX
ACTIONS BY THE PARTIES AFTER THE CLOSING
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. Subject to Section
9.2, the representations and warranties contained in or made pursuant to this
Agreement or any
51
certificate, document or instrument delivered pursuant to or in connection with
this Agreement and the transactions contemplated hereby shall survive the
execution and delivery of this Agreement and the Closing hereunder
(notwithstanding any investigation, analysis or evaluation by any party hereto
or their designees of the Assets and Properties, business, operations or
condition (financial or otherwise) of the other party) until twelve (12) months
after the Closing Date; provided, however, that the representations and
warranties of the parties contained in Sections 3.2, 3.19, 3.24 and 5.2 shall
continue to survive indefinitely in full force and effect following the Closing
Date. The covenants and agreements contained in or made pursuant to this
Agreement or any certificate, document or instrument delivered pursuant to or in
connection with this Agreement and the transactions contemplated hereby shall
survive the execution and delivery of this Agreement and the Closing hereunder
until fully performed.
9.2 INDEMNIFICATION.
(a) By the Shareholders. On the terms and subject to the
limitations set forth in this Article IX, the Shareholders shall indemnify,
defend and hold harmless Parent and Acquisition Co. (the "Parent Group") from
and against any and all costs, losses, liabilities, damages, lawsuits,
deficiencies, claims and expenses, including, without limitation, interest,
penalties, costs of mitigation, lost profits and other losses resulting from any
shutdown or curtailment of operations, reasonable attorneys' fees and all other
amounts paid for the investigation, defense or settlement of any of the
foregoing (collectively, the "Damages"), incurred in connection with, arising
out of, resulting from or incident to (i) any Breach of any covenant,
representation, warranty or agreement made by HCI Holding Co or the Shareholders
in or pursuant to this Agreement at the Closing, or in the other documents
executed and delivered in connection with the transactions contemplated by this
Agreement at the Closing; provided, however, that no Shareholder shall have any
liability with respect to any covenant, representation, warranty, or agreement
made severally by another Shareholder, or (ii) any claim asserted against the
Company at or prior to the third anniversary of the Closing Date by the Office
of Oklahoma Attorney General, Medicaid Fraud Unit, or United States Department
of Health and Human Services, Office of Inspector General, based on an act or
omission occurring prior to the Closing Date, as a result of those certain
investigations which arose pursuant to subpoenas previously delivered to the
Company or its representatives prior to the date hereto (the "Investigations").
(b) By the Parent. The Parent shall indemnify, defend and hold
harmless the Shareholders and their respective heirs, legal representatives,
successors and assigns from and against any and all Damages incurred in
connection with, arising out of or relating to any Breach of any covenant,
representation, warranty or agreement made by Parent or Acquisition Co. in or
pursuant to this Agreement, or in other documents delivered in connection with
the transactions contemplated by this Agreement.
(c) Limitation of Liability. The liability of each Shareholder
to the Parent Group for indemnification pursuant to Section 9.2(a) shall be
limited to Three Hundred and Ninety Two Thousand Dollars ($392,000) for Xxxxx X.
Xxxxxx and One Million Eight Thousand Dollars ($1,008,000) for Xxxxx X. Xxxxxx.
Notwithstanding the foregoing, however, the preceding limitation of liability
shall not apply to (i) any claims for Damages made pursuant to Section 9.2(a)
for Breach of any representation or warranty of HCI Holding Co. or the
Shareholders contained in Sections 3.2, 3.19, 3.24 or 5.2, or (ii) any
intentional or fraudulent
52
breach by HCI Holding Co. or the Shareholders of any representation, warranty,
covenant or agreement.
(d) Third Party Claims; Defense of Claims. If any Action or
Proceeding is filed or initiated against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within ten days after the
service of the citation or summons); provided, however, that the failure of any
indemnified party to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, the
indemnifying party shall be entitled, if it so elects, to take control of the
defense and investigation of such Action or Proceeding and to employ and engage
attorneys of its own choice to handle and defend the same, such attorneys to be
reasonably satisfactory to the indemnified party, at the indemnifying party's
cost, risk and expense (unless (i) the indemnifying party has failed to assume
the defense of such Action or Proceeding or (ii) the named parties to such
Action or Proceeding include both of the indemnifying party and the indemnified
party, and the indemnified party and its counsel determine in good faith that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party
and that joint representation would be inappropriate), and to compromise or
settle such Action or Proceeding, which compromise or settlement shall be made
only with the written consent of the indemnified party, such consent not to be
unreasonably withheld. The indemnified party may withhold such consent if such
compromise or settlement would materially adversely affect the conduct of
business or requires less than an unconditional release to be obtained. If (i)
the indemnifying party fails to assume the defense of such Action or Proceeding
within 15 days after its receipt of notice thereof pursuant to this Section
9.2(d), or (ii) the named parties to such Action or Proceeding include both the
indemnifying party and the indemnified party and the indemnified party and its
counsel determine in good faith that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party and that joint representation would be
inappropriate, the indemnified party against which such Action or Proceeding has
been filed or initiated will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake, at the indemnifying party's
cost and expense, the defense, compromise or settlement of such Action or
Proceeding on behalf of and for the account and risk of the indemnifying party;
provided, however, that such Action or Proceeding shall not be compromised or
settled without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. In the event the indemnified party assumes
defense of the Action or Proceeding, the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement and will consult with, when appropriate, and consider
any reasonable advice from, the indemnifying party of any such defense,
compromise or settlement. Subject to the limitations set forth in this Article
IX, the indemnifying party shall be liable for any settlement of any action
effected pursuant to and in accordance with this Section 9.2(d) and for any
final judgment (subject to any right of appeal), and, on the terms and subject
to the limitations set forth in this Article IX, the indemnifying party agrees
to indemnify and hold harmless the indemnified party, pursuant to Section 9.2(a)
or Section 9.2(b), as applicable, from and against any Damages by reason of such
settlement or judgment.
53
The indemnified party shall cooperate in all reasonable respects
with the indemnifying party and such attorneys in the investigation, trial and
defense of such Action or Proceeding and any appeal arising therefrom; provided,
however, that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such Action or Proceeding and any appeal
arising therefrom. The indemnifying party shall pay all expenses due under this
Section 9.2 as such expenses become due. In the event such expenses are not so
paid, the indemnified party shall be entitled to settle any Action or Proceeding
under this Section 9.2 without the consent of the indemnifying party and without
waiving any rights the indemnified party may have against the indemnifying
party.
If the indemnified party undertakes the defense, compromise or
settlement of an Action or Proceeding in accordance with this Section 9.2(d),
the indemnifying party may, at its own cost, participate in the investigation,
trial and defense of such Action or Proceeding and any appeal arising therefrom.
(e) Tax Matters. Notwithstanding anything in this Agreement to
the contrary, for purposes of determining the amount of Damages, no effect will
be given to any resulting Tax benefit or detriment to any indemnified party.
9.3 ARTICLES OF INCORPORATION AND BYLAWS. Notwithstanding anything
to the contrary contained in the Articles of Incorporation or Bylaws of HCI
Holding Co. or the Company, the indemnification provisions of this Article IX
shall take precedence over such Articles of Incorporation or Bylaws. No
Shareholder nor any other director or officer incumbent at any time prior to the
Closing shall be entitled to indemnification directly or indirectly under such
Articles of Incorporation or Bylaws or otherwise for any matter upon which HCI
Holding Co., the Company or any Shareholder has or might have an indemnification
obligation hereunder and the Articles of Incorporation and Bylaws shall be
deemed amended accordingly. However, the provisions of this Section 9.3 are
intended only for the regulation of relations among HCI Holding Co., the Company
and the Shareholders and any indemnified party. This Section 9.3 is not intended
for the benefit of creditors or other third parties and does not grant any
rights to creditors or other third parties.
9.4 EXCLUSIVITY. The parties hereto acknowledge and agree that the
indemnity obligations set forth above shall be the exclusive remedy of the
indemnified parties with respect to this Agreement and the Contemplated
Transactions except with respect to claims with respect to any intentional or
fraudulent breach by any party of any representation, warranty, covenant or
agreement hereunder. Without limiting the generality of the foregoing, and
notwithstanding anything to the contrary herein, no member of the Parent Group
shall be entitled to setoff, against any amounts owed or payable to any
Shareholder pursuant to this Agreement or any document or agreement entered into
in connection herewith or otherwise, all or any portion of any liability,
obligation or other amount owed to Parent or any Affiliate of Parent whether
pursuant to or in connection with this Agreement or otherwise.
54
ARTICLE X
MISCELLANEOUS
10.1 FURTHER ASSURANCES. In case at any time on or after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
party reasonably may request, all the sole cost and expense of the requesting
party (except to the extent the requesting party is entitled to indemnification
therefor under Article IX).
10.2 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission with
answer back confirmation or mailed (postage prepaid by certified or registered
mail, return receipt requested) or by overnight courier to the parties at the
following addresses or facsimile numbers:
If to Parent or Acquisition Corp.:
Crdentia Corp.
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Chief Executive Officer
with copies to:
Xxxxxxxx & Xxxxxxxx llp
0000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
If to HCI Holding Co., the Company, the Shareholders or the
Shareholder Representative:
Xxxxx X Xxxxxx.
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
with copies to:
Kroney Xxxxxx, Inc.
0000 Xxxxx Xxxxxx Xxxxx
00000 Xxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Lan, Jr.
55
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.2, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10.2, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 10.2, be deemed given upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
10.3 ENTIRE AGREEMENT. This Agreement (and all exhibits and
schedules attached hereto, all other documents delivered in connection herewith)
supersede all prior discussions and agreements among the parties with respect to
the subject matter hereof and contains the sole and entire agreement among the
parties hereto with respect thereto.
10.4 WAIVER. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. Except as
otherwise expressly provided herein, all remedies, either under this Agreement
or by law or otherwise afforded, will be cumulative and not alternative.
10.5 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors, heirs, legal representatives, or permitted assigns, and
it is not the intention of the parties to confer third-party beneficiary rights
upon any other Person other than any Person entitled to indemnity under Article
IX.
10.6 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt to
do so will be void, except that any party's rights to indemnification under
Article IX may be freely assigned. This Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors, heirs, legal representatives, and permitted assigns.
10.7 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and mutually
acceptable to the parties herein.
56
10.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts executed and performed in such State, without giving effect to
conflicts of laws principles.
10.9 CONSENT TO JURISDICTION AND FORUM SELECTION. Each of the
Parent, Acquisition Co., HCI Holding Co., the Company, the Shareholders and the
Shareholder Representative irrevocably agrees that any legal action or
proceeding with respect to this Agreement or for the recognition and enforcement
of any judgment in respect hereof brought by the other party hereto or its
successors or assigns will be brought and determined in either a state court
having jurisdiction in Dallas County, Texas or the United States District Court
for the North District of Texas, and each of the Parent, Acquisition Co., HCI
Holding Co., the Company, the Shareholders and the Shareholder Representative
hereby irrevocably submits with regard to any such action or proceeding for
itself and in respect to its property, generally and unconditionally, to the
exclusive jurisdiction of the aforesaid courts. Each of the Parent, Acquisition
Co., HCI Holding Co., the Company, the Shareholders and the Shareholder
Representative hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason other than the
failure to lawfully serve process, (b) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced
in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
(c) to the fullest extent permitted by applicable law, that (i) the suit, action
or proceeding in any such court is brought in an inconvenient forum, (ii) the
venue of such suit, action, or proceeding is improper and (iii) this Agreement,
or the subject matter hereof, may not be enforced in or by such courts.
10.10 CONSTRUCTION. No provision of this Agreement shall be
construed in favor of or against any party on the ground that such party or its
counsel drafted the provision. Any remedies provided for herein are not
exclusive of any other lawful remedies which may be available to either party.
10.11 COUNTERPARTS; FUTURE SIGNATURES. This Agreement may be
executed in any number of counterparts and by facsimile, each of which will be
deemed an original, but all of which together will constitute one and the same
instrument. Pursuant to Section 6.7, upon its execution of a counterpart
signature hereto, HCI Holding Co. shall be deemed to be a party for all purposes
hereunder and shall be further deemed to have made applicable the
representations and warranties contained herein as of such date.
10.12 ATTORNEY'S FEES. In the event any action is brought for
enforcement or interpretation of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees and costs incurred in said
action.
[Remainder of this page intentionally left blank.]
57
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto, or their duly authorized officer, as of the date first
above written.
CRDENTIA CORP.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
CRDE CORP.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
SHAREHOLDERS
/s/ Xxxxx Xxxxxx
-------------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxx
-------------------------------------------
Xxxxx Xxxxxx
SHAREHOLDER REPRESENTATIVE
/s/ Xxxxx X. Xxxxxx
-------------------------------------------
Xxxxx X. Xxxxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
