Form of Agreement and Plan of Merger by and among HEALTH PARTNERSHIP INC. CAPITAL PARTNERS MERGER SUB, INC. CAPITAL PARTNERS ACQUISITION SUB, INC. CAPITAL PARTNERS FOR HEALTH & FITNESS, INC. RANDALL ROHM and THOMAS FLYNN Dated as of February 13, 2006
Form
of Agreement and Plan of Merger
by
and among
CAPITAL
PARTNERS MERGER SUB, INC.
CAPITAL
PARTNERS ACQUISITION SUB, INC.
CAPITAL
PARTNERS FOR HEALTH & FITNESS, INC.
XXXXXXX
XXXX
and
XXXXXX
XXXXX
Dated
as of February 13, 2006
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ARTICLE
I
DEFINITIONS
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2
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ARTICLE
II
THE MERGER
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9
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2.1
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The
Merger
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9
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2.2
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Effective
Time
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10
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2.3
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Effect
of the Merger
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10
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2.4
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Articles
of Incorporation and Bylaws
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10
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2.5
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Directors
and Officers
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10
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2.6
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Conversion
of Stock, Etc
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11
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2.7
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Cancellation
of Shares
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12
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2.8
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Stock
Options; Warrants
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12
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2.9
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Capital
Stock of Acquisitionco
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12
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2.10
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Adjustments
to the Consideration
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12
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2.11
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Taking
of Necessary Action; Further Action
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13
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ARTICLE
III
CONSIDERATION; CLOSING
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14
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3.1
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Consideration
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14
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3.2
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Closing
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14
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ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND CAPITAL
PARTNERS
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14
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4.1
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Organization
and Qualification
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14
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4.2
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Subsidiaries
and Affiliates
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14
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4.3
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Charter,
By-Laws and Corporate Records
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15
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4.4
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Authorization;
Enforceability
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15
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4.5
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No
Violation or Conflict
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15
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4.6
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Governmental
Consents and Approvals
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16
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4.7
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Capital
Structure
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16
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4.8
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Financial
Statements
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17
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4.9
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Conduct
in the Ordinary Course; Absence of Changes
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17
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4.10
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Real
Property
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17
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4.11
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Personal
Property
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18
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4.12
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Board
Approval
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19
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4.13
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Insurance
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19
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4.14
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Permits
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20
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4.15
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Taxes
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20
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4.16
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Labor
Matters
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21
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4.17
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Employee
Benefit Plans
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22
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4.18
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Environmental
Matters
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23
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4.19
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Certain
Interests
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24
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i
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4.20
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Litigation
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24
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4.21
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Intellectual
Property and Web Sites
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24
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4.22
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Inventories
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25
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4.23
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Receivables
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25
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4.24
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Residency;
Investment Sophistication; Backgrounds
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25
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4.25
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Brokers
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25
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4.26
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Current
Assets and Current Liabilities
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25
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4.27
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Stockholders’
Deficit
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25
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4.28
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Satisfaction
of Obligations to Xxxxxx Xxxxxxx
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26
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4.29
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Outstanding
Obligation to Xxxxxx Xxxxxx
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26
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4.30
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Acquisition
by Capital Partners of Interests in the Capital Partners
Subsidiaries
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26
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4.31
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Contracts
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26
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4.32
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Material
Information
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27
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4.33
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Accounting
Matters
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27
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ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF HPI AND THE CAPITAL PARTNERS MERGER
SUBS
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27
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5.1
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Organization
and Qualification
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27
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5.2
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Capital
Structure
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27
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5.3
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Authorization;
Enforceability
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28
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5.4
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No
Violation or Conflict
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28
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5.5
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Governmental
Consents and Approvals
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28
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5.6
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Litigation
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28
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5.7
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Interim
Operations
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29
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5.8
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Brokers
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29
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5.9
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Board
Approval
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29
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ARTICLE
VI
COVENANTS
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29
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6.1
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Performance
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29
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6.2
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Regulatory
and Other Authorizations; Notices and Consents
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29
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6.3
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Notification
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30
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6.4
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Conduct
of Business Pending Closing
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30
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ARTICLE
VII
EMPLOYMENT MATTERS AND MANAGEMENT OF THE SURVIVING CORPORATION
POST-CLOSING
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31
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7.1
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Employment
Matters
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31
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7.2
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Management
of Surviving Corporation
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31
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7.3
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Hiring
of CFO and Controller
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31
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ARTICLE
VIII
PRE-CLOSING ASSIGNMENTS
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31
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8.1
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Sale
and Assignment of Intellectual Property
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31
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8.2
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Sale
and Assignment of All Internet Interests
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31
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ARTICLE
IX
EARNOUT
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32
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9.1
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Contingent
Earnout
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32
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9.2
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Restrictions
on Disposition of Operating Assets
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33
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9.3
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Restrictions
on Business Acquisitions
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33
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ii
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ARTICLE
X
REGISTRATION RIGHTS
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33
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10.1
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Filing
of Registration Statement
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33
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ARTICLE
XI
CONDITIONS PRECEDENT TO CLOSING
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33
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11.1
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Conditions
Precedent to the Obligations of the Parties
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33
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ARTICLE
XII
INDEMNIFICATION
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36
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12.1
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Survival
of Representations, Warranties and Covenants
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36
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12.2
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Indemnification
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36
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12.3
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Third
Party Claim
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38
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ARTICLE
XIII
TERMINATION
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38
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13.1
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Termination
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38
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ARTICLE
XIV
TAX MATTERS
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38
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14.1
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Tax
Returns
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38
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14.2
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Contest
Provisions
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39
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14.3
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Assistance
and Cooperation
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40
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14.4
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S
Corporation
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41
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ARTICLE
XV
MISCELLANEOUS
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41
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15.1
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Notices
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41
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15.2
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Entire
Agreement
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42
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15.3
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Binding
Effect
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42
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15.4
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Assignment
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42
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15.5
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Modifications
and Amendments
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42
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15.6
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Waivers
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42
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15.7
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No
Third Party Beneficiary
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43
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15.8
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Severability
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43
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15.9
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Publicity
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43
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15.10
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Governing
Law
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43
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15.11
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Counterparts;
Facsimile Signatures
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43
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15.12
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Headings
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43
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15.13
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Expenses
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43
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15.14
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Further
Assurances
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44
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15.15
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Arbitration
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44
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15.16
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Incorporation
by Reference
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44
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iii
EXHIBITS
|
Exhibit
2.2
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Articles
of Merger
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Exhibit
2.5(a)
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Directors
of Capital Partners Surviving Corporation
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Exhibit
2.5(b)
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Form
of Irrevocable Proxy
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Exhibit
11.1
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Letter
to Transfer Agent
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Exhibit
11.1(o)
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Opinion
of Counsel to Capital Partners
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SCHEDULES
|
Schedule
4.1
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Organization
and Qualification
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Schedule
4.2
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Subsidiaries
and Affiliates
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Schedule
4.8
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Financial
Statements
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Schedule
4.10(b)
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Leased
Real Property
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Schedule
4.11
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Personal
Property
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Schedule
4.13
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Insurance
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Schedule
4.14
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Permits
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Schedule
4.15
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Taxes
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Schedule
4.16
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Labor
Matters
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Schedule
4.17
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Employee
Benefit Plans
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Schedule
4.20
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Capital
Partners Litigation
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Schedule
4.30
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Contracts
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Schedule
5.6
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HPI
Litigation
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Schedule
8.2
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Domain
Names
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Schedule
9.2
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Certain
Cost Allocations
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iv
AGREEMENT
AND PLAN OF MERGER
This
Agreement and Plan of Merger (the “Agreement”)
made
and entered into as of February 13, 2006, by and among HEALTH PARTNERSHIP INC.,
a Colorado corporation (“HPI”),
CAPITAL PARTNERS MERGER SUB, INC., a North Carolina corporation and wholly
owned
subsidiary of HPI (“Capital
Partners Mergeco”);
CAPITAL PARTNERS ACQUISITION SUB, INC., a North Carolina corporation and wholly
owned subsidiary of HPI (“Capital
Partners Acquisitionco”
and
together with Capital Partners Mergeco, each a “Capital
Partners Merger Sub”
and,
collectively, the “Capital
Partners Merger Subs”),
CAPITAL PARTNERS FOR HEALTH & FITNESS, INC., a North Carolina corporation
(“Capital
Partners”),
Xxxxxxx Xxxx (“Xxxx”)
and
Xxxxxx Xxxxx (“Xxxxx”),
each
a resident of North Carolina (Rohm and Xxxxx are hereinafter collectively
referred to as the “Shareholders”).
Capital Partners Mergeco, Capital Partners Acquisitionco, Capital Partners,
and
the Shareholders are sometimes referred to herein each, individually, as a
“Party”
and,
collectively, as the “Parties.”
WITNESSETH:
WHEREAS,
Kapital Engine Investments, Inc., a Nevada corporation (the “Predecessor
Entity”)
was
the owner of all of the issued and outstanding equity interests in nine
subsidiary entities that operate health clubs in the Raleigh-Durham metropolitan
area and in one entity which has signed a lease for a tenth health club, to
be
opened in the future in Wake Forest, North Carolina;
WHEREAS,
Capital Partners acquired all of the issued and outstanding equity interests
in
the subsidiary entities described in the preceding recital, pursuant to an
assignment agreement.
WHEREAS,
each of the Boards of Directors of HPI, Capital Partners Mergeco, Capital
Partners Acquisitionco and Capital Partners has approved this Agreement, the
merger of Capital Partners Mergeco with and into Capital Partners (the
“Reverse
Merger”)
and
the merger immediately following the Reverse Merger of Capital Partners with
and
into Capital Partners Acquisitionco (the “Forward
Merger”
and
together with the Reverse Merger, the “Merger”),
in
accordance with the laws of the their respective States of incorporation, and
the terms and conditions set forth herein; and
WHEREAS,
the parties hereto intend the Merger to qualify as a “reorganization” within the
meaning of Section 368(a) of the Code.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Parties hereby agree as follows:
1
ARTICLE
I
DEFINITIONS
In
addition to terms defined elsewhere in this Agreement, the following terms
when
used in this Agreement shall have the respective meanings set forth
below:
“Action”
means
any claim, demand, action, cause of action, chose in action, right of recovery,
right of set-off, suit, arbitration, inquiry, proceeding or investigation by
or
before any Governmental Authority.
“Affiliate”
means,
with respect to a specified Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by or
is
under common control with such Person, and without limiting the generality
of
the foregoing, includes, with respect to the specified Person: (a) any other
Person which beneficially owns or holds 10% or more of the outstanding voting
securities or other securities convertible into voting securities of such
Person, (b) any other Person of which the specified Person beneficially owns
or
holds 10% or more of the outstanding voting securities or other securities
convertible into voting securities, or (c) any director, officer or employee
of
such Person.
“Approved
Liabilities”
means
only those liabilities shown on the consolidated balance sheet of the
Predecessor Entity dated September 30, 2005, subject only to minor adjustments
in liability line items incurred in the ordinary course of the Business between
September 30, 2005 and the Closing Date, plus any additional liabilities
incurred for the purchase or lease of equipment and improvements to the
facilities owned by Capital Partners.
“Bridge
Loan”
means
the loan by HPI to Capital Partners, with an outstanding principal balance
as of
the date hereof of $400,000, plus accrued interest at the rate of 8% per annum,
plus such additional loans, if any, made by HPI to Capital Partners from the
date hereof through the Closing.
“Business
Day”
means
any day other than a Saturday, Sunday or other day on which banks are required
or authorized to be closed in the city of Chicago, Illinois.
“Business
Interests”
means
the ownership of up to (but not more than) one percent (1%) of any class of
securities of an enterprise (but without otherwise participating, directly
or
indirectly, in the management or operations of such enterprise) if such
securities are listed on any national or regional exchange or have been
registered under Section 12(g) of the Securities Exchange Act of
1934.
“Capital
Partners”
means
Capital Partners For Health & Fitness, Inc., a North Carolina
corporation.
“Capital
Partners Subsidiaries”
means
the corporations and limited liability companies described on Schedule
4.2,
attached hereto.
2
“CERCLA”
means
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended through the date hereof and any regulations promulgated
thereunder.
“Closing”
shall
mean the closing of the transactions contemplated by this
Agreement.
“Closing
Date”
shall
mean the day on which the Closing takes place.
“COBRA”
means
the provisions of Code section 4980B and Part 6 of Subtitle B of title I of
ERISA.
“Code”
shall
mean the Internal Revenue Code of 1986, as amended.
“Commonly
Controlled Entity”
means
any entity which is under common control with Capital Partners within the
meaning of Section 414(b), (c), (m), (o) or (t) of the Code.
“Contract”
means
any contract, plan, undertaking, understanding, agreement, license, lease,
note,
mortgage or other binding commitment, whether written or oral, either involving
payments of more than $10,000 per year or which are not terminable on 30 days’
written notice or less.
“Copyrights”
mean
all copyrights (registered or otherwise) and registrations and applications
for
registration thereof, and all rights therein provided by multinational treaties
or conventions.
“Court”
means
any court or arbitration tribunal of the United States, any domestic state,
or
any foreign country, and any political subdivision thereof.
“Database”
means
all data and other information recorded, stored, transmitted and retrieved
in
electronic form.
“Documents”
means
this Agreement together with the Articles of Merger, the Schedules and Exhibits
hereto, the Capital Partners Disclosure Schedule, and the other agreements,
documents and instruments required or contemplated to be executed in connection
herewith.
“Earnout
Period”
means
the first eight (8) full calendar quarters following the Closing
Date.
“EBITDA”
means
earnings before interest, taxes, depreciation and amortization, in each case,
computed in accordance with GAAP.
3
“Employee
Plans”
means
all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock or other security option, stock or other security purchase, stock or
other
security appreciation rights, incentive, deferred compensation, retirement
or
supplemental retirement, severance, golden parachute, vacation, cafeteria,
dependent care, medical care, employee assistance program, education or tuition
assistance programs, insurance and other similar fringe or employee benefit
plans, programs or arrangements, and any current or former employment or
executive compensation or severance agreements, written or otherwise, which
have
ever been sponsored or maintained or entered into for the benefit of, or
relating to, any present or former employee or director of Capital Partners,
the
Predecessor Entity, any Capital Partners Subsidiary or any trade or business
(whether or not incorporated) which is a member of a controlled group or which
is under common control with Capital Partners, within the meaning of Section
414
of the Code (an “ERISA
Affiliate”),
whether or not such plan is terminated.
“Environmental
Law”
means
any Law or Regulation pertaining to: (a) the protection of health, safety and
the indoor or outdoor environment; (b) the conservation, management or use
of
natural resources and wildlife; (c) the protection or use of surface water
and
ground water; (d) the management, manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, emission, discharge,
release, threatened release, abatement, removal, remediation or handling of,
or
exposure to, any Hazardous Substance; or (e) pollution (including any emission,
discharge or release to air, land, surface water and ground water of any
material); and includes, without limitation, CERCLA and the Solid Waste Disposal
Act, as amended 42 U.S.C. § 6901 et seq.
“Environmental
Permits”
means
all Permits required under any Environmental Law.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended.
“GAAP”
means
United States generally accepted accounting principles and practices in effect
from time to time consistently applied.
“Governmental
Authority”
means
any governmental or legislative agency or authority (other than a Court) of
the
United States, any domestic state, or any foreign country, and any political
subdivision or agency thereof, and includes any authority having governmental
or
quasi-governmental powers, including any administrative agency or
commission.
“Hardware”
means
all mainframes, midrange computers, personal computers, notebooks, servers,
switches, printers, modems, drives, peripherals and any component of any of
the
foregoing.
“Hazardous
Substance”
means
any Hazardous Substance, as defined in CERCLA, and any other chemical, compound,
product, solid, gas, liquid, pollutant, contaminant or material which is
regulated under any Environmental Law, and includes without limitation, asbestos
or any substance containing asbestos, polychlorinated biphenyls and petroleum
(including crude oil or any fraction thereof).
4
“Health
Clubs”
shall
mean the nine (9) Health Clubs currently operated by one of the Capital Partners
Subsidiaries and the additional Health Club expected to open for business in
approximately 90 to 180 days from the date hereof. The location of each of
the
ten (10) Health Clubs is described on Schedule
4.10(b),
attached hereto.
“HIPAA”
means
the provisions of the Code and ERISA enacted by the Health Insurance Portability
and Accountability Act of 1996.
“HPI
Common Stock”
means
Common Stock, $.0001 par value per share, of HPI.
“HPI
Offering”
means
the current offering of HPI Common Stock for $1.25 per share.
“Indebtedness”
means,
with respect to any Person, (a) all indebtedness of such Person, whether or
not
contingent, for borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services, (c) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments,
(d)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of Capital Partners, a Capital Partners
Subsidiary or a lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all obligations of such Person
as
lessee under leases that have been or should be, in accordance with GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights
or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly
by
such Person through an agreement (1) to pay or purchase such Indebtedness or
to
advance or supply funds for the payment or purchase of such Indebtedness, (2)
to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment
of
such Indebtedness or to assure the holder of such Indebtedness against loss,
(3)
to supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (4) otherwise to assure a creditor
against loss and all Indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.
“Information
System”
means
any combination of Hardware, Software and/or Database(s) employed primarily
for
the creation, manipulation, storage, retrieval, display and use of information
in electronic form or media.
5
“Intellectual
Property”
means
(a) inventions, whether or not patentable, whether or not reduced to practice
or
whether or not yet made the subject of a pending Patent application or
applications, (b) ideas and conceptions of potentially patentable subject
matter, including, without limitation, any patent disclosures, whether or not
reduced to practice and whether or not yet made the subject of a pending Patent
application or applications, (c) Patents, (d) Trademarks, (e) Copyrights, (f)
Software, (g) trade secrets and confidential, technical or business information
(including ideas, formulas, compositions, inventions, and conceptions of
inventions whether patentable or unpatentable and whether or not reduced to
practice), (h) whether or not confidential, technology (including know-how
and
show-how), manufacturing and production processes and techniques, research
and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and business data,
Databases, Information Systems, pricing and cost information, business and
marketing plans and customer and supplier lists and information, (i) copies
and
tangible embodiments of all the foregoing, in whatever form or medium, (j)
all
rights to obtain and rights to apply for Patents, and to register Trademarks
and
Copyrights, (k) all rights under the License Agreements and any licenses,
registered user agreements, technology or materials, transfer agreements, and
other agreements or instruments with respect to items in (a) to (j) above;
and
(l) all rights to xxx and recover and retain damages and costs and attorneys’
fees for present and past infringement of any of the Intellectual Property
rights hereinabove set out.
“Inventories”
means
all inventories, including, without limitation, merchandise, raw materials,
work-in-process, finished goods, replacement parts, packaging, office supplies,
maintenance supplies, computer parts and supplies and Hardware related to the
Business maintained, held or stored by or for Capital Partners or any Capital
Partners Subsidiary at any location whatsoever and any prepaid deposits for
any
of the same.
“IRS”
shall
mean the United States Internal Revenue Service.
“Xxxxxx
Separation Agreement”
means
that certain Settlement and Release Agreement dated October 2005 among Xxxxxx
Xxxxxx, Xxxxxxx Xxxx and the Predecessor Entity.
“Knowledge”
means
(a) in the case an individual, knowledge of a particular fact or other matter
if
such individual is actually aware of such fact or other matter, and (b) in
the
case of a Person (other than an individual) such Person will be deemed to have
Knowledge of a particular fact or other matter if any individual who is serving,
or has at any time served, as a director, officer, partner, executor, or trustee
of such Person or of a Subsidiary of such Person (or in any similar capacity)
has, or at any time had, Knowledge of such fact or other matter. The knowledge
of Xxxxxx Xxxxxx shall not be attributed to a Person unless otherwise known
to
such Person.
“Law”
means
all laws, statutes, ordinances and Regulations of any Governmental Authority
including all decisions of Courts having the effect of law in each such
jurisdiction.
“Leased
Real Property”
means
the real property leased by Capital Partners or a Capital Partners Subsidiary
as
tenant, together with, to the extent leased by Capital Partners or a Capital
Partners Subsidiary all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of Capital Partners or a Capital
Partners Subsidiary attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing.
6
“Liabilities”
means
any and all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or determinable,
including, without limitation, those arising under any Law (including, without
limitation, any Environmental Law), Action or Order, Liabilities for Taxes
and
those Liabilities arising under any Contract.
“Liens”
means
any mortgage, pledge, security interest, attachment, encumbrance, lien
(statutory or otherwise), option, conditional sale agreement, right of first
refusal, first offer, termination, participation or purchase, or charge of
any
kind (including any agreement to give any of the foregoing), provided, however,
that the term “Lien” shall not include: (a) Liens for Taxes, assessments and
charges of any Governmental Authority due and being contested in good faith
and
diligently by appropriate proceedings (and for the payment of which adequate
provision has been made); (b) servitudes, easements, restrictions, rights-of-way
and other similar rights in real property or any interest therein, provided
the
same are not of such nature as to materially adversely affect the use of the
property subject thereto; (c) Liens for Taxes either not due and payable or
due
but for which notice of assessments has not been given; (d) undetermined or
inchoate Liens, charges and privileges incidental to current construction or
current operations and statutory Liens, charges, adverse claims, security
interests or encumbrances of any nature whatsoever claimed or held by any
Governmental Authority which have not at the time been filed or registered
against the title to the asset or served upon Capital Partners or a Capital
Partners Subsidiary pursuant to Law or which relate to obligations not due
or
delinquent; (e) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease, and Liens or rights reserved
in
any lease for rent or for compliance with the terms of such lease; (f) security
given in the ordinary course of the Business, as applicable, to any public
utility, municipality or Government Authority in connection with the operations
of the Business, as applicable, other than security for borrowed money; (g)
deposits or pledges made in connection with, or to secure payment of, workers’
compensation, unemployment insurance, old age pension or other social security
programs mandated under applicable Laws; and (h) restrictions on transfer of
securities imposed by applicable state and federal securities Laws.
“Litigation”
means
any suit, action, arbitration, cause of action, claim, complaint, criminal
prosecution, investigation, inquiry, demand letter, governmental or other
administrative proceeding, whether at law or at equity, before or by any Court,
Governmental Authority, arbitrator or other tribunal.
“Material
Adverse Effect”
means
any circumstance, change in, or effect on, the Business, Capital Partners or
a
Capital Partners Subsidiary that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the Business, Capital Partners
or a Capital Partners Subsidiary: (a) is, or could be, materially adverse to
the
business, operations, assets or Liabilities (including, without limitation,
contingent Liabilities), employee relationships, customer or supplier
relationships, results of operations or the condition (financial or otherwise)
of the Business, or (b) could materially adversely affect the ability of Capital
Partners Surviving Corporation or the Capital Partners Subsidiaries to operate
or conduct the Business in the manner in which it is currently operated or
conducted, or contemplated to be conducted.
“Members”
means
the existing members of any of the Health Clubs.
7
“Membership
Contracts”
means
the agreements evidencing the membership relationship between an individual
Member on the one hand, and Capital Partners or a Capital Partners Subsidiary
on
the other hand.
“Order”
shall
mean any judgment, order, writ, injunction, ruling, stipulation, determination,
award or decree of or by, or any settlement under the jurisdiction of, any
Court
or Governmental Authority.
“Owned
Real Property”
means
the real property owned by Capital Partners or a Capital Partners Subsidiary,
together with all buildings and other structures, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment and
items of personal property of Capital Partners or a Capital Partners Subsidiary
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
“Patents”
mean
all national (including the United States) and multinational statutory invention
registrations, patents, patent registrations and patent applications, including
all reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations, and all rights therein provided by multinational treaties or
conventions and all improvements to the inventions disclosed in each such
registration, patent or application.
“Payment
to Capital Partners”
means
the portion of the Bridge Loan paid to Capital Partners in order to fund a
settlement payment to Xxxxxx Xxxxxx. The amount of the Payment to Capital
Partners is $300,000.
“Permits”
means
any licenses, permits, pending applications, consents, certificates,
registrations, approvals and authorizations.
“Person”
means
any natural person, corporation, limited liability company, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or any other entity.
“Real
Property”
means
the Leased Real Property and the Owned Real Property.
“Receivables”
means
any and all accounts receivable, notes, book debts and other amounts due or
accruing due to Capital Partners or a Capital Partners Subsidiary in connection
with the Business whether or not in the ordinary course, together with any
unpaid financing charges accrued thereon and the benefit of all security for
such accounts, notes and debts.
“Regulation”
means
any rule or regulation of any Governmental Authority.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Shareholders”
means
Xxxxxxx Xxxx and Xxxxxx Xxxxx, the sole shareholders of Capital
Partners.
8
“Software”
means
any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code
or object code, (b) databases and compilations, including any and all data
and
collections of data, whether machine readable or otherwise, (c) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of Capital Partners or a Capital Partners Subsidiary
and (e) all documentation, including user manuals and training materials,
relating to any of the foregoing.
“Subsidiary”
or “Subsidiaries”
of
a
specified Person means any other Person in which such Person owns, directly
or
indirectly, more than 50% of the outstanding voting securities or other
securities convertible into voting securities, or which may effectively be
controlled, directly or indirectly, by such Person.
“Tax”
or
“Taxes”
means
any and all federal, state, local, or foreign taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or other taxing
authority, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, disability, social
security, workers’ compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs’ duties, tariffs, and similar charges, whether computed on a
separate or consolidated, unitary or combined basis or in any other manner,
whether disputed or not and including any obligation to indemnify or otherwise
assume or succeed to the Tax liability of any other Person, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority.
“Tax
Returns”
means
returns, reports and information statements, including any schedule or
attachment thereto, with respect to Taxes required to be filed with the IRS
or
any other Governmental Authority or other taxing authority or agency, domestic
or foreign, including consolidated, combined and unitary tax
returns.
“Trademarks”
mean
all trademarks, service marks, trade dress, logos, trade names and corporate
names, whether or not registered, including all common law rights, and
registrations and applications for registration thereof, including, but not
limited to, all marks registered in the United States Patent and Trademark
Office, the Trademark Offices of the States and Territories of the United States
of America, and the Trademark Offices of other nations throughout the world,
and
all rights therein provided by multinational treaties or
conventions.
“Web
Sites”
means
all websites, domain names, and associated internet properties, rights, titles
and interests in any way directly or indirectly used in or associated with
the
Business, including but not limited to those certain web sites and domain names
set forth on Schedule 8.2,
attached hereto.
9
“Working
Capital Infusion”
means
the portion of the proceeds from the Bridge Loan, if any, used by Capital
Partners for working capital. The Working Capital Infusion shall be equal to
the
total amount of the Bridge Loan, including all accrued and unpaid interest
thereon, less the amount of the Payment to Capital Partners.
ARTICLE
II
THE
MERGER
2.1 The
Merger
.
At the
Effective Time (as hereinafter defined), in accordance with the laws of the
State of North Carolina and the terms and conditions of the Documents, Capital
Partners Mergeco shall be merged with and into Capital Partners. Pursuant to
the
Reverse Merger, Capital Partners shall continue to exist as the surviving
corporation and the separate corporate existence of Capital Partners Mergeco
shall cease. Immediately following the Reverse Merger, in accordance with the
laws of the State of North Carolina and the terms and conditions of the
Documents, Capital Partners shall be merged with and into Capital Partners
Acquisitionco (the “Forward
Merger”
and
together with the Reverse Merger, the “Merger”).
From
and after the Effective Time, the separate corporate existence of Capital
Partners shall cease and Capital Partners Acquisitionco, as the surviving
corporation in the Merger, shall continue its existence under the laws of the
State of North Carolina as a wholly owned subsidiary of HPI. Capital Partners
Acquisitionco, as the surviving corporation after the Merger, is hereinafter
sometimes referred to as the “Capital
Partners Surviving Corporation.”
The
parties intend the Merger (i.e., the Reverse Merger and the Forward Merger
taken
together as a single transaction) to be treated as a tax-free reorganization
pursuant to Section 368(a)(2)(D) of the Code and Revenue Ruling 2001-46, 2001-2
C. B. 321; provided,
however,
that if
the Merger is held not to qualify as a tax-free reorganization, the parties
intend the Reverse Merger and the Forward Merger to be treated as separate
transactions for income tax purposes not subject to the “step-transaction
doctrine” pursuant to Revenue Ruling 90-95, 1990-2 C.B. 67.
2.2 Effective
Time
.
Subject
to the provisions of this Agreement, on the Closing Date (as hereinafter
defined) or as soon thereafter as is practicable the Parties shall cause each
of
the Forward Merger and the Reverse Merger to become effective by executing
and
filing with the office of the North Carolina Secretary of State, in accordance
with the North Carolina Business Corporation Act, the Articles of Merger, in
the
forms required pursuant to Section 55-11-05 of the North Carolina Business
Corporation Act (the “North
Carolina BCA”),
which
forms shall be prepared by counsel to Capital Partners and HPI, and attached
hereto as Exhibit
2.2
and made
a part hereof (the “Articles
of Merger”),
the
date and time of such filings, or such later date and time as may be agreed
upon
by the Parties and specified therein, being hereinafter referred to as the
“Effective
Time.”
The
parties hereto shall use their best efforts to pre-clear the Forward Merger
and
the Reverse Merger with the Secretary of State of the State of North Carolina
in
order that on the Closing Date, the Articles of Merger may be filed with the
Secretary of State of the State of North Carolina and become effective upon
filing.
2.3 Effect
of
the Merger
.
At the
Effective Time, the Merger shall have the effect set forth in the Documents
and
in the applicable provisions of law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all of the assets,
properties, rights, privileges, immunities, powers and franchises of Capital
Partners, Capital Partners Mergeco and Capital Partners Acquisitionco shall
vest
in the Capital Partners Surviving Corporation, and all of the debts, liabilities
and duties of Capital Partners, Capital Partners Mergeco and Capital Partners
Acquisitionco shall become the debts, liabilities and duties of the Capital
Partners Surviving Corporation.
10
2.4 Articles
of Incorporation and Bylaws
.
From
and after the Effective Time and without further action on the part of the
Parties, the Articles of Incorporation and Bylaws of Capital Partners
Acquisitionco immediately prior to the Effective Time shall be the Articles
of
Incorporation and Bylaws of Capital Partners Surviving Corporation until amended
in accordance with the respective terms thereof.
2.5 Directors
and Officers
.
(a) The
directors of Capital Partners Surviving Corporation shall be those persons
set
forth on Exhibit
2.5(a)
each to
hold office in accordance with the Articles of Incorporation and the Bylaws
of
Capital Partners Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with Capital Partners Surviving
Corporation’s Articles of Incorporation and Bylaws.
(b) The
directors of HPI immediately following the Closing Date shall consist of Xxxxxx
Xxxxxx, Xxxxxxx Xxxxxx and Xxx Xxxxxxxxx. Each of the Shareholders agrees to
deliver on the Closing Date the form of irrevocable proxy attached as
Exhibit
2.5(b)
to
Xxxxxx Xxxxxx, and HPI agrees to use its best efforts to add the following
persons to the board of directors of HPI as soon as permitted under Rule 14f-1
of the Securities & Exchange Act of 1934: Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxxxx,
Xxxxxxx Xxxxxxx and three additional persons designated by Xxxxxx Xxxxxx in
writing. Xxxxxx Xxxxxx has agreed to accept appointment by the board of
directors of HPI as its chairman and chief executive officer and either Xx.
Xxxxxx or Xx. Xxxxxxxxx is expected to accept appointment by the board of
directors as the vice chairman of HPI.
11
2.6 Conversion
of Stock, Etc
.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
the Parties or the holders of the following securities: All of the shares of
Capital Partners’ common stock (“Capital
Partners Common Stock”)
issued
and outstanding immediately prior to the Effective Time and all legal or
beneficial rights to participate in any fashion in the economic benefits of
ownership of Capital Partners - other than any shares of Capital Partners Common
Stock that are to be canceled and retired pursuant to Section
2.7,
and
other than any options, warrants and other contractual or other rights to
purchase or otherwise acquire or convert into Capital Partners Common Stock
that
are to be canceled and retired pursuant to Section
2.8
-
(“Capital
Partners Shares”)
shall
be converted automatically into the right to receive, in the aggregate: (i)
Six
Million Nine Hundred Ninety-Two Thousand Eight Hundred Fifty-Nine Dollars
($6,992,859) in cash (the “Cash
Consideration”),
and
(ii) Three Million Four Hundred Ninety-Six Thousand Four Hundred Thirty
(3,496,430) shares of HPI Common Stock (the “Stock
Consideration”),
and
(iii) the Earnout defined in Section
9.1,
if
earned (the “Earnout
Consideration”
and
together with the Cash Consideration and the Stock Consideration, the
“Merger
Consideration”),
subject to adjustment as set forth in Section
2.10.
As of
the Effective Time, all shares of Capital Partners capital stock shall
automatically be redeemed and canceled, and from and after the Effective Time,
shall cease to exist, and each holder of a certificate that previously
represented any such share of Capital Partners capital stock (collectively,
the
“Capital
Partners Certificates”)
shall
cease to have any rights with respect thereto other than the right to receive,
if any, their portion of the Merger Consideration. The foregoing Merger
Consideration shall be deemed to have been issued in full satisfaction of all
rights pertaining to the Capital Partners Shares, and after the Effective Time,
there shall be no further registration or transfers of Capital Partners Shares.
If after the Effective Time, any Capital Partners Certificates are presented
to
Capital Partners Surviving Corporation for any reason, they shall be cancelled
and exchanged as provided in this Section
2.6.
If any
Capital Partners Certificates representing Capital Partners Shares shall have
been lost, stolen or destroyed, HPI shall pay the applicable Merger
Consideration in exchange for such lost, stolen or destroyed certificates,
upon
the making of an affidavit of such loss by the holder thereof. In addition
to
the affidavit, HPI may in its discretion and as a condition precedent to the
payment of the applicable Merger Consideration, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against HPI
or
Capital Partners Surviving Corporation with respect to the certificates alleged
to have been lost, stolen or destroyed. Notwithstanding anything to the contrary
contained herein, the parties hereto agree that no portion of the Cash
Consideration is required to be paid at the Closing. The parties shall proceed
with the mergers contemplated by this Section
2.6
provided
that HPI agrees to continue with the HPI Offering following the Closing and
provided further that it delivers to each of the Shareholders a promissory
note
from HPI in the principal amount of such Shareholder’s respective portion of the
Cash Consideration, including any cash to be issued in lieu of fractional shares
if HPI determines not to issue fractional shares as part of the Stock
Consideration (the “Shareholder
Notes”).
The
Shareholder Notes shall mature on the earlier of June 30, 2006 or such time
as HPI shall have raised capital sufficient to fund the entire amount of the
Cash Consideration (the “Maturity
Date”).
The
Shareholder Notes shall accrue simple interest at the rate of five percent
(5%)
per annum for the first sixty (60) days after the Closing Date and after such
sixtieth (60th)
day
through the Maturity Date, shall accrue simple interest at the rate of ten
percent (10%) per annum. The Shareholder Notes shall provide for payment of
principal plus all accrued interest on the Maturity Date and shall entitle
HPI
to offset any claims for indemnification against a Shareholder under this
Agreement against payments due to such Shareholder under the Shareholder Notes.
Finally, the Shareholder Notes shall provide that in the event Xxxxxx Xxxxxxx
purchases up to $1,000,000 of HPI Common Stock as part of the HPI Offering,
the
Shareholders shall be entitled to put to HPI, at a put price specified in the
Shareholder Notes, up to that number of shares of HPI Common Stock as would
cumulatively total the subscription amount received by HPI from Xxxxxx
Xxxxxxx.
12
2.7 Cancellation
of Shares
.
Immediately prior to the Effective Time, each share of Capital Partners Common
Stock either held in Capital Partners’ treasury or owned by any direct or
indirect wholly-owned subsidiary of Capital Partners immediately prior to the
Effective Time, shall be canceled and extinguished without any conversion
thereof or payment therefor.
2.8 Stock
Options; Warrants
.
Prior
to the Effective Time, Rohm, at Rohm’s sole expense, shall take all actions
necessary to cause all capital stock of Capital Partners other than the Capital
Partners Common Stock held by the Shareholders and being exchanged for the
Merger Consideration in accordance with Section
2.6,
and all
options, warrants and other contractual or other rights to purchase or otherwise
acquire or convert into Capital Partners Common Stock, to be cancelled,
extinguished and terminated.
2.9 Capital
Stock of Acquisitionco
.
Each
share of common stock of Capital Partners Acquisitionco (“Capital
Partners Acquisitionco Common Stock”)
issued
and outstanding immediately prior to the Effective Time shall be converted
automatically into one fully paid and non-assessable share of common stock
of
the Capital Partners Surviving Corporation. From and after the Effective Time,
each stock certificate of Capital Partners Acquisitionco that previously
represented shares of Capital Partners Acquisitionco Common Stock shall evidence
ownership of an equal number of shares of common stock of the Capital Partners
Surviving Corporation.
2.10 Adjustments
to the Consideration
.
Without
limiting any other provision of this Agreement:
(a) If
and in
the event that on the Closing Date any of the following shall have occurred,
then the Cash Consideration shall be adjusted downward dollar-for-dollar, by
the
amount necessary to remedy the following:
(1) The
amount of current assets minus current liabilities of Capital Partners is less
at the Closing Date than as set forth on the September 30, 2005 balance sheet
of
the Predecessor Entity included within the Interim Financial Statements
(i.e.,
the
Cash Consideration reduction will equal the amount necessary to bring the
current assets minus current liabilities differential to be equal as of the
Closing Date to that on September 30, 2005);
(2) The
Stockholders’ Deficit of Capital Partners as of the Closing Date is greater than
the Stockholders’ Deficit as set forth on the September 30, 2005 balance sheet
of the Predecessor Entity included within the Interim Financial Statements
(i.e.,
the
Cash Consideration reduction will equal the amount of the increase in the
Stockholders’ Deficit for such period); and
(3) Any
of
the following two entries on the balance sheet of the Predecessor Entity
included within the Interim Financial Statements have not been paid in full
with
cash proceeds provided by Rohm or his designees on behalf of the obligor to
the
Predecessor Entity or Capital Partners (with no obligation of the Predecessor
Entity or Capital Partners to repay any of the funds so provided): Related
Party
Receivables - $206,700; and Advances to Stockholders: $129,800 (i.e.,
the
Cash Consideration reduction in an amount to eliminate the above receivables
and
advances).
13
To
the
extent a Cash Consideration reduction per subparagraph (1), (2) or (3) is made,
then the value of such reduction shall be credited toward computation of the
test in the other subparagraphs.
(b) Intentionally
Omitted.
(c) The
Cash
Consideration shall be adjusted downward, dollar-for-dollar, by the amount
of
any cash or other assets taken out of Capital Partners by the Shareholders
after
September 30, 2005, other than expense reimbursements or salaries based upon
annualized rates of $200,000 for Rohm and $50,000 for Xxxxx, respectively,
or
any Payment to Capital Partners.
(d) The
Stock
Consideration shall be adjusted, at any time and from time to time prior to
the
Closing Date, to fully reflect the effect of any stock split, reverse split,
stock dividend (including, without limitation, any dividend or distribution
of
securities convertible into HPI Common Stock), reorganization, recapitalization
or other like change with respect to HPI Common Stock effective between the
date
of this Agreement and the Closing Date.
(e) The
Cash
Consideration shall be reduced by the amount of the unpaid balance of the Bridge
Loan, including all principal and interest as of the Closing Date.
2.11 Taking
of
Necessary Action; Further Action
.
If, at
any time and from time to time after the Effective Time, any further action
is
necessary or desirable to carry out the purposes of this Agreement and to vest
in the Capital Partners Surviving Corporation full right, title and possession
of all properties, assets, rights, privileges, powers and franchises of Capital
Partners, Capital Partners Mergeco and Capital Partners Acquisitionco, the
officers and directors of Capital Partners and the Capital Partners Surviving
Corporation shall be and are fully authorized and directed, in the name of
and
on behalf of their respective corporations, to take, or cause to be taken,
all
such lawful and necessary action as is not inconsistent with this Agreement.
HPI
shall cause the Capital Partners Merger Subs to perform all of their obligations
relating to this Agreement and the transactions contemplated
hereby.
ARTICLE
III
CONSIDERATION;
CLOSING
3.1 Consideration.
(a) As
consideration for the Merger, the Shareholders shall be entitled to receive
the
Merger Consideration as set forth in Section
2.6
attached
hereto, as adjusted pursuant to Section
2.10
hereof.
(b) All
certificates representing HPI Common Stock issued pursuant to this Agreement
shall bear a legend stating that such HPI Common Stock has not been registered
under the Securities Act, and may not be transferred or sold without such
registration or an exemption therefrom.
14
3.2 Closing
.
Subject
to the terms and conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the “Closing”)
shall
take place at the offices of Xxxxxxx & Xxxxxxxx Ltd., 000 X. Xxxxxx Xxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxxxxx, 00000 at 9:30 A.M. CST on February 13, 2006,
or
at such other place or time or on such other date as the Parties may agree
upon
in writing (the day on which the Closing takes place being the “Closing
Date”).
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF
THE
SHAREHOLDERS AND CAPITAL PARTNERS
The
Capital Partners Disclosure Schedule attached hereto (the “Disclosure
Schedule”)
identifies by Section and Subsection any exception to a representation or
warranty in this Article
IV.
In
order to induce HPI and the Capital Partners Merger Subs (together, the
“HPI
Entities”)
to
enter into this Agreement and to consummate the transactions contemplated
hereby, the Shareholders and Capital Partners each hereby jointly and severally
represent and warrant to each of the HPI Entities as follows:
4.1 Organization
and Qualification
.
Capital
Partners is a corporation duly organized, validly existing and in good standing
under the laws of State of North Carolina, and is duly licensed or qualified
to
transact business as a foreign corporation and is in good standing in each
of
the jurisdictions listed on Schedule
4.1,
such
jurisdictions being the only jurisdictions in which the failure to be so
licensed or qualified could have a Material Adverse Effect on Capital Partners.
Each of the Capital Partners Subsidiaries is a corporation or limited liability
company duly organized, validly existing and in good standing under the laws
of
the State of North Carolina, and is not required to be licensed or qualified
to
transact business in any other jurisdiction. All of the issued and outstanding
shares of Capital Partners’ capital stock were issued in compliance in all
material respects with all applicable federal and state securities laws and
are
owned solely by the Shareholders.
4.2 Subsidiaries
and Affiliates
.
Except
for the Capital Partners Subsidiaries listed on Schedule
4.2,
Capital
Partners does not have any Subsidiaries, and, except as described on
Schedule
4.2,
Capital
Partners does not own, directly or indirectly, any equity or other ownership
interests of any Person. Except under this Agreement, Capital Partners has
no
obligation to purchase any interest, or make any investment, in any Person.
All
of the capital stock, membership interests or other equity interests of each
Capital Partners Subsidiary were issued in compliance in all material respects
with all applicable federal and state securities laws. Capital Partners owns
all
of the equity interests of each Capital Partners Subsidiary.
4.3 Charter,
By-Laws and Corporate Records.
(a) True,
correct and complete copies of each of (i) the Articles of Incorporation of
Capital Partners as amended and in effect on the date hereof, (ii) the By-Laws
of Capital Partners as amended and in effect on the date hereof, and (iii)
the
minute books of Capital Partners, have been previously made available to the
HPI
Entities. Such minute books contain complete and accurate records of all
meetings and other corporate actions of the board of directors, committees
of
the board of directors, incorporators and stockholders of Capital Partners
from
the date of its incorporation to the date hereof.
15
(b) True,
correct and complete copies of each of (i) the Articles of Incorporation,
Articles of Organization or similar instrument of each Capital Partners
Subsidiary, as amended and in effect on the date hereof, (ii) the By-laws,
Operating Agreement or Limited Liability Company Agreement of each Capital
Partners Subsidiary, as amended and in effect on the date hereof, and (iii)
the
minute books of any Capital Partners Subsidiary or any resolutions or other
minutes of such Capital Partners Subsidiary, have been previously made available
to the HPI Entities. The minute books and resolutions contain complete and
accurate records of all meetings and other corporate or limited liability
company actions of the board of directors, committees of the board of directors,
managers, members, incorporators and stockholders of such Capital Partners
Subsidiary from its date of formation to the date hereof.
4.4 Authorization;
Enforceability
.
Capital
Partners and each Capital Partners Subsidiary has the corporate or limited
liability company power and authority to own, hold, lease and operate its
respective properties and assets and to carry on its respective business as
currently conducted. Capital Partners has the corporate power and authority
to
execute, deliver and perform this Agreement and the other Documents to which
it
is a party. The execution, delivery and performance of this Agreement and the
other Documents to which Capital Partners, or any of the Shareholders is a
party
and the consummation of the transactions contemplated herein and therein have
been duly authorized and approved by Capital Partners, and by each of the
Shareholders, and no other action on the part of Capital Partners, or any of
the
Shareholders is necessary in order to give effect thereto. This Agreement and
each of the other Documents to be executed and delivered by Capital Partners,
and by each of the Shareholders, have been duly executed and delivered by,
and
constitute the legal, valid and binding obligations of, Capital Partners and
each of the Shareholders, respectively, enforceable against Capital Partners
and
each of the Shareholders in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors’ rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought.
4.5 No
Violation or Conflict
.
Except
as provided in Schedule
4.5,
none of
(a) the execution and delivery by Capital Partners, or any of the Shareholders
of this Agreement and the other Documents to be executed and delivered by
Capital Partners or any of the Shareholders, (b) the consummation by Capital
Partners or any of the Shareholders of the transactions contemplated by this
Agreement and the other Documents, or (c) the performance of this Agreement
and
the other Documents required by this Agreement to be executed and delivered
by
Capital Partners or any of the Shareholders at the Closing, will (1) conflict
with or violate the Articles of Incorporation or By-Laws of Capital Partners
or
the Articles of Incorporation, Articles of Organization, By-laws, Operating
Agreement or similar instrument for any of the Capital Partners Subsidiaries,
(2) conflict with or violate any Law, Order or Permit applicable to Capital
Partners, the Shareholders or any Capital Partners Subsidiary, or by which
Capital Partners’ or any Capital Partners Subsidiary’s properties is bound or
affected, or (3) result in any breach or violation of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair Capital Partners’ or any Capital Partners Subsidiary’s rights
or alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of any Lien on any of the properties or assets of Capital
Partners or any Capital Partners Subsidiary pursuant to, any Contract, Permit
or
other instrument or obligation to which Capital Partners or any Capital Partners
Subsidiary is a party or by which Capital Partners or any Capital Partners
Subsidiary or their respective properties are bound or affected except, in
the
case of clause (2) or (3) above, for any such conflict, breach, violation,
default or other occurrence that would not individually or in the aggregate,
have a Material Adverse Effect on Capital Partners or any Capital Partners
Subsidiary.
16
4.6 Governmental
Consents and Approvals
.
The
execution, delivery and performance of this Agreement and the other Documents
by
Capital Partners and the Shareholders do not and will not require any consent,
approval, authorization, Permit or other order of, action by, filing with or
notification to, any Governmental Authority.
4.7 Capital
Structure
.
The
authorized capital stock of Capital Partners consists of 100,000 shares of
Capital Partners Common Stock. As of the date hereof, 1,066 shares of Capital
Partners Common Stock are issued and outstanding, all of which are owned solely
by the Shareholders free and clear of all Liens, and no shares of Capital
Partners Common Stock are held in treasury. Except as described above, there
will be no shares of voting or non-voting capital stock, equity interests or
other securities of Capital Partners authorized, issued, reserved for issuance
or otherwise outstanding at the Closing. All of the outstanding shares of
Capital Partners Common Stock are duly authorized, validly issued, fully paid
and non-assessable, and not subject to, or issued in violation of, any kind
of
preemptive, subscription or any kind of similar rights. There are no bonds,
debentures, notes or other Indebtedness of Capital Partners having the right
to
vote (or convertible into securities having the right to vote) on any matters
on
which stockholders of Capital Partners may vote. There are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind (contingent or otherwise) to which
Capital Partners or any Capital Partners Subsidiary is a party or bound
obligating Capital Partners or such Capital Partners Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of
capital stock or other voting securities of Capital Partners or such Capital
Partners Subsidiary or obligating Capital Partners or such Capital Partners
Subsidiary to issue, grant, extend or enter into any agreement to issue, grant
or extend any security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking that will survive the Closing. There are no
outstanding contractual obligations of Capital Partners or any Capital Partners
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock (or options to acquire any such shares) or other security or equity
interest of Capital Partners or such Capital Partners Subsidiary which will
survive the Closing.
4.8 Financial
Statements.
(a) Attached
hereto as Schedule
4.8
are
copies of the audited consolidated balance sheet of the Predecessor Entity
and
the Capital Partners Subsidiaries as of December 31, 2003 and December 31,
2004,
together with, in each case, the related consolidated statements of operations
and the consolidated statements of changes in stockholders equity and the
consolidated statements of cash flow, for the year ended on such dates
(collectively, the “Annual
Financial Statements”).
The
Annual Financial Statements are correct and complete and in accordance with
the
books and records of the Predecessor Entity and the Capital Partners
Subsidiaries and fairly present, in accordance with GAAP, in all material
respects the financial condition of the Predecessor Entity and the Capital
Partners Subsidiaries as of the dates indicated therein and accurately reflect
in the aggregate all material aspects of the Business.
(b) Also
attached hereto as Schedule
4.8
is a
copy of the unaudited consolidated balance sheet of the Predecessor Entity
and
the Capital Partners Subsidiaries for the nine month period ended as of
September 30, 2005, together with, in each case, the related consolidated
statement of operations (unaudited), the consolidated statement of changes
in
stockholders’ equity (unaudited) and the consolidated statement of cash flows
(unaudited) for the period ended September 30, 2005 (collectively, the
“Interim
Financial Statements”
and,
together with the Annual Financial Statements, the “Financial
Statements”).
The
Interim Financial Statements are correct and complete and in accordance with
the
books and records of the Predecessor Entity and the Capital Partners
Subsidiaries and fairly present, in accordance with GAAP, in all material
respects the financial condition of the Predecessor Entity and the Capital
Partners Subsidiaries as of the dates indicated therein, are complete and
correct in all material respects and accurately reflect any and all material
aspects of the Business. The Financial Statements have been prepared and contain
the information required by applicable rules and regulations of the Securities
and Exchange Commission.
17
4.9 Conduct
in the Ordinary Course; Absence of Changes
.
Since
September 30, 2005, except as permitted by Section
6.4(a)
and
Article
VIII
and
except as disclosed in the Disclosure Schedule, the Business has been conducted
in the ordinary course of business, consistent with past practice, and there
has
been no change in the Business which has had, or could reasonably be anticipated
to have a Material Adverse Effect on Capital Partners or any of the Capital
Partners Subsidiaries.
4.10 Real
Property.
(a) Capital
Partners and its Capital Partners Subsidiaries own no real estate.
(b) Schedule
4.10(b)
lists
(1) the street address of each parcel of Leased Real Property, (2) the identity
of the lessor, lessee and current occupant (if different from lessee) of each
such parcel of Leased Real Property, and (3) the term and rental payment terms
of the leases (and any subleases) pertaining to each such parcel of Leased
Real
Property. Each of the Health Clubs is the subject of one of the leases described
on Schedule
4.10(b).
(c) Capital
Partners has made available to the HPI Entities, to the extent available, for
each parcel of Leased Real Property, all title insurance policies, title
reports, surveys, certificates of occupancy, environmental reports and audits,
appraisals, other title documents and other documents relating to or otherwise
affecting the Leased Real Property, or the operation of the Business thereon
or
any other uses thereof.
(d) Capital
Partners has delivered or made available to the HPI Entities correct and
complete copies of all leases and subleases listed in Schedule
4.10(b)
and any
and all ancillary documents pertaining thereto (including, but not limited
to,
all amendments, consents for alterations and documents recording variations
and
evidence of commencement dates and expiration dates) (the “Leases”).
With
respect to each such Lease:
(1) such
Lease is legal, valid, binding, enforceable and in full force and effect, except
as such enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors’ rights generally and except that
the availability of equitable remedies is subject to the discretion of the
court
before which any proceeding therefor may be brought, and represents the entire
agreement between the respective landlord and tenant with respect to such
property;
(2) such
Lease, together with the consent and/or estoppel certificate contemplated by
Section
6.2,
will
not cease to be legal, valid, binding, enforceable and in full force and effect,
except as such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights generally and except
that the availability of equitable remedies is subject to the discretion of
the
court before which any proceeding therefor may be brought, on terms identical
to
those currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such Lease
or otherwise give the landlord or lessee a right to terminate such
Lease;
18
(3) neither
Capital Partners nor any of the Capital Partners Subsidiaries nor, to the
Knowledge of Capital Partners, any other party to such Lease, is in breach
or
default in any material respect, and, to the Knowledge of Capital Partners,
no
event has occurred that, with notice or lapse of time would constitute such
a
breach or default or permit termination, modification or acceleration under
such
Lease; and
(4) the
rental set forth in each Lease is the actual rental being paid, and there are
no
separate agreements or understandings with respect to the same.
4.11 Personal
Property.
(a) Schedule
4.11
lists
each item or distinct group of machinery, equipment, tools, supplies, furniture,
fixtures, vehicles, rolling stock and other tangible personal property used
in
the Business and owned or leased by Capital Partners or a Capital Partners
Subsidiary (the “Tangible
Personal Property”).
(b) Capital
Partners has delivered or made available to the HPI Entities correct and
complete copies of all leases for Tangible Personal Property (if any) and any
and all material ancillary documents pertaining thereto. With respect to each
of
such leases:
(1) such
lease, together with all ancillary documents delivered pursuant to the first
sentence of this Section
4.11(b),
is
legal, valid, binding, enforceable, except as such enforcement may be limited
by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought, and in full force and effect and represents the entire
agreement between the respective lessor and lessee with respect to such
property; and
(2) neither
Capital Partners nor any Capital Partners Subsidiary nor, to the Knowledge
of
Capital Partners, any other party to such lease, is in breach or default in
any
material respect, and no event has occurred that, with notice or lapse of time
would constitute such a breach or default or permit termination, modification
or
acceleration under, such lease; and
(3) such
lease will not cease to be legal, valid, binding, enforceable, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors’ rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought, and in full force and
effect on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement constitute
a
breach or default under such lease or otherwise give the lessor a right to
terminate such lease.
(c) All
Tangible Personal Property is adequate and usable for the use and purposes
for
which it is currently used, is in good operating condition, normal wear and
tear
excepted, subject to periodic maintenance and repair in accordance with good
business practice. The Tangible Personal Property owned or used by each of
the
Capital Partners Subsidiaries constitutes all of the personal property used
in,
necessary to or required for, the conduct of such Subsidiaries’ Business as
conducted on September 30, 2005 and on the Closing Date.
19
4.12 Board
Approval
.
The
Board of Directors of Capital Partners has, at a meeting duly called and held
at
which all members were present or by a unanimous written consent: (a) approved
and declared advisable this Agreement; (b) determined that the Merger and other
transactions contemplated by this Agreement are advisable, fair to and in the
best interest of Capital Partners and its stockholders; (c) resolved to
recommend to the stockholders of Capital Partners (1) the approval of the Merger
and the other transactions contemplated hereby and (2) the approval and adoption
of this Agreement; and (d) directed that this Agreement be submitted to the
stockholders of Capital Partners for their approval and adoption.
4.13 Insurance
.
Capital
Partners has furnished or made available to the HPI Entities true and complete
copies of all insurance policies and fidelity bonds covering the assets,
business, equipment, properties and operations of Capital Partners and the
Capital Partners Subsidiaries relating to the Business, a list of which (by
type, carrier, policy number, limits, premium and expiration date) is set forth
in Schedule
4.13.
All
such insurance policies are in full force and effect and will remain in full
force and effect with respect to all events occurring prior to the Effective
Time.
4.14 Permits
Schedule
4.14
lists
all Permits used in or otherwise required for the conduct of the Business.
Each
of the Permits is valid and in full force and effect.
4.15 Taxes
.
Capital
Partners and each of the Capital Partners Subsidiaries which constitutes a
corporation has been a validly electing S corporation pursuant to Sections
1361
and 1362 of the Code for all periods since its incorporation, and has been
so
classified for state purposes pursuant to analogous state provisions for the
same periods and the jurisdictions in which Capital Partners or such Capital
Partners Subsidiary does business listed on Schedule
4.15.
Except
as set forth in Schedule
4.15
hereto:
(a) All Tax Returns and reports in respect of Taxes required to be filed with
respect to Capital Partners and the Capital Partners Subsidiaries or the
Business have been timely filed; (b) all Taxes required to be shown on such
returns and reports or otherwise due have been timely paid; (c) all such returns
and reports are true, correct and complete in all material respects; (d) no
adjustment relating to such returns has been proposed formally or, to the
Knowledge of Capital Partners, informally by any Governmental Authority and,
to
the Knowledge of Capital Partners, no basis exists for any such adjustment;
(e)
there are no pending or, to the Knowledge of Capital Partners, threatened
actions or proceedings for the assessment or collection of Taxes against Capital
Partners or any Capital Partners Subsidiary or (insofar as either relates to
the
activities or income of Capital Partners or any Capital Partners Subsidiaries
or
the Business or could result in Liability of Capital Partners or a Capital
Partners Subsidiary on the basis of joint and/or several liability) any
corporation that was includible in the filing of a return with Capital Partners
or a Capital Partners Subsidiary on a consolidated or combined basis; (f) no
consent under Section 341(f) of the Code has been filed with respect to Capital
Partners or a Capital Partners Subsidiary; (g) there are no Tax Liens on any
assets of Capital Partners, or a Capital Partners Subsidiary or the Business;
(h) Capital Partners and the Capital Partners Subsidiaries have withheld and
paid all Taxes required to have been withheld and paid in connection with any
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party, and all Forms W-2 and 1099 required with
respect thereto have been properly completed and timely filed; (i) neither
Capital Partners nor any Capital Partners Subsidiary has consented to extend
the
time in which any Taxes may be assessed or collected by any taxing authority;
(j) neither Capital Partners nor any Capital Partners Subsidiary has requested
or been granted an extension of the time for filing any Tax Return to a date
later than the Closing Date; (k) there are no Liens for Taxes (other than for
current Taxes not yet due and payable) upon Capital Partners’ or any Capital
Partners Subsidiary’s assets; (l) neither Capital Partners nor any Capital
Partners Subsidiary will be required (1) as a result of a change in method
of
accounting for a taxable period ending on or prior to the Closing Date, to
include any adjustment under Section 481(c) of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Closing Date or (2) as a result
of any “closing agreement,” as described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign law), to include any item
of
income or exclude any item of deduction from any taxable period (or portion
thereof) beginning after the Closing Date; (m) neither Capital Partners nor
any
Capital Partners Subsidiary is a party to or bound by any tax allocation or
tax
sharing agreement or has any current or potential contractual obligation to
indemnify any other Person with respect to Taxes; (n) to the Knowledge of
Capital Partners there is no basis for any assessment, deficiency notice, 30-day
letter or similar notice with respect to any Tax to be issued to Capital
Partners or any Capital Partners Subsidiary with respect to any period on or
before the Closing Date; (o) neither Capital Partners nor any Capital Partners
Subsidiary have made any payments, and neither will become obligated (under
any
contract entered into on or before the Closing Date) to make any payments,
that
will be nondeductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign law); (p) neither Capital Partners nor
any
Capital Partners Subsidiary have been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code (or any
corresponding provision of state, local or foreign law) during the applicable
period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law); (q) no claim has ever been made
in
writing by a taxing authority in a jurisdiction where Capital Partners or a
Capital Partners Subsidiary does not file Tax Returns that Capital Partners
or a
Capital Partners Subsidiary is or may be subject to Taxes assessed by such
jurisdiction; (r) neither Capital Partners nor any Capital Partners Subsidiary
have any physical presence in any foreign country, as defined in the relevant
tax treaty between the United States of America and such foreign country; (s)
true, correct and complete copies of all income and sales Tax Returns filed
by
or with respect to Capital Partners and each Capital Partners Subsidiary for
the
past two (2) years have been furnished or made available to the HPI Entities;
and (t) neither Capital Partners nor any Capital Partners Subsidiary will be
subject to any Taxes pursuant to Section 1374 or Section 1375 of the Code (or
any corresponding provision of state, local or foreign law) with respect to
the
transactions contemplated by this Agreement.
20
4.16 Labor
Matters.
(a) Schedule
4.16
lists
the name, place of employment, the current annual salary rates, bonuses,
deferred or contingent compensation, pension, accrued vacation, “golden
parachute” and other like benefits paid or payable (in cash or otherwise) in
2004 and 2005, the date of employment and a description of position and job
function of each current salaried employee, officer, director, manager, member,
consultant or agent of Capital Partners and any Capital Partners
Subsidiary.
(b) Except
as
set forth in Schedule
4.16,
no
employment, consulting, severance pay, continuation pay, termination or
indemnification agreements or other similar agreements of any nature (whether
in
writing or not) exist between Capital Partners and any Capital Partners
Subsidiary, on the one hand, and any of their respective current or former
stockholders, officers, directors, members, managers, employees or consultants,
on the other hand.
(c) (1) Neither
Capital Partners nor any Capital Partners Subsidiary is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Capital Partners or such Capital Partners
Subsidiary;
(2) There
are
no controversies, strikes, slowdowns or work stoppages pending or, to the
Knowledge of Capital Partners, threatened between Capital Partners or any
Capital Partners Subsidiaries and any of their respective
employees;
(3) There
are
no unfair labor practice complaints pending against Capital Partners or any
Capital Partners Subsidiary before the National Labor Relations Board or any
other Governmental Authority or any current union representation questions
involving employees of Capital Partners or any Capital Partners
Subsidiary;
(4) Capital
Partners and the Capital Partners Subsidiaries are each currently in material
compliance with all applicable Laws relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by the appropriate
Governmental Authority and have withheld and paid to the appropriate
Governmental Authority or are holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of
Capital Partners or such Subsidiary and are not liable for any arrears of wages,
taxes, penalties or other sums for failure to comply with any of the
foregoing;
(5) Capital
Partners and the Capital Partners Subsidiaries have each paid in full to all
their respective employees or adequately accrued for in accordance with GAAP,
consistently applied, all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees;
(6) There
is
no claim with respect to payment of wages, salary or overtime pay that has
been
asserted or is now pending or to the Knowledge of Capital Partners threatened
before any Governmental Authority with respect to any Persons currently or
formerly employed by Capital Partners or any Capital Partners
Subsidiary;
21
(7) There
is
no charge or proceedings with respect to a violation of any occupational safety
or health standards that has been asserted or is now pending or to the Knowledge
of Capital Partners threatened with respect to Capital Partners or any of the
Capital Partners Subsidiaries; and
(8) There
is
no charge of discrimination in employment or employment practices, for any
reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted and not settled or is now
pending or to the Knowledge of Capital Partners threatened before the United
States Equal Employment Opportunity Commission, or any other Governmental
Authority in any jurisdiction in which Capital Partners or any Capital Partners
Subsidiary has employed or currently employs any Person.
4.17 Employee
Benefit Plans
.
Schedule
4.17
lists
all Employee Plans of the Predecessor Entity, Capital Partners and any Capital
Partners Subsidiaries (the “Capital
Partners Employee Plans”).
Capital Partners has provided or made available to the HPI Entities correct
and
complete copies of (where applicable) (a) all plan documents, summary plan
descriptions, summaries of material modifications, amendments, and resolutions
related to such plans, (b) the most recent determination letters received from
the IRS, (c) the three most recent Form 5500 Annual Reports and summary annual
reports, (d) the most recent audited financial statement and actuarial
valuation, and (e) all related agreements, insurance contracts and other
agreements which implement each such Capital Partners Employee Plan. There
are
no restrictions on the ability of the sponsor of each Capital Partners Employee
Plan to amend or terminate any Capital Partners Employee Plan and each Capital
Partners Employee Plan may be transferred by Capital Partners or its respective
ERISA Affiliate to the Capital Partners Surviving Corporation. With
respect to each Capital Partners Employee Plan, no event has occurred, and
there
exists no condition or set of circumstances in connection with which Capital
Partners or any of the Capital
Partners
Subsidiaries would reasonably be expected to, directly, or indirectly, subject
the HPI Entities to any liability under ERISA, the Code or any other applicable
law, except liability for benefits claims and funding obligations payable in
the
ordinary course. Each Capital Partners Employee Plan conforms to, and its
administration is in compliance with, all applicable Laws. No prohibited
transaction within the meaning of ERISA section 406 or Code section 4975, or
breach of fiduciary duty under Title I of ERISA has occurred with respect to
any
Capital Partners Employee Plan. Capital
Partners, the Capital Partners Subsidiaries and each Commonly Controlled Entity
has made all payments due from it to date with respect to each Benefit Plan.
With
respect to each Capital Partners Employee Plan, there are no benefits
obligations for which contributions have not been made or properly accrued
and
there are no unfunded benefits obligations that have not been accounted for
by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the Financial Statements. No Capital Partners Employee
Plan is a multiemployer plan. There are no actions, liens, suits or claims
pending or to the Knowledge of Capital Partners threatened (other than routine
claims for benefits) with respect to any Capital Partners Employee Plan or
against the assets of any Capital Partners Employee Plan. Each Capital Partners
Employee Plan which is intended to qualify under Code section 401(a) or 403(a)
so qualifies and its related trust is exempt from taxation under Code section
501(a). Each Capital Partners Employee Plan that is not qualified under Code
section 401(a) or 403(a) is exempt from Part 2, 3 and 4 of Title I of ERISA
as
an unfunded plan that is maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees, pursuant to ERISA sections 201(2), 301(a)(3) and 401(a)(1). No assets
of Capital Partners or any Capital Partners Subsidiary are allocated to or
held
in a “rabbi trust” or similar funding vehicle. Each Capital Partners Employee
Plan that is a “group health plan” (as defined in ERISA section 607(1) or Code
section 5001(b)(1) has been operated at all times in compliance with the
provisions of COBRA, HIPAA and any applicable, similar state law. Except as
disclosed in Schedule
4.17,
the
consummation of the transactions contemplated by this Agreement will not: (i)
entitle any current or former employee of Capital Partners or any Capital
Partners Subsidiary
to severance pay, unemployment compensation or any similar payment; (ii)
accelerate the time of payment or vesting, or increase the amount of any
compensation due to, or in respect of, any current or former employee of Capital
Partners or any Capital
Partners
Subsidiary; (iii) result in or satisfy a condition to the payment of
compensation that would, in combination with any other payment, result in an
“excess parachute payment” within the meaning of Code section 280G(b); or (iv)
constitute or involve a prohibited transaction (as defined in ERISA section
406
or Code section 4975), constitute or involve a breach of fiduciary
responsibility within the meaning of ERISA section 502(l) or otherwise violate
Part 4 of Subtitle B of Title I of ERISA.
22
4.18 Environmental
Matters
.
(a)
Capital Partners and each Capital Partners Subsidiary has all Environmental
Permits which are required under Environmental Laws, (b) Capital Partners and
each Capital Partners Subsidiary is in material compliance with all terms and
conditions of such Environmental Permits, (c) Capital Partners and each Capital
Partners Subsidiary is in material compliance with all Environmental Laws and
any other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in such
Environmental Laws or contained in any regulation, code, plan, governmental
Order, notice or demand letter issued, entered, promulgated or approved
thereunder, (d) there has not been any event, condition, circumstance, activity,
practice, incident, action or plan which will interfere with or prevent
continued compliance with the terms of such Environmental Permits or which
would
give rise to any liability under any Environmental Law or give rise to any
common law or statutory liability, based on or resulting from Capital Partners’
or any Capital Partners Subsidiary’s or their respective agents’ manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, or release into the environment, of any
Hazardous Substance, and (e) Capital Partners and each Capital Partners
Subsidiary has taken all actions reasonably necessary under applicable
requirements of Environmental Law to register any products or materials required
to be registered by Capital Partners or any Capital Partners Subsidiary (or
any
of their agents) thereunder.
4.19 Certain
Interests.
(a) No
officer, director or stockholder of Capital Partners, and no spouse and to
the
Knowledge of Capital Partners, no relative (or relative of such spouse) who
resides with, or is a dependent of, any such officer or director:
(1) has
any
direct or indirect financial interest in any competitor, supplier or customer
of
Capital Partners or a Capital Partners Subsidiary (except as described on
Schedule
4.2),
provided, however, that the ownership of securities representing no more than
three percent (3%) of the outstanding voting power of any competitor, supplier
or customer, and which are also listed on any national securities exchange
or
traded actively in the national over-the-counter market, shall not be deemed
to
be a “financial interest” so long as the Person owning such securities has no
other connection or relationship with such competitor, supplier or
customer;
(2) owns,
directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property which either Capital Partners or any Capital
Partners Subsidiary uses or has used in the conduct of the Business or
otherwise; or
(3) has
outstanding any Indebtedness to either Capital Partners or any Capital Partners
Subsidiary.
(b) Neither
Capital Partners nor or any Capital Partners Subsidiary has any Indebtedness,
Liabilities, nor any other obligation of any nature whatsoever to, any officer,
director or stockholder of Capital Partners or such Capital Partners Subsidiary
or any spouse or to the Knowledge of Capital Partners to any relative (or
relative of such spouse) who resides with, or is a dependent of, any such
officer, director or stockholder.
23
4.20 Litigation
.
Except
as set forth in Schedule
4.20,
there
are no Actions pending, or to Capital Partners’ Knowledge, threatened, against,
relating to or affecting Capital Partners, any Capital Partners Subsidiary
or
the Business before any Court, Governmental Agency or any arbitrator or
mediator. Neither Capital Partners, any Capital Partners Subsidiary, nor any
Shareholder is subject to any Order which prohibits or restricts the
consummation of the transactions contemplated hereby or restricts in any way
the
ownership or operations of Capital Partners, any Capital Partners Subsidiary
or
the Business.
4.21 Intellectual
Property and Web Sites
.
Except
for software, content, or other similar services/property purchased by Capital
Partners or any Capital Partners Subsidiary on a non-exclusive basis through
contracts with vendors, all of which contracts are in full force and effect
and
none of which contracts are currently subject to any contractual disputes nor
have been threatened with cancellation or non-renewal by such vendors, Capital
Partners and the Capital Partners Subsidiaries, collectively, have the exclusive
rights, titles and interests in and to any and all Intellectual Property and
all
of the Web Sites used by, being developed by, or otherwise associated with
the
present or future operations of the Business, as reasonably anticipated by
Capital Partners.
4.22 Inventories
.
The
Inventories reflected in the Financial Statements, if any, are in proper working
order and of merchantable quality, which can be sold in the ordinary course
of
the Business.
4.23 Receivables
.
The
Receivables reflected in the Financial Statements consist solely of bona
fide
accounts
receivable generated by the Business in the ordinary course, which can be
collected in the ordinary course of the Business, subject to reserves for bad
debt maintained consistently with the bad debt reserve reflected in the Annual
Financial Statements.
4.24 Residency;
Investment Sophistication; Backgrounds
Each
of
the Shareholders: (a) is a resident of North Carolina; (b) either alone or
with
his purchaser representative has such knowledge and experience in financial
and
business matters that he is capable of evaluating the merits and risks of making
an investment in HPI Common Stock; (c) has received, read and understands the
public filings of HPI with the United States Securities and Exchange Commission
(“SEC”),
including but not limited to HPI’s: (i) annual report on Form 10-KSB for the
year ended December 31, 2004, (ii) quarterly reports on Form 10-QSB for the
quarters ended March 30, June 30 and September 30, 2005, (iii) current reports
on Form 8-K from September 30, 2005 through the date hereof; and (d) has been
afforded a full opportunity to conduct such additional “due diligence”
investigation of HPI and its subsidiaries, and the Capital Partners Merger
Subs
(the “HPI
Entities”),
including their respective businesses, management, balance sheets, financial
results, prospects and Risk Factors as the Shareholders have deemed appropriate
and the opportunity to ask questions of management of HPI regarding the business
and financial results of the HPI entities; (e) have retained and been advised
by
their own competent lawyers and accountants in regard to the preparation,
negotiation and execution of this Agreement and the transactions contemplated
herein; and (f) have never been charged, indicted or convicted of any criminal
offense, excepting only minor traffic violations.
24
4.25 Brokers
Neither
Capital Partners, any of the Capital Partners Subsidiaries, nor any Shareholder
has employed any financial advisor, broker or finder, and neither Capital
Partners, any of the Capital Partners Subsidiaries, nor the Shareholders has
incurred nor will incur any broker’s, finder’s, investment banking or similar
fees, commissions or expenses in connection with the transactions contemplated
by this Agreement.
4.26 Current
Assets and Current Liabilities
.
On the
Closing Date, the amount of the current assets minus the current liabilities
of
Capital Partners shall meet the minimum differential set forth in Section
2.10(a)(1),
above.
4.27 Stockholders’
Deficit
.
On the
Closing Date, the amount of the stockholder deficit shall not exceed the
stockholder deficit of the Predecessor Entity, as set forth in the September
30,
2005 balance sheet included in the Interim Financial Statements. Other than
obligations set forth in the Interim Financial Statements, and ordinary course
fluctuations not in violation of the first sentence of this Section
4.27,
on the
Closing Date, Capital Partners and the Capital Partners Subsidiaries will be
free clear of all Indebtedness and Liabilities, including but not limited to
liens, obligations, claims and encumbrances, actual or contingent, known or
unforeseen, including but not limited to, bank loans, stockholder loans, payroll
claims, bonus and commission claims, unpaid payroll taxes, other unpaid taxes,
pension obligations, employment discrimination claims, sexual harassment claims,
breach of contract claims, credit card chargebacks in excess of $1,000,
lawsuits, stock options, stock warrants, phantom stock plans, stock appreciation
rights or plans, deferred compensation agreements, purchase agreements that
cannot be cancelled by Capital Partners or the Capital Partners Subsidiaries
at
any time, consulting agreements, employment agreements other than the Employment
Agreement referred to in Section 7.1, severance agreements or “change of
control” agreements of any nature, and any other liabilities of any nature
whatsoever (collectively, “Claims of Any Nature”) excepting only those ordinary
course liabilities shown on the Balance Sheet subject only to minor adjustments
in liability line items incurred in the ordinary course of the Business between
September 30, 2005 and the Closing Date (“Approved Liabilities”). On the Closing
Date, the “Related Party Receivables” and “Advances to Stockholder” entries on
the Interim Financial Statements shall have been satisfied in full.
4.28 Satisfaction
of Obligations to Xxxxxx Xxxxxxx
.
As of
the date hereof, the total outstanding balance owed to Xxxxxx Xxxxxxx both
with
respect to the sale of his shares to Xxxxxxx Xxxx under that certain Purchase
Agreement relating to the sale of the 47.5% interest in the Predecessor Entity,
and any additional amount assumed by Xxxxxxx Xxxx with respect to the obligation
of Xxxxxx Xxxxxx to Xxxxxx Xxxxxxx for purchase of shares of the Predecessor
Entity from Xxxxxx Xxxxxxx totals $3,100,000. This amount represents the total
obligations owed to Xxxxxxx with respect to the sale of his shares or for any
other interest that he previously held in the Predecessor Entity. Upon payment
to Xxxxxxx of the above sums (as adjusted for monies owing through the Closing
Date), all common stock of Capital Partners and all equity interests in any
Capital Partners Subsidiaries shall be free and clear of all Liens, claims
and
encumbrances of any kind. At Closing, Xxxxxxx shall execute and deliver a waiver
and release acknowledging that these are the only amounts owed to him and
providing Capital Partners, its Subsidiaries and the Predecessor Entity with
a
release of any and all claims.
25
4.29 Outstanding
Obligation to Xxxxxx Xxxxxx
.
All
obligations of the Predecessor Entity, Capital Partners, any Capital Partners
Subsidiary, Xxxxxxx Xxxx or any of the Shareholders to Xxxxxx Xxxxxx, whether
with respect to any equity interest in any entities, any loans made by Xxxxxx
to
any such entities or any of the Shareholders or any payments constituting
separation pay, have been fully satisfied and there is no amount owing to Xxxxxx
as of the date hereof.
4.30 Acquisition
by Capital Partners of Interests in the Capital Partners
Subsidiaries
.
Capital
Partners has acquired one hundred percent (100%) ownership in each of the
Capital Partners Subsidiaries pursuant to an assignment in 2005 from the
Predecessor Entity to Capital Partners. The ownership interests in each of
the
Capital Partners Subsidiaries were conveyed to Capital Partners for a reasonably
equivalent consideration. The Predecessor Entity no longer owns any right,
title
or interest in any of the Capital Partners Subsidiaries.
4.31 Contracts
.
Except
for Membership Contracts, Schedule
4.30
hereto
contains a complete, current and correct list of all Contracts of Capital
Partners and of any of the Capital Partners Subsidiaries, including all
amendments thereto, whether written or oral. All such Contracts are in full
force and effect, are enforceable in accordance with their terms and are not
in
default. The Membership Contracts represent bona fide, enforceable contracts
entered into by Capital Partners, the Predecessor Entity or a Capital Partners
Subsidiary, on the one hand, and a Member, on the other hand.
4.32 Material
Information
.
All
material information concerning Capital Partners or its Subsidiaries has been
provided by the Shareholders to the HPI Entities.
4.33 Accounting
Matters
.
Capital
Partners has retained Norco Accounting and Consulting, Inc. to input all of
Capital Partners’ financial records from and after October 1, 2005 onto the
Great Plains accounting system, and such inputting is substantially complete
as
of the date hereof.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF
HPI
AND THE CAPITAL PARTNERS MERGER SUBS
In
order
to induce Capital Partners, and the Shareholders to enter into this Agreement
and to consummate the transactions contemplated hereby, the HPI Entities
represent and warrant to Capital Partners, and the Shareholders as follows:
5.1 Organization
and Qualification
.
Each of
HPI, and each of the Capital Partners Merger Subs is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation. Each of HPI, and each of the Capital Partners
Merger Subs is duly qualified or licensed as a foreign corporation to conduct
business, and is in good standing, under the laws of each jurisdiction where
the
character of the properties owned, leased or operated by it, or the nature
of
its activities, makes such qualification or licensing necessary, except where
the failure to be so qualified, licensed or in good standing, individually
or in
the aggregate, has not had and would not have a Material Adverse Effect on
HPI,
or the Capital Partners Merger Subs. Each of HPI, and each of the Capital
Partners Merger Subs has made available to Capital Partners, and the
Shareholders true, complete and correct copies of its Articles of Incorporation
and Bylaws, each as amended to date. Neither HPI, nor either of the Capital
Partners Merger Subs is in default under or in violation of any provision of
its
Articles of Incorporation or Bylaws. All of the issued and outstanding shares
of
capital stock of, or other equity interests in, the Capital Partners Merger
Subs
are: (a) duly authorized, validly issued, fully paid, non-assessable; (b) owned,
directly or indirectly by HPI free and clear of all Liens; and (c) free of
any
restriction, including, without limitation, any restriction which prevents
the
payment of dividends to HPI, or otherwise restricts the right to vote, sell
or
otherwise dispose of such capital stock or other ownership interest other than
restrictions under the Securities Act and state securities laws.
26
5.2 Capital
Structure
.
The
authorized capital stock of HPI consists of (a) 50,000,000 shares of HPI Common
Stock $0.0001 par value per share and (b) 5,000,000 shares of “blank check”
Preferred Stock, none of which has been issued (“HPI
Preferred Stock”).
As of
the date of this Agreement: (1) 15,985,305 shares of HPI Common Stock were
issued and outstanding; and (2) no shares of HPI Preferred Stock were issued
or
outstanding. Except as described above and with respect to the outstanding
convertible debentures and stock options of HPI, there were no shares of voting
or non-voting capital stock, equity interests or other securities of HPI
authorized, issued, reserved for issuance or otherwise outstanding. All
outstanding shares of HPI Common Stock are, and all shares of HPI Common Stock
to be issued in connection with the consummation of the transactions
contemplated by this Agreement will be, when issued in accordance with the
terms
hereof, duly authorized, validly issued, fully paid and non-assessable, and
not
subject to, or issued in violation of, any kind of preemptive, subscription
or
any kind of similar rights. Except as provided hereunder, neither HPI, nor
either of the Capital Partners Merger Subs is subject to any obligation or
requirement to provide funds for, or to make any investment (in the form of
a
loan or capital contribution) to or in any Person. All of the issued and
outstanding shares of HPI Common Stock were issued in compliance in all material
respects with all applicable federal and state securities laws. The authorized
capital stock of each Capital Partners Merger Sub consists of 1,000 shares
of
common stock, 100 of which are duly authorized, validly issued and fully paid
and non-assessable, and all of which are, and at the Closing Date will be,
owned
by HPI free and clear of any Liens.
5.3 Authorization;
Enforceability
.
Each of
the HPI Entities has the corporate power and authority to execute, deliver
and
perform this Agreement and the other Documents to which it is a party. The
execution, delivery and performance of this Agreement and the other Documents
to
which it is a party and the consummation of the transactions contemplated herein
and therein have been duly authorized and approved by each of the HPI Entities,
and no other action on the part of any of them is necessary in order to give
effect thereto. This Agreement and each of the other Documents to be executed
and delivered by each of the HPI Entities have been duly executed and delivered
by, and constitute the legal, valid and binding obligations of, each of them,
enforceable against each of them, in accordance with their terms, except as
such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors’ rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought.
5.4 No
Violation or Conflict
.
None of
(a) the execution and delivery by the HPI Entities of this Agreement and the
other Documents to be executed and delivered by each of the HPI Entities, (b)
consummation by each of the HPI Entities of the transactions contemplated by
this Agreement and the other Documents, or (c) the performance of this Agreement
and the other Documents required by this Agreement to be executed and delivered
by each of the HPI Entities at the Closing, will (1) conflict with or violate
the Articles of Incorporation or By-Laws of any of them, (2) conflict with
or
violate any Law, Order or Permit applicable to any of them, or (3) conflict
with
or violate any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease or other instrument or obligation to which any of
them is a party or by which any of their respective properties may be bound
or
affected.
27
5.5 Governmental
Consents and Approvals
.
The
execution, delivery and performance of this Agreement and the other Documents
by
each of the HPI Entities do not and will not require any consent, approval,
authorization, Permit or other order of, action by, filing with or notification
to, any Governmental Authority.
5.6 Litigation
.
Except
as set forth on Schedule
5.6,
there
is no suit, action, arbitration, claim, governmental or other proceeding before
any Governmental Authority pending or, to the Knowledge of HPI, threatened,
against HPI, or the Capital Partners Merger Subs.
5.7 Interim
Operations
.
Each of
the Capital Partners Merger Subs was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, and has engaged in no other
business activities and has conducted its operations only as contemplated in
this Agreement.
5.8 Brokers
.
None of
the HPI Entities has employed any financial advisor, broker or finder, and
neither HPI nor either of the Capital Partners Merger Subs has incurred and
will
not incur any broker’s, finder’s, investment banking or similar fees,
commissions or expenses in connection with the transactions contemplated by
this
Agreement.
5.9 Board
Approval
.
The
Boards of Directors of each of the HPI Entities has, each at a meeting duly
called and held at which all members of such Board were present or by a
unanimous written consent: (a) approved this Agreement; (b) determined that
the
Merger and other transactions contemplated by this Agreement are advisable,
fair
to and in the best interest of the HPI Entities and each of their respective
stockholders; (c) resolved to recommend to the stockholders of each Capital
Partners Merger Sub (1) the approval of the Merger and the other transactions
contemplated hereby and (2) the approval and adoption of this Agreement; and
(d)
directed that this Agreement be submitted to the stockholders of each Capital
Partners Merger Sub for their approval and adoption.
ARTICLE
VI
COVENANTS
6.1 Performance
Subject
to the terms and conditions provided in this Agreement, each of the Parties
shall use its respective reasonable best efforts in good faith to take or cause
to be taken as promptly as practicable all reasonable actions that are within
its power to cause to be performed and fulfilled those of the conditions
precedent to its obligations to consummate the transactions contemplated by
this
Agreement that are dependent upon its actions, including obtaining all necessary
approvals, to the end that the transactions contemplated hereby will be fully
and timely consummated.
6.2 Regulatory
and Other Authorizations; Notices and Consents.
(a) Each
of
the Parties will use its best efforts to obtain all authorizations, consents,
orders and approvals of all Governmental Authorities and officials that may
be
or become necessary for its execution and delivery of, and the performance
of
its obligations pursuant to, this Agreement and the other Documents and will
cooperate fully with each of the Parties in promptly seeking to obtain all
such
authorizations, consents, orders and approvals.
28
(b) Each
of
the Parties shall give promptly such notices to third parties and use its best
efforts to obtain such third party consents and estoppel certificates as the
Parties may deem necessary or desirable in connection with the consummation
of
the transactions contemplated by this Agreement and the other Documents. The
Parties shall cooperate with each other and use all reasonable efforts to assist
in giving such notices and obtaining such consents and estoppel
certificates.
6.3 Notification
.
From
the date this Agreement is signed by the Parties until the Closing, each Party
to this Agreement shall promptly notify the other Parties in writing of the
occurrence, or pending or threatened occurrence, of (a) any event that would
constitute a breach or violation of this Agreement by any Party or that could
reasonably be anticipated to cause any representation or warranty made by the
notifying Party in this Agreement to be false or misleading in any respect
(including without limitation, any event or circumstance which would have been
required to be disclosed on the applicable disclosure Schedule if such event
or
circumstance occurred or existed on or prior to the date of this Agreement),
and
(b) all other material developments affecting the assets, Liabilities, business,
financial condition, operations, results of operations, customer or supplier
relations, employee relations, projections or prospects of such Party. Any
such
notification shall not limit or alter any of the representations, warranties
or
covenants of the parties set forth in this Agreement or any rights or remedies
a
Party may have with respect to a breach of any representation, warranty or
covenant.
6.4 Conduct
of Business Pending Closing.
(a) At
all
times prior to the Closing Date, Capital Partners covenants and agrees that
it
shall conduct the Business only in the ordinary course of its Business
consistent with past practices (and shall cause the Capital Partners
Subsidiaries to so conduct the Business), and Capital Partners shall use its
commercially reasonable efforts consistent with past practices to preserve
intact the Business and to keep available satisfactory relationships with
suppliers, customers and others having business relationships with it (or the
Capital Partners Subsidiaries).
(b) From
the
date of this Agreement until the Closing Date there shall not be any material
increases or decreases in compensation, capital expenditures, asset sales or
affiliate transactions involving Capital Partners, a Capital Partners Subsidiary
or any Shareholders, nor shall there be any unusual cash withdrawals, unusual
payments, unusual contracts or contract provisions, or other unusual
transactions or business practices involving Capital Partners, a Capital
Partners Subsidiary or any Shareholders.
(c) At
all
times prior to the Closing Date, except as otherwise set forth in this
Agreement, each of the Capital Partners Merger Subs covenants and agrees that
it
will not, directly or indirectly, conduct any business or incur any Liabilities
(contingent or otherwise).
(d) Capital
Partners, and the Shareholders agree that during the period from the date of
signing of this Agreement until the Closing Date, they shall each refrain from
entering into, participating in, or responding to, any other negotiations,
discussions, contracts, letters of intent, or other arrangements of any nature
with any third parties (other than HPI) regarding a disposition of Capital
Partners’ (including the Capital Partners Subsidiaries’) Business or assets, the
sale of the stock or equity interests of Capital Partners or the Capital
Partners Subsidiaries, or any other actions which might have the effect of
impeding, delaying or making more costly the Merger, provided,
however,
that
this agreement shall no longer be legally binding upon Capital Partners, or
the
Shareholders if the Closing has not occurred by April 30, 2006.
29
ARTICLE
VII
EMPLOYMENT
MATTERS
AND MANAGEMENT OF THE SURVIVING CORPORATION POST-CLOSING
7.1 Employment
Matters
(a) .
On the
Closing Date, there will be no changes in the employment status, or in the
terms
and conditions of employment, of the employees of Capital Partners Surviving
Corporation prior to the Merger (or of the Capital Partners Subsidiaries).
On or
before the Closing Date, Rohm (the “Executive”)
shall
be employed by the Surviving Corporation in such capacity, at such salary and
bonus and pursuant to such written employment agreement, if any, as may mutually
agreed upon among the Executive and HPI prior to the Closing Date.
7.2 Management
of Surviving Corporation
Rohm
shall use good faith efforts to perform such tasks reasonably assigned to him
by
Capital Partners Surviving Corporation for so long as he is employed by such
corporation.
7.3 Hiring
of
CFO and Controller
.
As
promptly as practical following the execution of this Agreement, HPI, in
consultation with Xxxxxx Xxxxxx, shall identify and hire a Chief Financial
Officer who is a certified public accountant (the “CFO”).
As
promptly as practical following the execution of this Agreement, Capital
Partners, in consultation with Xxxxxx Xxxxxx, shall identify and hire a
qualified corporate controller (the “Controller”).
ARTICLE
VIII
PRE-CLOSING
ASSIGNMENTS
8.1 Sale
and
Assignment of Intellectual Property
.
The
Shareholders hereby sell, convey, give, grant, assign and transfer to Capital
Partners any and all rights, titles and interests of any nature whatsoever
that
either of them may have in or to the ownership or use of any and all
Intellectual Property and Web Sites used in or associated with Capital Partners,
the Capital Partners Subsidiaries or the Business.
8.2 Sale
and
Assignment of All Internet Interests
The
Shareholders hereby sell, convey, give, grant, assign and transfer to Capital
Partners any and all rights, titles and interests of any nature whatsoever,
legal or beneficial, active or passive, that such shareholders may have in
or to
any other Person, business or web site relating to the Business, it being
expressly acknowledged and agreed by such Shareholders that it is the intent
of
the Parties and of this Agreement that following the Merger the Shareholders’
only Business Interests in regard to the Business will be their interests in
HPI. The interests to the assignment to Capital Partners hereunder shall include
the domain names attached hereto on Schedule
8.2
(the
“Domain
Names”).
30
ARTICLE
IX
EARNOUT
9.1 Contingent
Earnout
.
Following
the Closing Date, the Merger Consideration may be increased as follows: The
Shareholders are collectively entitled to earn a one-time payment (the
“Earnout”),
payable one-half in cash (the “Cash
Earnout Payment”)
and
one-half in common stock of HPI valued at the average of the closing prices
per
share of HPI common stock on the last ten trading days of the Earnout Period
(the “Stock
Earnout Payment”),
to be
allocated amongst them in accordance with their percentage share ownership
in
Capital Partners immediately prior to the Closing Date, such Earnout Payment
to
be equal to
(a) the
amount, if any, by which
(i) one-half
of the aggregate EBITDA of Capital Partners Surviving Corporation during the
Earnout Period, as certified by HPI’s independent certified public accountant,
exceeds:
(ii) an
amount
equal to the sum of:
(A) Three
Million One Hundred Fifty-Eight Thousand Nine Hundred Thirty-Three Dollars
($3,158,933); plus
(B) One-half
of the amount of any Working Capital Infusion made from proceeds of the Bridge
Loan.
multiplied
by
(b) 4.2.
If
no
trading market has developed, the value of the HPI Common Stock as of the
relevant date shall be determined by the Board of Directors of HPI acting in
good faith. The Earnout shall be paid within ten (10) days following the receipt
by the Shareholders and HPI from HPI’s independent certified public accountants
of a written determination of the Earnout Period EBITDA (the “Earnout
Calculation”)
if the
Shareholders do not contest in writing the Earnout Calculation within five
(5)
days following their receipt of the Earnout Calculation. If the Shareholders
contest the Earnout Calculation, HPI and the Shareholders shall have ten (10)
days to settle such dispute. If the dispute is not settled by the end of the
10-day period, then the dispute shall be settled in accordance with Section
15.15
hereof.
HPI will use its best efforts to ensure that HPI’s independent public
accountants deliver the Earnout Calculation no later than 60 days after the
end
of the Earnout Period, provided that HPI shall be deemed to be in breach of
its
obligation under this Section
9.1
if it
fails to deliver the Earnout Calculation within 120 days after the end of the
Earnout Period. Shares of HPI Common Stock issued as part of the Stock Earnout
Payment shall be valued at the average closing price per share of HPI Common
Stock on the final ten trading days of the Earnout Period; provided, however,
if
no trading market has developed, the value of the HPI Common Stock as of the
relevant date shall be determined by the Board of Directors of HPI acting in
good faith. Within 10 days after each Form 10-QSB or Form 10-KSB is filed with
the SEC by HPI with respect to each calendar quarter comprising the Earnout
Period, HPI shall cause to be delivered to the Shareholders a report of the
financial results of the Capital Partners Surviving Corporation during such
quarter based on the information in the working papers used to prepare such
Form
10-QSB or Form 10-KSB, respectively, and upon request by the Shareholders such
working papers shall be made available to the Shareholders for review so long
as
the Shareholders agree in writing to keep the working papers
confidential.
31
9.2 Restrictions
on Disposition of Operating Assets
.
HPI
covenants that during the Earnout Period it will not dispose of any material
portion of the operating assets of Capital Partners or any of the Capital
Partners Subsidiaries. The foregoing prohibition shall not prohibit disposition
of obsolete assets or the transfer, replacement or sale of assets in the
ordinary course of the Business. Neither the Company nor any of the Subsidiaries
shall be merged or consolidated with or into any other entity during the Earnout
Period, other than the Company, nor shall the Company or any of the Subsidiaries
be allocated additional overhead or costs of this Transaction, except as
provided in Schedule
9.2,
hereto.
9.3 Restrictions
on Business Acquisitions
.
Until
such time as the Shareholders Notes have been satisfied in full (including
satisfaction by permitted credits and offsets), HPI shall not apply any proceeds
from the HPI Offering toward the purchase of any other businesses.
ARTICLE
X
REGISTRATION
RIGHTS
10.1 Filing
of
Registration Statement
.
The
Stock Consideration will be unregistered, restricted stock and shall constitute
restricted securities as that term is defined in Rule 144 promulgated under
the
Securities Act of 1933, as amended. HPI hereby agrees that following the Closing
it will include the Stock Consideration issued hereunder in the next “Selling
Stockholder” registration statement prepared and filed with the SEC by HPI
following the Closing Date. HPI shall use its good faith efforts to obtain
SEC
approval of such registration statement as soon as practicable following the
filing thereof. The Parties hereto acknowledge and agree that HPI shall have
the
right to suspend effectiveness of such registration statement or the use of
the
prospectus contained therein in its sole discretion.
ARTICLE
XI
CONDITIONS
PRECEDENT TO CLOSING
11.1 Conditions
Precedent to the Obligations of the Parties
.
The
obligation of each of the Parties to consummate the transactions described
in
this Agreement shall be subject to the fulfillment on or before the Closing
of
the following conditions precedent, each of which may be waived by a Party
in
its sole discretion:
(a) Representations,
Warranties and Covenants of Shareholders and Capital Partners.
The
representations and warranties of the Shareholders and Capital Partners
contained in this Agreement shall have been true and correct when made and
shall
be true and correct in all material respects as of the Closing, with the same
force and effect as if made as of the Closing Date, other than such
representations and warranties that are expressly made as of another date,
and
the covenants and agreements contained in this Agreement to be complied with
by
the Shareholders and Capital Partners on or before the Closing shall have been
complied with, and HPI and the Capital Partners Merger Subs shall have received
a certificate from the Shareholders and Capital Partners to such effect signed
by the Shareholders and by a duly authorized officer of Capital
Partners.
32
(b) Representations,
Warranties and Covenants of HPI and the Capital Partners Merger
Subs.
The
representations and warranties of each of HPI and the Capital Partners Merger
Subs contained in this Agreement shall have been true and correct when made
and
shall be true and correct in all material respects as of the Closing, with
the
same force and effect as if made as of the Closing Date, other than such
representations and warranties that are expressly made as of another date,
and
the covenants and agreements contained in this Agreement to be complied with
by
HPI and the Capital Partners Merger Subs on or before the Closing shall have
been complied with, and Capital Partners shall have received a certificate
to
such effect signed by a duly authorized officer of HPI and the Capital Partners
Merger Subs.
(c) No
Adverse Change of Capital Partners.
No
events or conditions shall have occurred which individually or in the aggregate,
have had, or may reasonably be anticipated to give rise to any Material Adverse
Effect on Capital Partners or any of the Capital Partners
Subsidiaries.
(d) No
Adverse Change of HPI or the Capital Partners Merger Subs.
No
events or conditions shall have occurred which individually or in the aggregate,
have had, or may reasonably be anticipated to give rise to any Material Adverse
Effect on HPI or the Capital Partners Merger Subs.
(e) Governmental
Approvals.
Any and
all approvals from Governmental Authorities required for the lawful consummation
of the transactions contemplated by this Agreement and the other Documents
shall
have been obtained. The Articles of Merger shall have been filed with the
Secretary of State of the State of North Carolina.
(f) Consents.
Any and
all needed consents and approvals from third parties for the consummation of
the
transactions contemplated by this Agreement and the other Documents, and the
transfer of all of the Business, assets and agreements of Capital Partners
to
Capital Partners Surviving Corporation shall have been obtained.
(g) No
Actions, Suits or Proceedings.
No
Order of any Court or Governmental Authority shall have been issued restraining,
prohibiting, restricting or delaying, the consummation of the transactions
contemplated by this Agreement and the other Documents. No Litigation shall
be
pending or, to the Knowledge of the Parties to this Agreement, threatened,
before any Court or Governmental Authority to restrain, prohibit, restrict
or
delay, or to obtain damages or a discovery order in respect of this Agreement
or
the consummation of the transactions contemplated hereby. No insolvency
proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting Capital Partners or a Capital Partners
Subsidiary shall be pending, and neither Capital Partners nor any Capital
Partners Subsidiary shall have taken any action in contemplation of, or which
would constitute the basis for, the institution of any such
proceedings.
(h) Capital
Partners Shares.
The
Shareholders shall have delivered Capital Partners Certificates evidencing
all
of the Capital Partners Shares to HPI.
33
(i) Stock
Consideration.
HPI
shall have delivered to its stock transfer agent an irrevocable instruction
letter directing the stock transfer agent to deliver the Stock Consideration
to
the Shareholders, in the form attached hereto as Exhibit
11.1.
(j) Irrevocable
Proxies.
Each of
the Shareholders, the Xxxxxxx Xxxxxx Family Trust under agreement dated
11/11/99, Xxxxxxx Xxxxxx, DJS Investments II, LLC, Xxx Xxxxxxxxx and Grander,
LLC (individually a “Grantor” and collectively, the “Grantors”)
shall
execute and deliver an irrevocable proxy (the “Proxy”)
in the
form of Exhibit
2.5(b)
hereto,
pursuant to which such Grantor shall irrevocably constitute and appoint Xxxxxx
Xxxxxx, as the Grantor’s proxy to vote all shares of HPI Common Stock owned,
directly or indirectly, by such Grantor as of the date hereof and any other
shares of HPI Common Stock hereinafter acquired by such Grantor, including
but
not limited to, shares issued pursuant to the transactions contemplated hereby.
This proxy shall authorize Xxxxxx Xxxxxx to vote such shares at any meeting
of
shareholders of HPI following the Closing Date, whether annual or special,
and
whether or not an adjourned meeting, and at any all other places and times
and
in all circumstances whatsoever following the Closing Date.
(k) Capital
Partners shall deliver to HPI satisfactory proof that all amounts outstanding
to
Xxxxxx Xxxxxx with respect to the Predecessor Entity, Capital Partners, any
Capital Partners Subsidiary and any of the Shareholders have been satisfied
in
full and shall have also delivered a payoff letter from Xxxxxx Xxxxxxx under
which Xxxxxxx represents and covenants that upon payment to him of the sum
specified therein he shall automatically and without any further action release
the Predecessor Entity, Capital Partners, Capital Partners Subsidiaries and
each
of the Shareholders from any and all liabilities, including without limitation,
any outstanding obligations with respect to his sale of shares in the
Predecessor Entity. Xxxxxxx Xxxx hereby directs that a portion of his Cash
Consideration be applied to the full satisfaction of the payoff amount set
forth
in the payoff letter delivered by Xxxxxx Xxxxxxx (subject to the right, with
the
consent of the Shareholders that the proportionate amount of their Cash
Consideration be similarly applied).
(l) Closing
Documents.
Each
Party shall have delivered to the other Parties, as applicable, the resolutions,
certificates, documents and instruments set forth below:
(1) a
copy of
the resolutions duly, validly and unanimously adopted by the respective Boards
of Directors and stockholders of each of Capital Partners, HPI and the Capital
Partners Merger Subs, certified by the corporate secretary of the applicable
entity, authorizing and approving the execution and delivery and performance
of
this Agreement and the other Documents and the transactions contemplated hereby
and thereby;
(2) the
corporate minute books and stock record books of Capital Partners shall have
been delivered to the Capital Partners Merger Subs, as applicable;
(3) the
parties shall have executed and delivered the employment agreement for Xxxxxxx
Xxxx and Xxxxxx Xxxxx, to the extent required by HPI; and
34
(4) such
other Documents and instruments as a Party or its counsel may reasonably
request.
(m) Capital
Partners shall deliver to HPI an estoppel certificate executed by each landlord
of any Leased Real Property, in form and substance satisfactory to
HPI.
(n) Certain
Financial Covenants.
The
financial covenants and adjustments under Section
2.10,
above,
shall have been met to the satisfaction of HPI.
(o) Due
Diligence.
HPI
shall have completed its due diligence investigation of Capital Partners
(including without limitation an examination of the corporate books and records,
financials, historical operations, management, business practices, computer
systems, prospects, legal, tax, ERISA and other matters), and the results of
such investigation shall be satisfactory to HPI in its sole discretion.
(p) Legal
Opinions of Counsel for Capital Partners.
Legal
counsel for Capital Partners shall have delivered to HPI a written opinion
of
counsel in the form and substance attached hereto as Exhibit
11.1(p).
(q) Financing
Contingency.
HPI
shall have completed an offering of HPI Common Stock which shall have generated
net proceeds of not less than $7,500,000, on terms and conditions acceptable
to
HPI in its sole discretion.
(r) Financial
Statements.
HPI
shall have received from Capital Partners such audited financial statements,
reviewed financial statements and corresponding auditor’s opinions as shall
enable HPI to file a form 8-K within four business days following the Closing
Date verifying all SEC financial statement requirements.
35
ARTICLE
XII
INDEMNIFICATION
12.1 Survival
of Representations, Warranties and Covenants
.
The
representations and warranties contained in this Agreement shall survive as
follows until the expiration of the applicable statute of limitations, except
for the representations under Sections
4.8, 4.9, 4.13, 4.14, 4.16, 4.20, 4.21, 4.22, 4.23, 4.26, 4.27, 4.28, 4.31
or
4.32,
which
shall survive for three (3) years after the Closing Date. All covenants and
agreements contained in this Agreement (and in the corresponding covenants
and
agreements set forth in any of the Documents) shall survive the Closing and
continue in full force until fully performed in accordance with their
terms.
12.2 Indemnification.
(a) The
Shareholders agree to indemnify and hold harmless HPI and the Capital Partners
Merger Subs, and each of their respective successors and assigns, together
with
all of their officers and directors, from and against any and all losses,
damages, liabilities, obligations, costs or expenses which are caused by or
arise out of (1) any breach or default in the performance by the Shareholders
or
Capital Partners of any covenant or agreement of the Shareholders or Capital
Partners contained in this Agreement; (2) any material breach of warranty or
inaccurate or erroneous representation made by the Shareholders or Capital
Partners herein, in this Agreement or in any Schedule (including the Disclosure
Schedule) delivered to HPI or the Capital Partners Merger Subs pursuant hereto
or in any certificate or other instrument delivered by or on behalf of the
Shareholders or Capital Partners pursuant hereto; (3) any infringement actions
relating to the trademarks or service marks used by Capital Partners or any
Capital Partners Subsidiary or any other loss arising out of a determination
that Capital Partners and the Capital Partners Subsidiaries are not entitled
to
use such trademarks or service marks; (4) any claims by Xxxxxx Xxxxxx or Xxxxxx
Xxxxxxx for unsatisfied obligation; and (5) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) arising out of the foregoing (any one such item being
herein called a “Loss”
and
all
such items being herein collectively called “Losses”),
if
and to the extent that such aggregate Losses exceed an aggregate of Twenty-Five
Thousand Dollars ($25,000); provided, however, that no Shareholder shall be
liable for a proportionate share of any Loss in excess of his proportionate
share of his stock in the Company as of the Closing. Without limiting the
generality of the immediately preceding sentence, the Shareholders shall fully
indemnify and hold harmless HPI and the Capital Partners Merger Subs from and
against all Claims of any nature regarding Capital Partners created or incurred
prior to the Closing other than the Approved Liabilities (“Unapproved
Liabilities”)
until
the applicable statutes of limitations expire in regard to such liabilities
if
such aggregate Unapproved Liabilities exceed Twenty-Five Thousand Dollars
($25,000). If Capital Partners has aggregate Losses and/or Unapproved
Liabilities which exceed $25,000, then HPI shall be permitted to apply and
offset, dollar-for-dollar, the amount of such aggregate Losses and/or Unapproved
Liabilities against the Cash Earnout Payment or the Stock Earnout Payment,
in
each case on a pro rata basis.
36
(b) HPI
and
the Capital Partners Merger Subs jointly and severally agree to indemnify and
hold harmless the Shareholders and their respective successors and assigns,
from
and against any and all Losses which are caused by or arise out of (1) any
material breach or default in the performance by HPI or the Capital Partners
Merger Subs of any covenant or agreement of HPI or the Capital Partners Merger
Subs contained in this Agreement; (2) any material breach of warranty or
inaccurate or erroneous representation made by HPI or the Capital Partners
Merger Subs herein, in this Agreement or in any Schedule delivered to the
Shareholders or Capital Partners pursuant hereto or in any certificate or other
instrument delivered by or on behalf of HPI or the Capital Partners Merger
Subs
pursuant hereto; and (3) any and all actions, suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal fees) arising
out of the foregoing, if and to the extent that such aggregate Losses exceed
an
aggregate of Twenty-Five Thousand Dollars ($25,000).
(c) Any
indemnified party seeking indemnification hereunder shall give to the party
obligated to provide indemnification to such indemnified party a notice
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such notice the amount or the
method of computation of the amount of such claim, and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed pursuant hereto or in connection herewith upon which such claim is
based. After the giving of any notice pursuant hereto, the amount of
indemnification to which an indemnified party shall be entitled under this
Article
XII
shall be
determined by the written agreement between the indemnified party and the
indemnifying party or by a final judgment or decree of any Court of competent
jurisdiction.
(d) No
party
hereunder shall be obligated under this Section
12.2
to pay
any amounts for indemnification hereunder relating to a claim to the extent
of
(A) any tax benefit to the indemnified party therefrom, or (B) any insurance
proceeds and any indemnity, contribution or similar payment paid to the
indemnified party or any affiliated entity from any third party with respect
thereto.
(e) Notwithstanding
any provision of this Section 12.2, the Shareholders shall not be required
to
indemnify HPI for any Losses resulting from the breach of a representation
or
warranty of the Company or the Shareholders hereunder if HPI or any
representative of HPI had actual knowledge at the time of Closing of the
existence of the facts or circumstances giving rise to such breach.
12.3 Third
Party Claim
.
If any
third person asserts a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification against any indemnifying
party hereunder, the indemnifying party shall be given prompt written notice
thereof and shall have the right (a) to participate in the defense thereof
and
be represented, at his or its own expense, by advisory counsel selected by
it,
and (b) to approve any settlement if the indemnifying party is, or will be,
required to pay any amounts in connection therewith. Notwithstanding the
foregoing, if within ten (10) Business Days after delivery of the indemnified
party’s notice described above, the indemnifying party indicates in writing to
the indemnified party that, as between such parties, such claims shall be fully
indemnified for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense of such claim,
provided that the indemnified party shall have the right (1) to participate
in
the defense thereof and be represented, at his or its own expense, by advisory
counsel selected by it, and (2) to approve any settlement if the indemnified
party’s interests are, or would be, affected thereby, which approval shall not
be unreasonably withheld, conditioned or delayed.
37
ARTICLE
XIII
TERMINATION
13.1 Termination.
(a) A
Party
shall have the right to terminate this Agreement in the event that one of the
conditions precedent to the obligation of such Party to close the transaction
hereunder set forth in Section
11.1
have not
been met by the scheduled Closing Date, as extended by mutual agreement of
the
Parties.
(b) This
Agreement shall terminate if the Closing does not occur by
April 30, 2006, unless such date is extended by mutual agreement of
the Parties.
ARTICLE
XIV
TAX
MATTERS
14.1 Tax
Returns.
(a) Subject
to Section
14.1(c),
The
Shareholders shall prepare and file or cause to be filed when due (taking into
account all extensions properly obtained) all Tax Returns that are required
to
be filed by or with respect to the Predecessor Entity, Capital Partners or
a
Capital Partners Subsidiary for taxable years or periods ending on or before
the
Closing Date, and shall remit or cause to be remitted any Taxes due in respect
of such Tax Returns, and HPI shall prepare and file or cause to be filed when
due (taking into account all extensions properly obtained) all Tax Returns
that
are required to be filed by or with respect to the Capital Partners Surviving
Corporation for taxable years or periods ending after the Closing Date and
HPI
shall remit or cause to be remitted any Taxes due in respect of such Tax
Returns. If there are any other requirements for amendment of any Tax Returns
of
Predecessor Entity, Capital Partners or a Capital Partners Subsidiary relating
to periods of time prior to the Closing Date, Rohm shall be responsible for
filing such returns and the Shareholders shall indemnify and hold harmless
HPI,
the Capital Partners Surviving Corporation and any of the Capital Partners
from
any taxes due in respect of such amended Tax Returns.
(b) From
and
after the Closing, the Shareholders shall indemnify HPI, pursuant to, and
subject to the limitations set forth in, Article
XII,
for all
(1) Taxes imposed on the Predecessor Entity, Capital Partners or a Capital
Partners Subsidiary for any taxable year or period, or portion thereof, that
ends on or before the Closing Date and (2) Taxes of any Person (other than
Capital Partners) imposed on Capital Partners as a transferee or successor,
by
contract or pursuant to any requirement of laws, which Taxes relate to an event
or transaction occurring before the Closing Date. In the case of any taxable
period that includes (but does not end on) the Closing Date (a “Straddle
Period”),
the
Taxes of the Predecessor Entity, Capital Partners or a Capital Partners
Subsidiary (or Taxes for which the Predecessor Entity, Capital Partners or
a
Capital Partners Subsidiary is liable) for the portion of the period ending
on
the Closing Date (for which Rohm is liable) shall be determined based on an
interim closing of the books as of the close of business on the Closing Date
(and for such purpose, the taxable period of any partnership or other
pass-through entity in which Capital Partners holds a beneficial interest shall
be deemed to terminate at such time), except that the amount of any such Taxes
that are imposed on a periodic basis and are not based on or measured by income
or receipts shall be determined by reference to the percentage that the number
of days in the portion of such period ending on the Closing Date bears to the
total number of days in such period beginning after the Closing
Date.
38
(c) HPI
shall
promptly cause the Capital Partners Surviving Corporation to prepare and provide
to Rohm a package of Tax information materials, including, without limitation,
schedules and work papers (the “Tax
Package”)
required by Rohm to enable Rohm to prepare and file all Tax Returns required
to
be prepared and filed by Rohm pursuant to Section
14.1(a).
The Tax
Package shall be completed in accordance with past practice, including past
practice as to providing such information and as to the method of computation
of
separate taxable income or other relevant measure of income of Capital Partners.
HPI and the Capital Partners Surviving Corporation shall cause the Tax Package
to be delivered to Rohm within 60 days after the Closing Date.
14.2 Contest
Provisions.
(a) HPI
shall
promptly notify Rohm in writing upon receipt by HPI, the Capital Partners
Surviving Corporation or any of their respective Affiliates of notice of any
pending or threatened federal, state, local or foreign Tax audits, examinations
or assessments which might affect the Tax liabilities for which Rohm may be
liable pursuant to Section
14.1
and
Article
XII.
(b) Rohm
shall have the right to represent Capital Partners’ interests in any Tax audit
or administrative or court proceeding relating to taxable periods ending on
or
before the Closing Date, and to employ counsel of their choice at their expense;
provided,
however,
that
Rohm shall have no right to represent Capital Partners’ interests in any Tax
audit or administrative or court proceeding unless Rohm shall have first
notified HPI in writing of his intention to do so and shall have agreed with
HPI
in writing that, as between HPI and Rohm, Rohm shall be liable for any Taxes
that result from such audit or proceeding. The Capital Partners Surviving
Corporation and its representatives shall have the right to fully participate
at
their expense in any such audit or proceeding and to consent to any settlement
which affects a Tax period or Straddle Period ending after the Closing Date.
Notwithstanding the foregoing, Rohm shall not be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which adversely affects the liability for Taxes of HPI, Capital Partners or
any
Affiliate thereof for any period after the Closing Date to any extent
(including, but not limited to, the imposition of income Tax deficiencies,
the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss or credit carryforwards) without the prior
written consent of HPI, which consent may be withheld in the sole discretion
of
HPI.
14.3 Assistance
and Cooperation
.
After
the Closing Date, each of Rohm and HPI shall (and cause their respective
Affiliates to):
(a) assist
the other party in preparing any Tax Returns which such other party is
responsible for preparing and filing in accordance with Section
14.1;
(b) cooperate
fully in preparing for any audits of, or disputes with taxing authorities
regarding, any Tax Returns of Capital Partners or a Capital Partners
Subsidiary;
39
(c) make
available to the other and to any taxing authority as reasonably requested
all
information, records, and documents relating to Taxes of Capital Partners or
a
Capital Partners Subsidiary;
(d) provide
timely notice to the other in writing of any pending or threatened Tax audits
or
assessments of Capital Partners or a Capital Partners Subsidiary for taxable
periods for which the other may have a liability under this Article
XIV;
(e) furnish
the other with copies of all correspondence received from any taxing authority
in connection with any Tax audit or information request with respect to any
such
taxable period;
(f) timely
sign and deliver such certificates or forms as may be necessary or appropriate
to establish an exemption from (or otherwise reduce), or file Tax Returns or
other reports with respect to, Taxes relating to sales, transfer and similar
Taxes;
(g) timely
provide to the other powers of attorney or similar authorizations necessary
to
carry out the purposes of this Article
XIV;
(h) retain
all books and records with respect to Tax matters pertinent to Capital Partners
or a Capital Partners Subsidiary relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and, to
the
extent notified by the other party, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority; and
(i) give
the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
allow
the other party to take possession of such books and records or obtain copies
of
same.
14.4 S
Corporation
.
Capital
Partners shall not revoke its election to be taxed as an S Corporation within
the meaning of Code Sections 1361 and 1362 through the Closing Date. Neither
Capital Partners, nor any Shareholder shall take or allow any action prior
to
the Effective Time that would result in the termination of Capital Partners’
status as a validly electing S Corporation within the meaning of Sections 1361
and 1362 of the Code
40
ARTICLE
XV
MISCELLANEOUS
15.1 Notices
.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be addressed to the receiving Party’s address set forth below or
to such other address as a Party may designate by notice hereunder, and shall
be
either (a) delivered by hand, (b) made by facsimile transmission, (c) sent
by
recognized overnight courier, or (d) sent by certified mail, return receipt
requested, postage prepaid.
|
If
to HPI or the Capital Partners Merger Subs
to:
|
|||
|
000
X. Xxxxxxxx, #0X
|
|||
|
Xxxxxxx,
Xxxxxxxx 00000
|
|||
|
Attn: Xxx
Xxxxxxxxx
|
|||
|
Health
Partnership, Inc.
|
|||
|
0
Xxxxxx Xxxxx, Xxxxx 000
|
|||
|
Xxxxxxxxxx,
Xxxxxxxx 00000
|
|||
|
Attn: Xxxxxx
X. Xxxxxx
|
|||
|
With
a copy to:
|
Xxxxxxx
& Xxxxxxxx Ltd.
|
||
|
000
X. Xxxxxx Xxxxx, Xxxxx 0000
|
|||
|
Xxxxxxx,
Xxxxxxxx 00000
|
|||
|
Attn: Xxxxxxxx
X. Xxxxxxxxx
|
|||
|
If
to Shareholders or Capital Partners:
|
|||
|
Capital
Partners For Health & Fitness, Inc.
|
|||
|
000-x
Xxx Xxxxxxx Xxxxx
|
|||
|
Xxxx,
Xxxxx Xxxxxxxx 00000
|
|||
|
Attn: Xxxxxxx
Xxxx
|
|||
41
All
notices, requests, consents and other communications hereunder shall be deemed
to have been delivered (1) if by hand, at the time of the delivery thereof
to
the receiving party at the address of such party set forth above, (2) if sent
by
facsimile transmission, at the time receipt has been acknowledged by electronic
confirmation or otherwise, (3) if sent by overnight courier, on the next
Business Day following the day such notice is delivered to the courier service,
or (4) if sent by certified mail, on the fifth (5th) Business Day following
the
day such mailing is made.
15.2 Entire
Agreement
.
This
Agreement and the other Documents embody the entire agreement and understanding
between the Parties with respect to the subject matter hereof and supersede
all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement
of
any kind not expressly set forth in the Documents shall affect, or be used
to
interpret, change or restrict, the express terms and provisions of this
Agreement.
15.3 Binding
Effect
This
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, heirs, personal representatives, legal
representatives, and permitted assigns.
15.4 Assignment
Neither
this Agreement, nor any right hereunder, may be assigned by any of the Parties
without the prior written consent of the other Parties.
15.5 Modifications
and Amendments
.
The
terms and provisions of this Agreement may be modified or amended only by
written agreement executed by all Parties hereto.
15.6 Waivers
The
terms
and provisions of this Agreement may be waived, or consent for the departure
therefrom granted, only by written document executed by the Party entitled
to
the benefits of such terms or provisions. No such waiver or consent shall be
deemed to be or shall constitute a waiver or consent with respect to any other
terms or provisions of this Agreement, whether or not similar. Each such waiver
or consent shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or consent.
No failure or delay by a Party in exercising any right, power or remedy under
this Agreement, and no course of dealing between the Parties hereto, shall
operate as a waiver of any such right, power or remedy of the Party. No single
or partial exercise of any right, power or remedy under this Agreement by a
Party, nor any abandonment or discontinuance of steps to enforce any such right,
power or remedy, shall preclude such Party from any other or further exercise
thereof or the exercise of any other right, power or remedy hereunder. The
election of any remedy by a Party shall not constitute a waiver of the right
of
such Party to pursue other available remedies. No notice to or demand on a
Party
not expressly required under this Agreement shall entitle the party receiving
such notice or demand to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Party giving
such notice or demand to any other or further action in any circumstances
without such notice or demand.
42
15.7 No
Third
Party Beneficiary
Except
as
otherwise provided herein, nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any Person other than
the Parties and their respective heirs, personal representatives, legal
representatives, successors and permitted assigns, any rights or remedies under
or by reason of this Agreement. Notwithstanding the foregoing, the indemnified
entities and persons referred to in Article
XII
are
expressly acknowledged to be third party beneficiaries of this
Agreement.
15.8 Severability
If
any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
43
15.9 Publicity
Neither
Capital Partners, nor any Shareholders shall make, or cause to be made, any
press release or public announcement in respect of this Agreement or the
transactions contemplated hereby or otherwise communicate with any news media
without the prior written consent of HPI, except as may be required by Law.
Neither HPI nor the Capital Partners Surviving Corporation shall make, or cause
to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate
with
any news media without the prior written consent of Capital Partners or Rohm,
except pursuant to the advice of HPI’s securities law counsel. HPI and Capital
Partners shall cooperate in regard to the timing and contents of any press
release or public announcement which HPI and Capital Partners shall decide
to
make.
15.10 Governing
Law
.
This
Agreement and the rights and obligations of the parties hereunder shall be
construed in accordance with and governed by the Law of the State of Illinois
without giving effect to the conflict of law principles thereof.
15.11 Counterparts;
Facsimile Signatures
.
This
Agreement may be executed in any number of counterparts, either manually or
via
facsimile transmission of signatures, each of which shall be deemed an original
but all of which together shall constitute one and the same
agreement.
15.12 Headings
The
descriptive headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation
of
this Agreement.
15.13 Expenses
Except
as
otherwise specified in this Agreement, all costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, whether or not the Closing shall have occurred. The costs and expenses
of the Shareholders in connection with the Transactions shall be borne by the
Shareholders and not Capital Partners. To the extent such costs and expenses
have not been satisfied or constitute obligations of Capital Partners, such
costs shall be a reduction to the Cash Consideration.
15.14 Further
Assurances
At
any
time and from time to time after the Closing Date each Party shall execute
and
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation as may be reasonably requested in order to more effectively carry
forth the terms and conditions of this Agreement and the Documents.
15.15 Arbitration
Any
controversy, dispute or claim arising out of or in connection with this
Agreement shall be settled by final and binding arbitration to be conducted
by
an arbitration tribunal in Chicago, Illinois, pursuant to the rules of the
American Arbitration Association. The arbitration tribunal shall consist of
one
arbitrator. If the parties cannot agree on the arbitrator, the office of the
American Arbitration Association in Chicago, Illinois shall make the necessary
appointment. The decision or award of the arbitrator shall be final, and
judgment upon such decision or award may be entered in any competent court
or
application may be made to any competent court for judicial acceptance of such
decision or award and an order of enforcement. In the event of any procedural
matter not covered by the aforesaid rules, the procedural law of the State
of
Illinois shall govern. Notwithstanding the agreement to arbitrate contained
in
this Section
15.15,
any
party may apply to any court having jurisdiction to enforce this Agreement
to
seek provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the dispute is otherwise resolved.
44
15.16 Incorporation
by Reference
Each
Exhibit and Schedule to this Agreement is hereby incorporated into this
Agreement by reference thereto, with the same legally binding force and effect
as if such Exhibit or Schedule were fully set forth herein. any disclosure
made
in this Agreement or in any Schedule or any document attached to any Schedule
shall be deemed to be a disclosure for all Schedules. If the Schedules and
Exhibits have not been completed prior to the Closing Date, the parties shall
complete such schedules within five (5) business days after the date hereof.
The
Schedules shall not reveal any materially adverse conditions not otherwise
disclosed in the Financial Statements.
[Remainder
of Page Left Intentionally Left Blank]
45
IN
WITNESS WHEREOF, the parties hereto have each executed and delivered this
Agreement as of the day and year first above written.
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By:
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Name:
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Title:
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CAPITAL
PARTNERS MERGER SUB, INC.
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By:
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Name:
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Title:
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CAPITAL
PARTNERS ACQUISITION SUB, INC.
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By:
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Name:
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Title:
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CAPITAL
PARTNERS FOR HEALTH & FITNESS, INC.
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By:
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Name:
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Title:
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XXXXXXX
XXXX
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XXXXXX
XXXXX
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