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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HEALTHCARE ACQUISITION CORP.,
HEALTHCARE ACQUISITION, INC.
AND
ENCORE ORTHOPEDICS, INC.
DATED: NOVEMBER 12, 1996
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TABLE OF CONTENTS
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ARTICLE I
The Merger
1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Articles of Incorporation of the Surviving Corporation . . . . . . . . . . . . . . . . . . . 2
1.05. Bylaws of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.06. Officers and Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.07. Stockholders' Meetings; Securities and Exchange
Commission Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.08. S-4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.09. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10. Subsequent Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
Status and Conversion of Securities
2.01 Status and Conversion of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.02. Closing of Encore's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.03 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.04. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.05. Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.06. Escrow of HCAC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
Representations and Warranties of Encore
3.01. Corporate Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.02. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.03. Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.04. Authorization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.05. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.06. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.07. Financial Statements of Encore; Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 15
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3.08. Conduct Since Date of Encore Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 15
3.09. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10. Proceedings and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.13. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14. ERISA; Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.15. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.16. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.17. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.18. Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.19. Proxy Materials; S-4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 20
3.20. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.21. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.22. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.23. Previous Sales; Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.24. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.25. Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.26. Distributors, Customers or Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.27. Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.28. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
Representations and Warranties of HCAC and Acquisition
4.01. Corporate Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.02. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.03. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.04. Authorization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.05. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.06. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.07. Financial Statements of HCAC; Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 25
4.08. HCAC Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.09. Absence of Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10. Proceedings and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.13. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.14. Absence of Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.15. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.16. Board Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.17. Trust Funds; Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.18. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(ii)
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4.19. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.20. S-4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.21. As to Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.22. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.23. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.24. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.25. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.26. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.27. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.28. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.29. Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.30. Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V
Conduct of Business Pending the Effective Time
5.01. Conduct of Business by Encore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.02. Conduct of Business by HCAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
Covenants and Agreement of the Parties
6.01. Covenants of Encore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.02. Covenants of HCAC and Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.03. Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.04. Lock-Up Agreements of Certain Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.05. HCAC Charter Amendment; Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.06 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.07. Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.08. Severance Agreement Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
Conditions Precedent to the Merger
7.01. Conditions to Each Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.02. Conditions to Obligations of HCAC and Acquisition . . . . . . . . . . . . . . . . . . . . . 44
7.03. Conditions to Obligations of Encore . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
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ARTICLE VIII
Termination and Abandonment
8.01. Methods of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE IX
Miscellaneous Provisions
9.01. Limitation as to Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.02 Governing Law; Binding Effect; Severability . . . . . . . . . . . . . . . . . . . . . . . . 50
9.03. Entire Agreement Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.04. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.06. Construction; Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.07. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.08 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.09. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.10 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBITS:
Exhibit A - Defined Terms
Exhibit B - Form of Amendments Required to HCAC's Certificate of
Incorporation
Exhibit C - Form of Lock-up Agreement
Exhibit D - Form of HCAC Stock Option Plan
Exhibit E - Form of HCAC $7.00 Warrant
Exhibit F - Escrow Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered
into this 12th day of November, 1996 by and among HEALTHCARE ACQUISITION CORP.,
a Delaware corporation ("HCAC"); HEALTHCARE ACQUISITION, INC., a Texas
corporation and wholly-owned subsidiary of HCAC ("Acquisition"); and ENCORE
ORTHOPEDICS, INC., a Texas corporation ("Encore").
Recitals
A. Encore is a corporation duly organized and validly existing
under the corporate laws of the State of Texas, with its principal executive
offices located at 8900 Shoal Creek Blvd., Bldg. 300, Austin, Texas 78757.
B. HCAC is a corporation duly organized and validly existing under
the corporate laws of the State of Delaware. Acquisition is a corporation duly
organized and validly existing under the corporate laws of the State of Texas.
The principal address of HCAC and Acquisition is set forth in Section 9.04
hereof.
C. The Boards of Directors of HCAC, Acquisition and Encore each
have approved the merger of Acquisition with and into Encore in accordance with
the Texas Business Corporation Act (the "TBCA") upon the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, HCAC, Acquisition and Encore hereby
agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. At the Effective Time (as defined in Section 1.02
of this Agreement) and subject to the terms and conditions of this Agreement and
the TBCA, Acquisition shall be merged with and into Encore (the "Merger").
Following the Merger, Encore shall continue as the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Texas and shall succeed
to and be vested in all rights, privileges, immunities and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest, of or
belonging to or due to each of Acquisition and Encore without further act or
deed in accordance with the provisions of
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the TBCA, and the separate existence of Acquisition shall cease. The name of
the Surviving Corporation shall continue to be "Encore Orthopedics, Inc."
1.02. EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of all conditions to the Merger, the parties to this
Agreement shall effect the Merger by filing with the Secretary of State of the
State of Texas articles of merger (the "Articles of Merger"), in such form as
required by, and executed in accordance with, the relevant provisions of, the
TBCA. The date and time of such filing is herein referred to as the "Effective
Time."
1.03. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Article 5.06 of the TBCA.
1.04. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. At the
Effective Time, the Articles of Incorporation of the Surviving Corporation
shall, pursuant to the Merger and without any further action by Encore or
Acquisition or their shareholders, be amended to read in its entirety as the
Articles of Incorporation of Acquisition as in effect immediately prior to the
Effective Time, except that Article I of the Articles of Incorporation of the
Surviving Corporation shall read as follows: "The name of the Corporation is
Encore Orthopedics, Inc." until thereafter amended as provided herein and under
the TBCA.
1.05. BYLAWS OF THE SURVIVING CORPORATION. At the Effective Time
and without further action on the part of Encore or Acquisition, the Bylaws of
the Surviving Corporation shall be amended to be the Bylaws of Encore, as in
effect immediately prior to the Effective Time, until thereafter amended as
therein provided.
1.06. OFFICERS AND BOARD OF DIRECTORS. At the Effective Time, Nick
Cindrich, Craig L. Smith, Richard Martin, Richard D. Relyea, Lamar Laster, Jay
M. Haft, John H. Abeles, Dennis J. Enright, Joel S. Kanter and Kenneth Davidson
shall become the directors of the Surviving Corporation, each of such directors
to hold office, subject to the applicable provisions of the Articles of
Incorporation and Bylaws of the Surviving Corporation, until the next annual
meeting of shareholders of the Surviving Corporation and until their successors
shall be duly elected and shall duly qualify. The current officers of Encore
immediately prior to the Effective Time shall become the officers of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected and qualified.
1.07. STOCKHOLDERS' MEETINGS; SECURITIES AND EXCHANGE COMMISSION
FILINGS.
(a) Consistent with applicable law, HCAC and Encore shall
each cause meetings of their respective stockholders to be duly called and held
as soon as reasonably practicable (and in any event before the date this
Agreement may be unilaterally terminated under Section 8.01(f) hereof) for the
purpose of considering and taking action upon this Agreement and the Merger and,
in the case of HCAC, for the additional purposes referred to in Section 6.05 of
this Agreement (such meetings are collectively referred to as the "Special
Meetings" and, individually, the "HCAC Special
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Meeting" and the "Encore Special Meeting"). Subject to the respective fiduciary
duties of the Boards of Directors of Encore and HCAC (as evidenced by written
independent legal advice addressed to the applicable Board of Directors), and in
the case of HCAC, subject to its receipt of the Fairness Opinion described in
Section 7.02(f) hereof, the Boards of Directors of Encore and HCAC will
recommend that their respective stockholders approve this Agreement and the
transactions and actions contemplated hereby.
(b) In connection with the approval of this Agreement and
the Merger, HCAC and Encore will cooperate with one another to promptly prepare
and file a preliminary proxy statement with the Securities and Exchange
Commission (the "SEC") relating to the transactions contemplated by this
Agreement (including, without limitation, the matters referred to in Section
6.05 hereof), which shall consist of joint proxy materials for use in soliciting
the votes of the stockholders of HCAC and Encore (the "Preliminary Proxy
Statement"). HCAC and Encore will cooperate with one another to promptly
respond to the comments of the SEC and to cause a Definitive Proxy Statement (as
herein defined) to be mailed to HCAC's and Encore's stockholders as soon as
reasonably practicable. Each of HCAC and Encore shall have a reasonable
opportunity to review and comment upon each of the Preliminary Proxy Statement
and the Definitive Proxy Statement and any supplements or amendments prior to
their filing with the SEC and prior to any distribution. As soon as practicable
after the date hereof, HCAC and Encore shall cooperate to promptly prepare and
file a Form 8-K and any other filings required under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any other federal or state laws
relating to the Merger and the transactions contemplated herein (collectively,
"Other Filings"). HCAC shall notify Encore promptly of the receipt of the
comments of the SEC and of any request by the SEC for amendments or supplements
to the Preliminary Proxy Statement and/or the Definitive Proxy Statement or by
any other governmental official with respect to any Other Filings or for
additional information from the SEC or members of its staff and will supply
Encore with copies of all correspondence between such government officials and
HCAC or its representatives with respect to the Preliminary Proxy Statement, the
Definitive Proxy Statement and any Other Filings; and HCAC, after consultation
with Encore, shall use its reasonable efforts (and Encore agrees to reasonably
cooperate with HCAC in connection therewith) to respond promptly to any comments
made by the SEC or other appropriate governmental officials with respect to the
Preliminary Proxy Statement, the Definitive Proxy Statement and any Other
Filings. HCAC and Encore shall work together to cause the Definitive Proxy
Statement and related form of proxy to be mailed to HCAC and Encore's
stockholders at the earliest practicable time. Each party shall notify the
other of its intention to mail the Definitive Proxy Statement to its
stockholders at least 48 hours prior to the intended time of such mailing and
shall endeavor to coordinate such mailings so that they occur on the same day.
The letters to stockholders, notices of meeting, prospectus/joint proxy
statement and forms of proxy, in the form distributed to stockholders of HCAC
and Encore in connection with the Merger and all amendments or supplements
thereto, if any, similarly filed and distributed, or any schedules required to
be filed with the SEC in connection therewith are collectively referred to
herein as the "Definitive Proxy Statement." Each party agrees that if it
becomes aware that any amendment of, or a supplement to, the Definitive Proxy
Statement is necessary or advisable, it will,
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upon learning of such event, promptly notify the other parties hereto, and HCAC
and Encore will work together to promptly prepare and will file or mail, as
required, such amendment or supplement.
(c) Subject to the fiduciary duties of their respective
Boards of Directors, HCAC and Encore shall use their reasonable efforts to
secure approvals of the Merger by their shareholders and, as to HCAC, approval
and adoption of the amendments to HCAC's Certificate of Incorporation and the
adoption of the Stock Option Plan referred to in Section 6.05(a) hereof
(d) HCAC, as sole shareholder of Acquisition, hereby
approves the Merger and this Agreement.
1.08. S-4 REGISTRATION STATEMENT. As promptly as practicable after
the date hereof HCAC and Encore will jointly prepare and HCAC will file with
the SEC a registration statement on Form S-4 (the "S-4 Registration Statement")
under the Securities Act of 1933, as amended (the "1933 Act") relating to the
shares of HCAC Common Stock issuable pursuant to the terms hereof at the
Effective Time of the Merger. The S-4 Registration Statement shall register
under the 1933 Act (i) the issuance to the Encore Shareholders in the Merger of
shares of HCAC Common Stock, $.001 par value (the "HCAC Common Stock") and the
HCAC $7.00 Warrants, the form of which is attached as Exhibit E hereto and each
of which shall be exercisable for one (1) share of HCAC Common Stock during a
four (4)-year period beginning at the Effective Time at an exercise price of
$7.00, subject to adjustment as set forth therein (the "HCAC $7.00 Warrants")
and (ii) the issuance of HCAC Common Stock upon exercise of the HCAC $7.00
Warrants. HCAC will use all reasonable efforts to cause the S-4 Registration
Statement to be declared effective as soon as possible after the date hereof.
1.09. CLOSING. Upon the terms and subject to the conditions hereof, as
soon as practicable following the completion of the Special Meetings, Encore
and Acquisition shall execute in the manner required by the TBCA and deliver to
the Secretary of State of the State of Texas duly executed and verified
Articles of Merger, as required by the TBCA, and the parties shall take such
other and further actions as may be required by law to make the Merger
effective. Immediately prior to the filing referred to in this Section, a
closing (the "Closing" and the date thereof being the "Closing Date") will be
held at the offices of Sutherland, Asbill & Brennan, 111 Congress Avenue, Suite
2300, Austin, Texas 78701 at 9:00 a.m., local time (or such other place as the
parties may agree) for the purpose of confirming all of the foregoing.
1.10. SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of Encore or Acquisition acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the officers and directors
of the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of Encore and Acquisition or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of Encore and
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Acquisition or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all rights, title and interest
in, to and under such rights properties or assets in the Surviving Corporation
or otherwise to carry out this Agreement.
ARTICLE II
STATUS AND CONVERSION OF SECURITIES
2.01 STATUS AND CONVERSION OF STOCK. The authorized capital stock
of Acquisition consists of 1,000 shares of common stock, $1.00 par value.
Encore's authorized capital stock consists of 15,000,000 shares of common stock,
$0.01 par value ("Encore Common Stock"), and 5,000,000 shares of Preferred
Stock, par value $1.00 ("Encore Preferred Stock"), 1,000,000 shares of which
have been designated as "Series A Preferred Stock." In addition, Encore has
issued or prior to the Effective Time shall have issued the Existing Stock
Options (as defined in Section 2.05 hereof). All Existing Stock Options that
have an exercise price of $5.00 per share or more and are identified as
"Excluded Existing Stock Options" on the Encore Disclosure Schedule (the "Encore
Disclosure Schedule") delivered to HCAC prior to the execution of this Agreement
as updated prior to the Effective Time in accordance with Section 6.01(c) hereof
are hereinafter referred to as the "Excluded Existing Stock Options" and all
other Existing Stock Options are hereinafter referred to as the "Included
Existing Stock Options." As provided in Section 2.05(a), hereof, each Existing
Stock Option shall, at the Effective Time, cease to be exercisable for Encore
Common Stock and shall instead be exercisable for a Unit (as defined in Section
2.05(a) hereof) of HCAC Common Stock and HCAC $7.00 Warrants.
(a) Each share of Encore Common Stock and each share of
Encore Preferred Stock which is held in the treasury of Encore immediately
prior to the Effective Time, if any, shall be canceled and shall cease to exist
at and after the Effective Time without payment of any consideration therefor.
(b) At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, except for Dissenting
Shares (as defined in Section 2.04 hereof) and shares which are held in the
treasury of Encore, and subject to the provision for fractional interests to be
paid for as provided in Section 2.03 hereof, each share of Encore Common Stock
and Encore Preferred Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and shall represent only the right to
receive upon surrender of the certificate(s) formerly representing such
securities shares of HCAC Common Stock and HCAC $7.00 Warrants, plus cash
(without interest) in lieu of any fraction of a share of HCAC Common Stock as
provided for in Section 2.03 hereof, as follows:
(i) The total number of shares of HCAC Common
Stock ("New HCAC Common Stock") to be issued upon conversion of the Encore
Common Stock and Encore Preferred Stock in the Merger and available for
issuance upon exercise of the Included Existing Stock Options
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shall be, collectively, that number of shares of HCAC Common Stock that is
equal to the amount obtained by dividing $40,000,000 (less the amount, if any,
paid or payable with respect to the Dissenting Shares) by the Per Share Amount
(as hereinafter defined);
(ii) The total of the number of HCAC $7.00 Warrants
issued in the Merger upon conversion of the Encore Common Stock or Encore
Preferred Stock plus the number of HCAC $7.00 Warrants issuable upon exercise of
the Included Existing Stock Options shall be equal to 15% of the number of
shares of New HCAC Common Stock;
(iii) The number of shares of HCAC Common Stock to
be issued for each share of Encore Common Stock converted in the Merger ("HCAC
Common-Per-Share-Amount") shall be equal to the number obtained by dividing the
number of shares of New HCAC Common Stock by the sum ("Share Conversion Sum")
of (x) the number of shares of Encore Common Stock to be converted in the
Merger, (y) the number of shares of Encore Common Stock for which the Included
Existing Stock Options are exercisable as of the Effective Time, and (z) 1.25
multiplied by the number of shares of Encore Preferred Stock to be converted in
the Merger;
(iv) The number of HCAC $7.00 Warrants to be
issued for each share of Encore Common Stock converted in the Merger ("HCAC
$7.00 Warrants-Per-Share-Amount") shall be equal to the number obtained by
dividing the total number of HCAC $7.00 Warrants referred to in Section
2.01(b)(ii) hereof by the Share Conversion Sum; and
(v) The number of shares of HCAC Common Stock to
be issued for each share of Encore Preferred Stock converted in the Merger
shall be equal to 1.25 multiplied by the HCAC Common-Per-Share-Amount. The
number of HCAC $7.00 Warrants to be issued for each share of Encore Preferred
Stock converted in the Merger shall be equal to 1.25 multiplied by the HCAC
$7.00 Warrants-Per-Share-Amount.
(c) The "Per Share Amount" shall be calculated as
follows:
(i) First, HCAC and Encore shall take the actual
number of shares of HCAC Common Stock outstanding immediately prior to the
Merger and deduct therefrom the number of shares of HCAC Common Stock held by
HCAC stockholders, if any, who, exercise their rights of conversion pursuant to
Article Sixth of HCAC's Certificate of Incorporation ("Conversion Rights")
(such number of shares being referred to as the "HCAC Redemption Shares"), (the
figure so derived is referred to as the "HCAC Pre-Merger Share Number");
(ii) Then, the parties shall determine the product
derived by multiplying the number of HCAC Redemption Shares, if any, times the
amount required to be paid on account of the HCAC Redemption Shares pursuant the
Conversion Rights (such product being referred to as the "Cost of Redemption");
(iii) Then, the parties shall deduct from the sum
of (a) the dollar amount of the account balance (as of immediately prior to the
Effective Time) of the government securities
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and cash held by IBJ Schroder Bank & Trust Company (the "Trustee") in a trust
account ("Trust Fund") for the benefit of HCAC as of immediately prior to the
Effective Time (the "Trust Fund Amount"), and (b) the amount of cash in the bank
accounts of HCAC immediately prior to the Effective Time, the amount, if any, of
the accounts payable of HCAC, as estimated by HCAC and certified to Encore as
provided in Section 6.02(h) hereof (the "Certified Accounts Payable"), and then
add thereto One Hundred Fifty Thousand Dollars ($150,000) (the amount so derived
is referred to as the "Net Fund Amount");
(iv) Then, the parties shall deduct from the Net
Fund Amount the amount of the Cost of Redemption, if any (the "Remaining
Amount"); and
(v) Then, the parties shall derive the quotient
obtained by dividing the Remaining Amount by the HCAC Pre-Merger Share Number
(the quotient so derived is referred to as the "Per Share Amount").
(d) If within sixty (60) days following the Effective
Time, it is determined that the total amount of actual accounts payable of HCAC
as of immediately prior to the Effective Time (the "Actual Accounts Payable")
was in excess of the dollar amount of the Certified Accounts Payable, then the
number of shares of HCAC Common Stock and HCAC $7.00 Warrants into which each
share of Encore Common Stock and Encore Preferred Stock shall be converted
pursuant to this Section 2.01 shall be recalculated in accordance with Section
2.01(a) - (c) substituting, for the purpose of Section 2.01(c), Actual Accounts
Payable for Certified Accounts Payable; and in such event the number of shares
of HCAC Common Stock and HCAC $7.00 Warrants to be issued under this Section
2.01 shall be adjusted accordingly. The Actual Accounts Payable shall be
calculated by the HCAC CFO, reviewed by the HCAC auditor and approved by the
HCAC Board of Directors.
(e) Each issued and outstanding share of capital stock of
Acquisition shall, by virtue of the Merger and without further action, be
converted into one fully paid and nonassessable share of common stock, $.01 par
value, of the Surviving Corporation. At Closing, the certificate representing
such shares shall be exchanged for a certificate of the Surviving Corporation.
2.02. CLOSING OF ENCORE'S TRANSFER BOOKS. At and after the Effective
Time, each holder of a certificate or certificates that represent issued and
outstanding shares of Encore Common Stock or Encore Preferred Stock prior to the
Effective Time shall cease to have any rights as shareholders of Encore, except
for the right to surrender such certificates for HCAC Common Stock and HCAC
$7.00 Warrants as provided in Section 2.01 and 2.03 of this Agreement, or in the
case of the holders of Dissenting Shares, to perfect their right to receive
payment for their shares pursuant to Article 5.12 of the TBCA and Section 2.04
of this Agreement. At the Effective Time, the stock transfer books of Encore
shall be closed and no transfer of shares of Encore Common Stock or Encore
Preferred Stock shall thereafter be made. If after the Effective Time
certificates previously representing shares of Encore Common Stock or shares of
Encore Preferred Stock are presented to
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the Surviving Corporation or its transfer agent, they shall be canceled and
exchanged for HCAC Common Stock and HCAC $7.00 Warrants as provided in Sections
2.01 and Section 2.03 hereof.
2.03 EXCHANGE OF CERTIFICATES. Promptly after the Effective Time,
HCAC shall cause Continental Stock Transfer & Trust Company (the "Exchange
Agent") to mail to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented issued and outstanding shares of Encore Common Stock or Encore
Preferred Stock, a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the certificates shall pass,
only upon proper delivery of the certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the certificates. Upon
surrender to the Exchange Agent of such certificates, together with such letter
of transmittal duly executed, each holder of such certificates formerly
representing shares of Encore Common Stock or Encore Preferred Stock shall be
entitled to receive in exchange therefor a certificate representing the whole
number of shares of HCAC Common Stock and a certificate representing the whole
number of HCAC $7.00 Warrants into which such shares of Encore Common Stock or
Encore Preferred Stock shall have been converted as set forth in Section 2.01
hereof, and such certificates shall then be canceled. Until so surrendered,
each certificate (other than certificates for Dissenting Shares) that prior to
the Merger represented shares of Encore Common Stock or Encore Preferred Stock
shall be deemed, for all purposes, and without any further act or deed on the
part of the holder thereof, to evidence ownership of the whole number of shares
of HCAC Common Stock and HCAC $7.00 Warrants that the holder thereof would be
entitled to receive upon its surrender to the Exchange Agent; provided, however,
that no dividends with respect to said shares of HCAC Common Stock shall be paid
until such holder shall surrender such certificate, at which time there shall be
paid to the record holder of the certificates issued in exchange therefor the
amount of the dividends, without interest, that have theretofore become payable
with respect to the shares of HCAC Common Stock represented thereby. No
fraction of a share of HCAC Common Stock will be issued upon such exchange of
shares of Encore Common Stock or Encore Preferred Stock, but any holder of
shares of Encore Common Stock or Encore Preferred Stock who would otherwise,
pursuant to the provisions of Section 2.01 hereof, be entitled to a fraction of
a share of HCAC Common Stock will instead receive a cash payment in lieu of and
with respect to said fraction of a share to which such holder would be so
entitled determined by multiplying (i) the value of a share of HCAC Common Stock
(calculated as hereinafter provided) by (ii) the fractional share interest to
which such holder would otherwise be entitled, which product shall be rounded to
the nearest whole cent. For purposes of computing such cash payment, the value
of a share of HCAC Common Stock shall be the average of the closing bid prices
of HCAC Common Stock on the OTC Bulletin Board for the last five (5) trading
days prior to the Effective Time. Such cash payment shall be paid in U.S.
Dollars at the time of presentation for surrender to the Exchange Agent of the
certificate for shares of Encore Common Stock and/or Encore Preferred Stock. The
right to receive such cash payment shall, if the holder thereof shall not prior
thereto so present such certificates, terminate on the second anniversary date
of the Effective Time. No fractional amount of HCAC $7.00 Warrants shall be
issued, but instead, the number of HCAC $7.00 Warrants to be issued to any
holder of shares of Encore Common Stock or Encore Preferred Stock shall be
rounded to the nearest whole number. If any certificate for HCAC Common Stock
or HCAC $7.00 Warrant is to be issued in a name other than that in which the
certificate for Encore Common Stock or Encore Preferred Stock so
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surrendered for exchange is registered, it shall be a condition of such exchange
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall pay
to the Exchange Agent any transfer taxes required by reason of such issuance, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
2.04. DISSENTING SHARES.
(a) Notwithstanding the provisions of Section 2.01 or any
other provision of this Agreement to the contrary, shares of Encore Common Stock
or Encore Preferred Stock issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who object to the Merger and
comply with all of the relevant provisions of Article 5.12 of the TBCA
("Dissenting Shares") shall not be converted into or represent a right to
receive HCAC Common Stock or HCAC $7.00 Warrants hereunder or pursuant to the
Articles of Merger at or after the Effective Time, but instead shall be entitled
to receive payment of the appraised value of such shares in accordance with the
provisions of such Article 5.12 of the TBCA, unless and until the holder thereof
shall have failed to perfect, or shall have effectively withdrawn or lost, such
rights to appraisal and payment under the TBCA. If a holder of Dissenting
Shares shall have so failed to perfect or shall have effectively withdrawn or
lost such right to appraisal and payment, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, such holder's Dissenting Shares
shall be converted into and solely represent the right to receive shares of HCAC
Common Stock or HCAC $7.00 Warrants, as provided in Section 2.01, as may be
applicable. Encore shall give HCAC prompt notice upon receipt by Encore of any
written objection to the plan of merger set forth herein (any shareholder duly
making such objection being hereinafter called a "Dissenting Shareholder").
Encore agrees that prior to the Effective Time, it will not, without the prior
written consent of HCAC, voluntarily make or agree to make any payment with
respect to, or settle or offer to settle, any such objection.
(b) Each Dissenting Shareholder who becomes entitled,
pursuant to the provisions of Article 5.12 of the TBCA, to payment for his
Dissenting Shares shall receive payment therefor after the Effective Time from
the Surviving Corporation (but only after the amount thereof shall have been
agreed upon or finally determined pursuant to such provisions) and such shares
shall be canceled.
2.05. OPTIONS.
(a) At the Effective Time, HCAC shall assume Encore's
rights and obligations under each of the outstanding stock options previously
granted by Encore to certain of its directors, officers, employees, advisory
surgeons, designing surgeons, sales representatives, distributors and
shareholders, excluding any issued in violation of Section 5.01(c) hereof, that
are outstanding immediately prior to the Effective Time (each such stock option
existing immediately prior to the Effective Time being hereinafter called an
"Existing Stock Option" and each such assumed stock
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option existing immediately after the Effective Time being hereinafter called an
"Assumed Stock Option"). Under the Assumed Stock Option, the optionee shall
have the right to receive from HCAC, in accordance with the terms and subject to
the conditions of the Existing Stock Option, one Unit for each share of Encore
Common Stock for which, and at the exercise price at which, it was exercisable
immediately prior to the Effective Time. A "Unit" shall be the number of shares
of HCAC Common Stock and HCAC $7.00 Warrants into which a share of Encore Common
Stock is converted by virtue of the Merger. The Assumed Stock Option shall not
give the optionee additional benefits that he did not have under the Existing
Stock Option. Each Assumed Stock Option shall constitute a continuation of the
Existing Stock Option substituting HCAC for Encore and employment by Encore or
any of its subsidiaries. Notwithstanding the foregoing, the terms of any
Assumed Stock Option shall be such that the substitute of the Assumed Stock
Option for the Existing Stock Option would not constitute a modification of the
Existing Stock Option within the meaning of Section 425(H)(3) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
(b) If and to the extent required by the terms of the
plans governing the Existing Stock Options or pursuant to the terms of any
Existing Stock Option granted thereunder, Encore shall use its reasonable
efforts to obtain the consent of each holder of outstanding Existing Stock
Options to the treatment of the Existing Stock Options provided in subparagraph
(a) of this Section 2.05.
(c) HCAC shall submit to its stockholders at the HCAC
Special Meeting a proposal for the approval of the assumption of the Existing
Stock Options and the assumption of the Encore Stock Option Plans, if necessary
for qualifying the Assumed Stock Options for the exemption afforded by Rule
16b-3 under the Exchange Act, and shall include such matter in the Definitive
Proxy Statement. In addition, HCAC shall submit to its stockholders at the
HCAC Special Meeting a proposal for the adoption of one or more new stock
option plans, if requested and provided by Encore in a timely manner, provided
they are reasonably satisfactory to HCAC, so as to afford such plans the
exemption afforded by such Rule 16b-3, and shall include such proposal in the
Definitive Proxy Statement.
2.06. ESCROW OF HCAC COMMON STOCK. An amount of the HCAC Common
Stock into which Encore Common Stock is converted by virtue of the Merger,
equal to ten percent (10%) of all the New HCAC Common Stock (including, but not
limited to, any additional shares of New HCAC Common Stock issued pursuant to
Section 2.01(d) hereof) ("Escrow Stock") shall be delivered at the Effective
Time by the Encore shareholders identified on Schedule 2.06 of the Encore
Disclosure Schedule ("Escrow Shareholders"), in the individual amounts set
forth thereon, to Sutherland, Asbill & Brennan ("Escrow Agent") jointly
appointed by the parties hereto, and shall be held in escrow by Escrow Agent
pursuant to an Escrow Agreement in the form of Exhibit F hereto ("Escrow
Agreement") to be executed by such Escrow Shareholders, HCAC and Escrow Agent,
and delivered to HCAC at Closing pending completion of the audit of Encore's
financial statements for its fiscal year ending December 31, 1996 ("1996
Financial Statements"). HCAC is directed to deliver the certificates
evidencing the Escrow Stock directly to the Escrow Agent, which shall
constitute delivery thereof from HCAC to the Escrow Shareholders and from the
Escrow
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Shareholders to the Escrow Agent. From the Effective Time until the Escrow
Stock is released from such escrow in accordance with this Agreement and the
Escrow Agreement ("Escrow Period"), all cash, securities and other property
distributed on or paid with respect to the Escrow Stock or any Escrow Property
(as hereinafter defined), by dividend, stock split, as a result of a merger or
acquisition, or otherwise, shall be delivered by HCAC to the Escrow Agent to be
held in escrow under this Agreement and the Escrow Agreement, at which time it
shall be deemed "Escrow Property." No such distribution or payment shall be
declared or authorized to be made directly or indirectly to the HCAC
stockholders who are holders of record as of a date during the Escrow Period
unless such distribution or payment is made during the Escrow Period and all
such distributions or payments made on or with respect to the Escrow Stock or
any other Escrow Property become Escrow Property. If Encore's sales for 1996
as reflected in the 1996 Financial Statements, (excluding any sales to
affiliates in the fourth quarter of 1996 that exceed $3,900,000) ("1996
Sales"), are less than $16,200,000, the Escrow Shareholders shall forfeit the
Escrow Stock to the Company for cancellation and return to the Company's
authorized but unissued common stock, each in the individual proportions that
such Escrow Shareholder's Escrow Stock bears to the total amount of Escrow
Stock. All Escrow Property distributed or paid on or with respect to each
share of such forfeited Escrow Stock shall also be delivered to and forfeited
to the Company. The number of shares of Escrow Stock to be so forfeited shall
be the amount obtained by dividing (i) the product of 2.22 multiplied by the
amount by which 1996 Sales is less than $16,200,000; by (ii) the Per Share
Amount. The amount of 1996 Sales and the number of shares of Escrow Stock to
be forfeited shall be calculated by the HCAC CFO, reviewed by the HCAC auditor
and approved by the HCAC Board of Directors. The foregoing calculation and
forfeiture shall be made within thirty (30) days after the audit of the 1996
Financial Statements is completed, and, promptly thereafter, the remaining
Escrow Stock will be distributed to its owners together with any Escrow
Property distributed or paid on or with respect to each share of such Escrow
Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ENCORE
Except for exclusions as to the representations or warranties made
herein as set forth in the Encore Disclosure Schedule dated as of the date of
this Agreement and delivered to HCAC prior to the execution of this Agreement
or as updated pursuant to the provisions of Section 6.01(c) hereof, Encore
hereby represents and warrants to HCAC as follows:
3.01. CORPORATE ORGANIZATION, ETC. Encore is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, and its Subsidiary (as defined in Section 3.03 hereof) is a corporation
duly organized, validly existing and in good standing under the laws of Jamaica.
Each of Encore and its Subsidiary has full corporate power and authority to
carry on their respective businesses as they are now being conducted and to own,
operate and lease their respective properties and assets, and each of Encore and
its Subsidiary is duly qualified or licensed to do business as a foreign
corporation and is in good standing in every jurisdiction in which its
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ownership of property or the conduct of its business requires such
qualifications, other than any jurisdiction in which the failure so to qualify
would not have a Material Adverse Effect on Encore and its Subsidiary taken as a
whole. "Material Adverse Effect" shall mean, with respect to any party hereto,
a material adverse effect on the business, operations, assets or financial
condition of such party. Encore has prior to the date of this Agreement
delivered or made available to HCAC accurate and complete copies of Encore's and
its Subsidiary's Articles of Incorporation, as amended, and Bylaws (or similar
governing documents), as in effect as of the date of this Agreement, certified
by the Secretary of Encore or such Subsidiary, as the case may be.
3.02. CAPITALIZATION. The authorized capital stock of Encore
consists of 15,000,000 shares of Encore Common Stock and 5,000,000 shares of
Encore Preferred Stock, of which 1,000,000 shares have been designated Series A
Preferred Stock. As of the date hereof, there are 6,294,754 shares of Encore
Common Stock, and 586,900 shares of Series A Preferred Stock issued and
outstanding and 24 shares of Encore Common Stock and no shares of Encore
Preferred Stock are held in Encore's treasury. All issued and outstanding
shares of Encore Common Stock and Encore Preferred Stock are duly and validly
issued and outstanding, fully paid and nonassessable, and were not issued in
violation of any preemptive rights. Except for preemptive rights of MVI AG
pursuant to that certain Subscription Agreement dated April 1, 1992 (the "MVI
Preemptive Rights") there are no preemptive rights affective or pertaining to
any capital stock or the securities of Encore or its Subsidiary. All taxes, if
any, related to the issuance or transfer of such shares have been timely paid.
As of the date hereof, there were also outstanding options to purchase Encore
Common Stock granted pursuant to Encore's 1992 Stock Option Plan, Encore's 1993
Distributor Stock Option Plan, Encore's 1993 Advisory Surgeon Stock Option Plan
(each as amended through the date hereof) and through other stock option
agreements (collectively, the "Stock Option Plans") to purchase an aggregate of
4,228,810 shares of Encore Common Stock. True and complete copies of each of
the Stock Option Plans have been delivered to HCAC prior to the date hereof.
The Encore Disclosure Schedule sets forth, with respect to each Stock Option
Plan, the total number of shares of Encore Common Stock authorized as of the
date of this Agreement for issuance pursuant to Existing Stock Options granted
thereunder, each Existing Stock Option granted thereunder, the date of such
grant, the number of shares for which such Existing Stock Option has been
exercised, the number of shares for which such Existing Stock Option remains
exercisable, and the exercise price of such Existing Stock Option. Except for
the shares of Encore Common Stock and the Series A Preferred Stock identified
above in this Section 3.02 as being issued and outstanding, the Existing Stock
Options granted under the Stock Option Plans as disclosed in the Encore
Disclosure Schedule, and the Encore Common Stock issued between the date hereof
and the Effective Time under such Existing Stock Options, as of the date
hereof, and as of the Effective Time, Encore does not and will not have
outstanding any shares of capital stock or other ownership interest, any
securities convertible into or exchangeable or exercisable for any shares of
its capital stock or other ownership interests, or any outstanding options,
warrants, subscriptions, conversion, or other rights, Contracts or commitment
of any character by which Encore is or may become bound to issue or sell any
additional shares of capital stock or other ownership interests of Encore, or
any securities convertible into or exchangeable or exercisable for, or
otherwise evidencing the right to acquire, any such shares or ownership
interest. As of the date of this Agreement, except as disclosed above or on
the Encore Disclosure Schedule, there are no, and as of the Effective Time,
there will not be any Obligations
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of Encore or its Subsidiary to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in Encore or
its Subsidiary. Except as set forth in the Encore Disclosure Schedule, there
are no shareholders agreements, preemptive rights agreements, rights of first
refusal or any other Contract that in any manner restricts, places conditions
or gives any Person any rights as a result of, the issuance of Encore's capital
stock that will survive the Effective Date. There are no voting trusts or
other Contracts or understandings to which Encore or its Subsidiary is a party
with respect to the voting of the capital stock of Encore or its Subsidiary.
Encore has complied in all material respects with all applicable federal and
state securities laws in connection with the issuance of all of the outstanding
Encore Common Stock, Encore Preferred Stock and each Existing Stock Option.
3.03. SUBSIDIARY. Except for Encore Orthopedics FSC, Ltd., a
Jamaican corporation (the "Subsidiary"), Encore does not own or control any
stock or other equity ownership interest (whether or not controlling) in any
corporation, association, partnership, joint venture, limited liability company
or other Person. The Subsidiary has no Assets or Obligations in excess of
Twenty Thousand Dollars ($20,000). Except as set forth in the Encore Disclosure
Schedule, all of the outstanding shares of capital stock and ownership interests
of the Subsidiary are owned, legally, beneficially and of record by Encore, and
are duly and validly issued and outstanding, fully paid and nonassessable, and
were not issued in violation of, and are not subject to, preemptive rights. None
of the shares or other ownership interests of the Subsidiary owned or held by
Encore, directly or indirectly, is subject to any Encumbrance of any kind.
Except for shares of capital stock owned by Encore, the Subsidiary does not have
outstanding any shares of capital stock or other ownership interests or any
securities convertible into or exchangeable or exercisable for any shares of its
capital stock or other ownership interests, nor are there outstanding any
options, warrants, subscriptions, conversion or other rights, agreements or
commitments of any character by which Encore or its Subsidiary is or may become
bound to issue or sell any shares of capital stock or other ownership interests
of the Subsidiary, or any securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire, any such shares or
ownership interests. Except as set forth in the Encore Disclosure Schedule,
there are no shareholders agreements, preemptive rights agreements, rights of
first refusal or any other Contract that in any manner restricts, places
conditions or gives any Person any rights as a result of the issuance of
Subsidiary capital stock that will survive the Effective Date.
3.04. AUTHORIZATION, ETC. Encore has the necessary corporate power
and authority to enter into this Agreement and to carry out its obligations
hereunder and under the Other Agreements (as hereinafter defined) to which it is
a party. The execution and delivery of this Agreement by Encore and the Other
Agreements (as hereinafter defined) to which it is a party, the performance by
Encore of its obligations hereunder and thereunder, and the consummation by
Encore of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of Encore, and no other corporate
proceeding on the part of Encore is necessary to authorize this Agreement or the
Other Agreements to which it is a party, or to consummate the transactions
contemplated hereby or thereby (other than the filing of the Articles of Merger
and the
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approval of the Merger by the shareholders of Encore in accordance with
applicable law). This Agreement has been duly and validly executed and
delivered by Encore and is a valid and binding agreement of Encore, enforceable
against Encore in accordance with its terms except that (i) enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affection the enforcement of the rights and
remedies of creditors; and (ii) the availability of equitable remedies may be
limited by equitable principles. The Articles of Merger when executed and
delivered pursuant hereto will be a valid and binding agreement of Encore,
enforceable against Encore in accordance with its terms. Each of the Escrow
Agreement, the Severance Agreement Amendments (as defined in Section 6.08
hereof), the Lock-Up Agreements (as defined in Section 6.04 hereof) and all
other agreements and instruments contemplated herein or therein (collectively,
the "Other Agreements"), when executed and delivered in accordance with the
terms thereof, will, to the knowledge of Encore, be a valid and legally binding
agreement of each party thereof (other than HCAC and Acquisition), enforceable
against each such party in accordance with its terms except that (i)
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affection the
enforcement of the rights and remedies of creditors; and (ii) the availability
of equitable remedies may be limited by equitable principles.
3.05. NO VIOLATION.
(a) Neither the execution and delivery of this Agreement
or the Articles of Merger or Other Agreements by Encore nor the consummation by
Encore of the transactions contemplated hereby or thereby nor compliance by
Encore with any provisions hereof or thereof will (i) conflict with or result in
any breach of any provision of the Articles of Incorporation or Bylaws (or
similar governing documents) of Encore or its Subsidiary, (ii) assuming all the
"Required Consents" (as defined in Section 3.05 of the Encore Disclosure
Schedule) are obtained, with or without the giving of notice or the passage of
time, or both, violate, or be in conflict with or constitute a default (or give
rise to any right of termination, cancellation or acceleration) (each such event
is referred to herein as a "Default") or require any Consent under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
Permit, lease, deed of trust or other instrument, other Contract or obligation
to which Encore or its Subsidiary is a party or by which Encore or its
Subsidiary or any of their respective Assets may be bound, or (iii) violate any
Judgment or Law to which Encore or its Subsidiary or any of their respective
Assets is subject, excluding from the foregoing clauses (ii) and (iii)
violations, breaches or defaults which in the aggregate are not likely to have a
Material Adverse Effect on Encore.
(b) Neither Encore nor its Subsidiary is in violation of
any term or provision of its Articles of Incorporation or Bylaws.
3.06. GOVERNMENT APPROVALS. Except for (i) compliance with
applicable federal and state securities laws, and (ii) the filing of the
Articles of Merger as required by the TBCA, the execution, delivery and
performance by Encore of this Agreement, the Articles of Merger and the Other
Agreements and the consummation by Encore of the transactions contemplated
hereby and thereby require no Consent of any governmental or regulatory
authority, except for such Consents, the failure
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of which to give or obtain would not, in the aggregate, have a Material Adverse
Effect or materially impair or delay the ability of Encore to perform its
obligations hereunder or to consummate the transactions completed hereby.
3.07. FINANCIAL STATEMENTS OF ENCORE; UNDISCLOSED LIABILITIES.
(a) Encore has heretofore delivered to HCAC: (i)
consolidated balance sheets of Encore as of December 31, 1993, December 31, 1994
and December 31, 1995, and (ii) consolidated statements of operations,
shareholders' equity and changes in financial position and cash flows of Encore
for each of its three years then ended, audited by Price Waterhouse, L.L.P.,
whose reports thereon are included therewith. Such audited consolidated
financial statements and the unaudited September 27, 1996 Encore Financial
Statements (as defined in Section 7.02(j) hereof) fairly present the
consolidated financial position of Encore and its Subsidiary as of the
respective dates set forth therein, and the consolidated results of operations
or the consolidated statements of cash flows of Encore and its Subsidiary for
the respective periods or as of the respective dates therein referred to. Such
audited consolidated financial statements were prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as disclosed in the notes thereof (the "Encore
Financial Statement Notes"), if any such disclosure). The audited financial
statements for the periods ended December 31, 1994 and December 31, 1995, and
the unaudited financial statements for the period ended September 27, 1996
reflect the pooling of interest accounting that resulted from the acquisition of
Applied Osteo Systems, Inc. The audited consolidated balance sheet of Encore as
of December 31, 1995, including the Encore Financial Statement Notes thereto, is
hereinafter referred to as the "Encore Balance Sheet" and December 31, 1995 is
hereinafter referred to as the "Encore Balance Sheet Date."
(b) Neither Encore nor its Subsidiary has any Obligation
that, individually or in aggregate, is material, except for Obligations: (i)
reflected on the Encore Balance Sheet, (ii) incurred in the ordinary course of
business since the Encore Balance Sheet Date, (iii) listed on any Schedule to
this Agreement or reflected in the Encore Financial Statement Notes, or (iv)
incurred subsequent to the date hereof with the prior written consent of HCAC or
as otherwise expressly permitted in this Agreement.
3.08. CONDUCT SINCE DATE OF ENCORE BALANCE SHEET. Except as
disclosed in the Encore Disclosure Schedule, none of the following have occurred
since the Encore Balance Sheet Date:
(a) Any material adverse change in the financial
condition, Assets, Obligations, capitalization, business, prospects, or
operations of Encore or its Subsidiary, nor are there any circumstances, other
than normal competitive circumstances, known to Encore or its Subsidiary that
might result in such a change or such an effect;
(b) Any damage, destruction or loss, whether or not
covered by insurance, adversely affecting the Assets or the business of Encore
or its Subsidiary;
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(c) Any disposition, lease or Encumbrance of the Assets
of Encore or its Subsidiary, or increase of indebtedness of or guaranteed by
Encore or its Subsidiary other than in the ordinary course of business
consistent with past practice; provided, however, that no such disposition,
lease or Encumbrance, regardless of the consideration therefor, has been made
between Encore or its Subsidiary and any of Encore's shareholders, directors,
officers, agents, contractors, or employees (or any member of their respective
families);
(d) Any settlement of any dispute involving a payment by
Encore or its Subsidiary of an amount in excess of Five Thousand Dollars
($5,000); provided, however, that no such settlement, regardless of the payment
involved, has been made between Encore or its Subsidiary, and any of the
Encore's shareholders, directors, officers, agents, contractors, or employees
(or any member of their respective families);
(e) Any grant of an increase in compensation or any
authorization or payment of any bonus or other extraordinary benefit or the
making of any advance (excluding advances for ordinary and necessary business
expenses) or loan to any of Encore's or its Subsidiary's employees or any
increase in, or any addition to, other benefits to which any of Encore's or any
of its Subsidiary's employees may be entitled;
(f) Any transaction entered into or other action taken by
Encore or its Subsidiary other than in the ordinary course of their businesses,
except for the acquisition of Applied Osteo Systems, Inc. on the terms and
conditions disclosed to HCAC; and
(g) Any Contract binding Encore or its Subsidiary to do
or take any of the actions referred to in this Section 3.08.
3.09. TITLE TO ASSETS. Encore and its Subsidiary have good and
marketable title to all Assets identified on the Encore Balance Sheet and all
other Assets used in their respective businesses (other than any Real
Property). All of such Assets are owned by Encore or its Subsidiary free and
clear of all Encumbrances. Encore and its Subsidiary own or lease all Assets
needed by Encore and its Subsidiary in the operation of their respective
businesses as presently conducted. No Person (other than security interests of
lessors disclosed in the Encore Disclosure Schedule) has any valid right, claim
or interest in or to any of such Assets.
3.10. PROCEEDINGS AND JUDGMENTS. Neither Encore nor its Subsidiary
is a party to, nor, to the best of the knowledge of Encore's officers, is there
any threat of, any Proceeding of any nature against Encore or its Subsidiary or
any of their respective Assets or seeking to prohibit the consummation of the
Merger and the transactions contemplated hereby or which would materially
impair the ability of Encore to perform its obligations hereunder. There are
no Judgments of any nature in effect or outstanding against Encore or its
Subsidiary or applicable to their respective businesses, Assets, or operations.
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3.11. COMPLIANCE WITH LAWS, ETC.
(a) Neither Encore nor its Subsidiary is in violation of
any Law or Judgment which violation, together with any other violations, in the
aggregate, would have a Material Adverse Effect on Encore. Neither Encore nor
its Subsidiary has received any claim or notice of any such violation.
(b) Without limiting the generality of paragraph (a) of
this Section 3.11, during the tenancy of an Encore Party (as defined below)
and, to the knowledge of Encore, prior to any such tenancy, there has not been
any Environmental Condition (defined below) at or relating to any premises at
which the respective businesses of Encore or its Subsidiary have been
conducted, or at or relating to any property owned, leased or operated by
Encore, its Subsidiary or any predecessor thereof (each an "Encore Party").
"Environmental Condition" means any condition or circumstance whether or not
created by an Encore Party, at or relating to any such property or premises
that is reasonably likely to (i) require abatement or correction under an
Environmental Law (defined below), (ii) give rise to any civil or criminal
Obligation or Judgment under any Environmental Law, or (iii) create a public or
private nuisance, including, but not limited to, the presence of asbestos,
PCBs, hazardous substances, radioactive waste or radon. "Environmental Law"
means any Laws relating to the pollution or protection of the environment as
well as any principles of common law under which a party may be held liable for
the release or discharge of any materials into the environment.
(c) Each of Encore and its Subsidiary has obtained and is
in compliance in all material respects with all Permits that are required for
the operation of its business as currently operated and the ownership of its
Assets. All Permits are currently valid and in full force, and to Encore's
knowledge, no revocation, cancellation or withdrawal thereof has been
threatened. Encore and its Subsidiary have filed such timely and complete
renewal applications as may be required with respect to its Permits, except
where the failure to so file would not have a Material Adverse Effect.
3.12. TAXES. Encore and its Subsidiary have duly filed all federal,
state, local and foreign tax returns and reports required to be filed by them
as of the date hereof and have paid and discharged (or established adequate
reserves for the payment therefor) all federal, state, local and foreign taxes
and Obligations which have become due and owing in respect of the Assets,
income, franchises, licenses, sales and payroll of Encore and its Subsidiary
pursuant to such returns and any assessments which have been received by them,
the failure of which to pay, together with all other such failures, in the
aggregate, would exceed Twenty Thousand Dollars ($20,000). No Internal Revenue
Service audit or audit by the Texas Comptroller of Public Accounts (or any
other state or governmental authority or agency) of Encore or its Subsidiary is
pending or threatened, and the results of any completed audits are properly
reflected in the Encore Balance Sheet. Encore has not granted, or been
requested to grant, any extension to any taxing authority of the limitation
period during which any tax liability may be asserted. All amounts required to
be withheld by Encore and its Subsidiary from employees or collected for income
taxes, social security taxes, unemployment
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insurance taxes and other employee withholding taxes have been so withheld or
collected and either paid to the respective governmental agencies or set aside
in accounts for such purposes. Encore has made adequate provisions in its
consolidated financial statements, in conformity with generally accepted
accounting principles, for taxes of Encore and its Subsidiary for all periods
ending on or before the respective dates of such consolidated financial
statements.
3.13. LABOR RELATIONS. There are no Contracts with any labor union,
other labor organization or labor representatives applicable to or covering the
employees of Encore or its Subsidiary, nor are any discussions or negotiations
in anticipation of any such agreement presently under way, nor does Encore know
of any current or contemplated union organization efforts or negotiations, nor
has there been any request made to enter any such negotiations or to hold any
type of election relating to employer/employee relations or bargaining.
Neither Encore nor its Subsidiary has experienced and are not experiencing,
work stoppages, slow downs, or other material interference with or impairment
of their respective business by labor. Neither Encore nor its Subsidiary is a
party to, involved in or, to Encore's knowledge, threatened by any material
labor dispute or unfair labor charge. The Encore Disclosure Schedule contains
the names of all current officers and directors of Encore and its Subsidiary.
3.14. ERISA; EMPLOYEE BENEFIT PLANS.
(a) The Encore Disclosure Schedule contains a complete
list of all Employee Benefit Plans sponsored or maintained by Encore or its
Subsidiary or under which Encore or its Subsidiary may be obligated. Encore
has delivered to HCAC accurate and complete (i) copies of all Employee Benefit
Plan documents and all other material documents relating thereto, including all
summary plan descriptions, summary annual reports and insurance contracts; (ii)
detailed summaries of all unwritten Employee Benefit Plans; (iii) copies of the
most recent financial statements and actuarial reports with respect to all
Employee Benefit Plans for which financial statements or actuarial reports are
required or have been prepared; and (iv) copies of all annual reports for all
Employee Benefit Plans (for which annual reports are required) prepared since
Encore's inception. Each Employee Benefit Plan providing benefits that are
funded through a policy of insurance is indicated by the word "insured" placed
by the listing of the Employee Benefit Plans in the Encore Disclosure Schedule.
(b) All Employee Benefit Plans listed in the Encore
Disclosure Schedule conform (and at all times have conformed) in all material
respects to, and are being administered and operated (and have at all times
been administered and operated) in material compliance with, all applicable
requirements of ERISA, the Internal Revenue Code of 1986, as amended (the
"Code"), and all other applicable Laws.
(c) Any Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code has been determined by the Internal Revenue Service ("IRS")
to be so qualified, and such determination remains in effect and has not been
revoked. Nothing has occurred since the date of any such determination that is
reasonably likely to affect adversely such qualification or exemption, or
result in the imposition of
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excise taxes or income taxes or unrelated business income under the Code or
ERISA with respect to any such Employee Benefit Plan.
(d) Encore and its Subsidiary do not have a defined
benefit plan subject to Title IV of ERISA and do not have a current or
contingent obligation to contribute to any multi-employer plan (as defined in
Section 3(37) of ERISA). Encore and its Subsidiary have no liability with
respect to any Employee Benefit Plan (as defined in Section 3(3) of ERISA)
other than with respect to the Employee Benefit Plans listed on the Encore
Disclosure Schedule.
(e) There are no pending or, to Encore's knowledge,
threatened Proceedings by or on behalf of any Employee Benefit Plan listed on
the Encore Disclosure Schedule, or by or on behalf of any individual
participants or beneficiaries of any such Employee Benefit Plan, alleging any
breach of fiduciary duty on the part of Encore or its Subsidiary or any of
their officers, directors or employees under ERISA or any other applicable
regulations, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to Encore's knowledge, any basis for any
such Proceeding. To Encore's knowledge, the Employee Benefit Plans listed on
the Encore Disclosure Schedule are not the subject to any investigation, audit
or action by the Internal Revenue Service, the Department of Labor or the
Pension Benefit Guaranty Corporation ("PBGC").
(f) No former or present employee of Encore or its
Subsidiary has any claim against Encore or its Subsidiary (whether under
federal or state law, any employment agreement or otherwise) on account of or
for: (i) overtime pay; (ii) wages or salary for any period; (iii) vacation,
time off or pay in lieu of vacation or time off; or (iv) any violation of any
statute, ordinance or regulation relating to minimum wages or maximum hours of
work. No person or party (including, but not limited to, governmental agencies
of any kind) has any claim or basis for any Proceeding against Encore or its
Subsidiary arising out of any statute, ordinance or regulation relating to
discrimination in employment or to employment practices, sexual harassment or
occupational safety and health standards.
3.15. INTELLECTUAL PROPERTY. Encore and its Subsidiary own and have
the right to use, or have a license to use, all patents, trademarks, trade
names, logos, commercial symbols, service marks, copyrights, software, trade
secrets and know-how used in their respective businesses (the "Intellectual
Property"). All such Intellectual Property is owned or licensed by Encore or
its Subsidiary, and Encore and its Subsidiary (as the case may be) have the
right to use such Intellectual Property, free and clear of all Encumbrances,
equities and other adverse claims. No such item of Intellectual Property (i)
is infringed or, to Encore's knowledge, has been challenged or threatened in
any material respect; (ii) to Encore's knowledge, infringes or has been alleged
to infringe any similar property right of any third party; or (iii) has been or
is now involved in any opposition, invalidation or cancellation Proceeding
(nor, to Encore's knowledge, is any such Proceeding threatened with respect to
any such item). Encore is not aware of any patent, trademark, copyright or
application therefor of any third party that potentially infringes upon any
Intellectual Property.
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The Encore Disclosure Schedule lists all patents, trademarks owned by Encore
and licenses for patents and trademarks that Encore has an interest in.
3.16. ACCOUNTS RECEIVABLE. The Accounts Receivable of Encore and
its Subsidiary are bona fide Accounts Receivable created in the ordinary course
of business and Encore is aware of no reason why Accounts Receivable are not
good and collectable within periods of time normally prevailing in the
orthopedic products industry at the recorded amounts thereof, subject to the
allowance for doubtful Accounts Receivable that is included in the Encore
Balance Sheet. To the best of Encore's knowledge, no Account Receivable is
subject to any claim for reduction, counterclaim, set off, recoupment or other
claim for credit by the obligor thereof.
3.17. INVENTORY. All items of Inventory of Encore and its
Subsidiary consist of items of quality and quantity usable or salable in the
ordinary course of business of Encore, subject to (i) changes in price levels
as a result of economic and market conditions and (ii) reserves reflected in
the Encore Balance Sheet for obsolete and discontinued items. To the best of
Encore's knowledge, the values at which such Inventory is carried by Encore
reflect a normal Inventory valuation policy consistent with prior Inventory
valuations, stating Inventory at the lower of cost or market, on a first-in,
first-out basis.
3.18. BOARD RECOMMENDATION. By a vote of the directors present at a
meeting of Encore's Board of Directors (which meeting was duly called and held
and at which a quorum was present at all times), the Board of Directors of
Encore (i) approved and adopted this Agreement, including the Merger and the
other transactions contemplated herein, and determined that the Merger is fair
to the shareholders of Encore, and (ii) resolved to recommend approval and
adoption of this Agreement, including the Merger and the other transactions
contemplated herein, by the shareholders of Encore.
3.19. PROXY MATERIALS; S-4 REGISTRATION STATEMENT. At the time the
S-4 Registration Statement becomes effective and at the date the Definitive
Proxy Statement is mailed to the HCAC and Encore stockholders, the S-4
Registration Statement will comply, as to form, in all material respect with the
requirements of the 1933 Act and the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, and the Definitive Proxy Statement will
comply in all material respect with the applicable provisions of the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and at the
time the S-4 Registration Statement becomes effective, at the date the
Definitive Proxy Statement is mailed to HCAC and Encore stockholders, at the
time of the Special Meetings, and at the Closing Date, the S-4 Registration
Statement as amended or supplemented by any amendment or supplement filed with
the SEC by HCAC and the Definitive Proxy Statement included therein, as amended
or supplemented by any amendment or supplement filed with the SEC, will not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this Section 3.19 shall apply to statements in
or omissions from the S-4 Registration Statement or Definitive Proxy Statement
included therein made in reliance upon and in conformity with information
furnished by HCAC for use in the S-4 Registration Statement or Definitive Proxy
Statement. Encore, promptly after becoming aware of any statement or omission
which renders the representations and warranties set forth in the preceding
sentence not true and correct, will advise
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HCAC and cooperate with HCAC to amend, supplement or revise such material in
order to make the representation and warranty described in the preceding
sentence true and correct at all times up to and at the Effective Time.
3.20. RELATED PARTY TRANSACTIONS. No director, officer or affiliate
of Encore or its Subsidiary has borrowed any moneys from, has an indebtedness
or other similar obligations to Encore or its Subsidiary, or to the best of
Encore's knowledge, is a party to any Contract relating to the voting or
disposition of Encore Common Stock, and neither Encore nor its Subsidiary is a
party or subject to any contract in which any officer, director or stockholder
of Encore or its Subsidiary has an interest, direct or indirect, and there does
not exist any commitment or liability of Encore or its Subsidiary to pay any
remuneration or other consideration to any such officer, director or
shareholder, such as fees, rentals, loans, dividends or fixed or contingent
deferred or current compensation.
3.21. REAL PROPERTY. Neither Encore nor its Subsidiary owns any
Real Property. The Encore Disclosure Schedule sets forth an accurate and
complete list of each lease or sublease of Real Property to which Encore or its
Subsidiary is a party or by which Encore or its Subsidiary may be bound, and a
description of the Real Property leased thereunder. With respect to each lease
or sublease described on the Encore Disclosure Schedule: (i) Encore has been in
peaceful possession of the property leased thereunder and neither Encore nor,
to Encore's knowledge, the landlord is in default thereunder; (ii) no waiver,
indulgence or postponement of any of the Obligations thereunder has been
granted by the lessee or lessor thereunder; and (iii) there exists no event,
occurrence, condition, or act known to Encore that upon notice or lapse of time
would be or become a Default thereunder.
3.22. CONTRACTS.
(a) The Encore Disclosure Schedule lists each Contract of
the following types to which Encore or its Subsidiary is a party, or by which
it is bound, except for (x) any Contract that may be terminated by Encore or
its Subsidiary on not more than 30 days' notice without any liability, and (y)
any Contract, irrespective of duration, under which the executory obligation of
Encore or its Subsidiary involves an amount of less than $50,000 (such excepted
Contracts referred to in clauses (x) and (y) are referred to collectively as
"Minor Contracts" and such included Contracts are referred to collectively as
"Material Contracts"):
(1) Contracts with any present shareholder,
director, officer, employee or partner of Encore or its Subsidiary thereof;
(2) Any notes, debentures, bonds, conditional
sale agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the borrowing
or lending of money, agreements or arrangements for a line of credit or
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for a guarantee of, or other undertaking in connection with, the indebtedness
of any other person or entity;
(3) Any Contracts calling for payments thereunder
by Encore or its Subsidiary under which any liens, mortgages, security
interests or other encumbrances exist with respect to any assets of Encore or
its Subsidiary; and
(4) Any other Contracts that constitute material
contracts, as described in Item 601(b)(10) of Regulation S-K.
(b) Neither Encore nor its Subsidiary is in Default under
any Contract, which Default could, together with all other such Defaults,
result in a Material Adverse Effect. Neither Encore nor its Subsidiary has
received any communication from, or given any communication to, any other party
indicating that either Encore or the Subsidiary or such other party, as the
case may be, is in Default under any Contract where such Default could,
together with all other such Defaults, have a Material Adverse Effect.
3.23. PREVIOUS SALES; WARRANTIES. Encore and its Subsidiary have
not breached any implied or express warranties in connection with the sale or
distribution of goods sold by either of them, except for breaches that,
individually or in the aggregate, would not have a Material Adverse Effect.
There are no known defects in the design of, or technology embodied in, any
product that Encore or its Subsidiary currently markets or has marketed in the
past except for defects that, in the aggregate, would not have a Material
Adverse Effect.
3.24. INSURANCE. The Encore Disclosure Schedule lists all policies
or binders of insurance held by or on behalf of Encore or its Subsidiary or
relating to their respective businesses. There is no Default with respect to
any such policy or binder, nor has there been any failure to give any notice or
present any claim under any such policy or binder in a timely fashion or in the
manner or detail required by the policy or binder, except for any of the
foregoing that would not, individually or in the aggregate, have been a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder than has been
received by Encore or its Subsidiary. Except as disclosed on the Encore
Disclosure Schedule, there are no pending claims against such insurance. Such
insurance provides coverage in an usual and customary for the businesses engaged
in by Encore.
3.25. CORPORATE RECORDS. The respective minute books of Encore and
its Subsidiary contain correct and current copies of their articles of
incorporation and bylaws and of all minutes of meetings, resolutions and other
proceedings of their boards of directors (and committees thereof) and
shareholders. The stock record books of Encore and its Subsidiary are correct
and current.
3.26. DISTRIBUTORS, CUSTOMERS OR SUPPLIERS. Encore is not aware
that any major distributor, customer or supplier to or of Encore or its
Subsidiary intends to cease doing business, or to alter materially the amount
of business done, with Encore or its Subsidiary.
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3.27. REPRESENTATIONS. The representations and warranties of Encore
contained in this Agreement, disregarding all qualifications and exceptions
herein relating to materiality or Material Adverse Effect, are true and correct
with only such exceptions relating to materiality or Material Adverse Effect as
would not in the aggregate reasonably be expected to have a Material Adverse
Effect.
3.28. CERTAIN FEES. Neither Encore nor its Subsidiary has employed
any broker or finder or incurred any liability for any financial advisory,
brokerage or finders' fees or commissions in connection with the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HCAC AND ACQUISITION
Except for exclusions to a representation or warranty made herein as
set forth in the HCAC Disclosure Schedule dated as of the date of this
Agreement (the "HCAC Disclosure Schedule") and delivered to Encore prior to the
execution of this Agreement or as updated pursuant to the provisions of Section
6.02(d) hereof or as otherwise disclosed in the HCAC Disclosure Documents (as
defined in Section 4.08 hereof), HCAC and Acquisition hereby represent and
warrant to Encore as follows:
4.01. CORPORATE ORGANIZATION, ETC. HCAC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquisition is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. Each of HCAC and
Acquisition has full corporate power and authority to carry on their respective
businesses as they are now being conducted and to own, operate and lease their
respective properties and assets, and each of HCAC and Acquisition is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in every jurisdiction in which its ownership of property or the
conduct of its business requires such qualification, other than jurisdiction in
which the failure so to qualify would not have a Material Adverse Effect. HCAC
has heretofore delivered or made available to Encore accurate copies of HCAC's
and Acquisition's Certificate or Articles of Incorporation and Bylaws as in
effect as of the date of this Agreement, certified by the Secretary of HCAC.
4.02. CAPITALIZATION. The authorized capital stock of HCAC consists
of 20,000,000 shares of common stock, par value $0.001 per share (previously
defined as HCAC Common Stock) and 1,000,000 shares of preferred stock, par
value $0.001 per share (the "HCAC Preferred Stock"). As of the date hereof,
there were issued and outstanding 2,100,000 shares of HCAC Common Stock and no
shares of HCAC Preferred Stock were issued and outstanding and no shares of
HCAC Common Stock were held in HCAC's treasury. All issued and outstanding
shares of HCAC Common Stock are duly and validly issued and outstanding, fully
paid and nonassessable, and were not issued in violation of, and are not
subject to, preemptive rights. Except for the issuance of the HCAC $7.00
Warrants, the Existing Options that will be exercisable for HCAC securities
after the Effective Time,
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and any options issuable pursuant to any agreement approved in writing by
Encore prior to the Effective Time, there are no other shares of capital stock
of HCAC, or securities convertible into or exchangeable or exercisable for
shares of capital stock of HCAC, outstanding, and the HCAC Disclosure Schedule
lists all outstanding options, warrants, rights, agreements or commitments of
any character by which HCAC is bound to issue or sell any additional shares of
capital stock of HCAC, or any securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire any such shares.
As of the date of this Agreement, and as of the Effective Time there will not
be, any outstanding contractual obligations of HCAC to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in HCAC, except for the Conversion Rights. There are no voting
trusts or other agreements or understandings to which HCAC is a party with
respect to the voting of the capital stock of HCAC.
4.03. SUBSIDIARIES. Other than Acquisition, HCAC does not own any
shares of capital stock or other ownership interests in any other corporation,
and owns no joint venture or partnership interests or other equity or ownership
interest in any partnership, joint venture, limited liability company or other
entity of any nature.
4.04. AUTHORIZATION, ETC. Each of HCAC and Acquisition has the
necessary corporate power and authority to enter into this Agreement and to
carry out their respective obligations hereunder and under the Other Agreements
to which it is a party. The execution and delivery of this Agreement by HCAC
and Acquisition, the performance by HCAC and Acquisition of their respective
obligations hereunder and thereunder, and the consummation by HCAC and
Acquisition of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Boards of Directors of HCAC and Acquisition, and
no other corporate proceeding on the part of HCAC or Acquisition is necessary
to authorize this Agreement, the Other Agreements or to consummate the
transactions contemplated hereby or thereby (other than the filing of the
Articles of Merger and the approval of the Merger and the actions set forth in
Section 6.05 hereof by the stockholders of HCAC in accordance with HCAC's
Certificate of Incorporation and applicable law). This Agreement has been duly
and validly executed and delivered by HCAC and Acquisition and constitutes
valid and binding agreements of HCAC and Acquisition, enforceable against them
in accordance with their respective terms except that (i) enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting the enforcement of the rights and
remedies of creditors; and (ii) the availability of equitable remedies may be
limited by equitable principles. The Articles of Merger when executed and
delivered pursuant hereto will be a valid and binding agreement of Acquisition,
enforceable against Acquisition in accordance with its terms except that (i)
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting the
enforcement of the rights and remedies of creditors; and (ii) the availability
of equitable remedies may be limited by equitable principles.
4.05. NO VIOLATION.
(a) Neither the execution and delivery of this Agreement
or the Other Agreements by HCAC and Acquisition or the Articles of Merger by
Acquisition nor the consummation of the
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transactions contemplated hereby and thereby by HCAC or Acquisition nor
compliance by HCAC and Acquisition with any provisions hereof or thereof, will
(i) conflict with or result in any breach of any provision of their respective
Certificates of Incorporation of HCAC or Acquisition, (ii) with or without the
giving of notice or the passage of time, or both, violate, or be in conflict
with or constitute a default (or give rise to any right of, termination,
cancellation or acceleration) or require any Consent under any of the terms,
conditions or provisions of any note, bond, mortgage, license, Permit,
indenture, lease deed of trust or other instrument, other Contract or
obligation to which HCAC or Acquisition is a party or by which HCAC or
Acquisition or any of their respective Assets may be bound, or (iii) violate
any Judgment or Law to which HCAC or Acquisition or any of their respective
Assets is subject, excluding from the foregoing clauses (ii) and (iii)
violations, breaches or defaults which in the aggregate are not likely to have
a Material Adverse Effect.
(b) Neither HCAC nor Acquisition is in violation of any
term or provision of its Certificate (or Articles) of Incorporation or Bylaws
except any such violation which would not have a Material Adverse Effect on
HCAC or Acquisition.
4.06. GOVERNMENT APPROVALS. Except (i) compliance with applicable
federal and state securities laws and (ii) the filing of the Articles of Merger
as required by the TBCA, the execution, delivery and performance by HCAC and
Acquisition of this Agreement, the Articles of Merger and the Other Agreements
and the consummation by HCAC and Acquisition of the transactions contemplated
hereby and thereby require no Consent of any governmental or regulatory
authority be obtained or made by HCAC or Acquisition, except for such Consents,
the failure of which to give or obtain would not, in the aggregate, have a
Material Adverse Effect or materially impair or delay the ability of HCAC and
Acquisition to perform their obligations hereunder or to consummate the
transactions completed hereby.
4.07. FINANCIAL STATEMENTS OF HCAC; UNDISCLOSED LIABILITIES.
(a) HCAC has heretofore delivered to Encore: (i) balance
sheets of HCAC as of December 31, 1995 and March 13, 1996 and statements of
operations, shareholders' equity and cash flows of HCAC for the period then
ended, audited for the periods from March 21, 1995 (inception) to December 31,
1995, January 1, 1996 to March 13, 1996, and March 21, 1995 to March 13, 1996 by
Richard A. Eisner & Company, L.L.P., whose report thereon is included therewith.
Such audited financial statements fairly present the financial position of HCAC
as of the respective dates set forth therein, or the results of operations and
the consolidated statement of cash flows of HCAC for the respective periods
therein referred to. Such audited financial statements were prepared in
accordance with generally accepted accounting principles consistently applied
throughout the period involved (except as disclosed in the notes thereof ("HCAC
Financial Statement Notes"), if any such disclosure). The balance sheet of HCAC
as of March 13, 1996 including any HCAC Financial Statement Notes thereto is
hereinafter referred to as the "HCAC Balance Sheet" and March 13, 1996 is
hereinafter referred to as the "HCAC Balance Sheet Date."
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(b) Neither HCAC nor Acquisition has any Obligations
that, individually or in the aggregate is material, except for Obligations (i)
reflected on the HCAC Balance Sheet, (ii) incurred in the ordinary course of
business since the HCAC Balance Sheet Date, (iii) listed on any Schedule to
this Agreement, or (iv) incurred subsequent to the date hereof with the prior
written consent of Encore or as otherwise expressly permitted in this
Agreement.
4.08. HCAC DISCLOSURE DOCUMENTS. HCAC has filed all required forms,
reports, statements, schedules and other documents with the SEC since March 8,
1996 (collectively, the "HCAC Disclosure Documents"). HCAC has furnished to
Encore its Registration Statement on Form S-1 (No. 33-92854), including a final
prospectus dated March 8, 1996 and the Exhibits to such Registration Statement,
its Annual Report on Form 10-K for the period ended December 31, 1995 and the
Exhibits thereto, its Quarterly Reports on Form 10-Q for the periods ended
September 30, 1995, March 31, 1996 and June 30, 1996 and the Exhibits thereto,
and its March 13, 1996 Report Form 8-K and the Exhibits thereto, all of which
are part of the HCAC Disclosure Documents. Each of such HCAC Disclosure
Documents, at the time it was filed, complied in all material respects with all
applicable requirements of the 1933 Act and the Exchange Act, and with the
forms, rules and regulations of the SEC promulgated thereunder, and did not
contain at the time filed any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except where such non- compliance would not have a
Material Adverse Effect.
4.09. ABSENCE OF ENCUMBRANCES. Except for cash expended by HCAC
since the HCAC Balance Sheet Date and restrictions on the use of the proceeds
of the Trust Fund, as disclosed in the Disclosure Documents, HCAC owns all
Assets and property (real and personal) and leaseholds of every kind and nature
pertaining to it reflected in the HCAC Balance Sheet at the HCAC Balance Sheet
Date, free and clear of all Encumbrances of any kind or character, and has good
and marketable title to such Assets, free and clear of any Encumbrances.
4.10. PROCEEDINGS AND JUDGMENTS. Neither HCAC nor Acquisition is a
party to, nor, to the best of the knowledge of HCAC's officers, is there any
threat of, any Proceeding of any nature, against HCAC or Acquisition or any of
their respective Assets or seeking to prohibit the consummation of the Merger
and the transactions contemplated hereby or which would materially impair the
ability of HCAC or Acquisition to perform their obligations hereunder. There
are no Judgments of any nature in effect or outstanding against HCAC or
Acquisition or applicable to their respective businesses, Assets or operations.
4.11. COMPLIANCE WITH LAWS, ETC. Neither HCAC nor Acquisition is in
violation of any applicable Law or Judgment which violation, together with any
other violations, in the aggregate, would have a Material Adverse Effect.
Neither HCAC nor Acquisition has received any claim or notice of any such
violation.
4.12. TAXES. HCAC has duly filed all federal, state, local and
foreign tax returns and reports required to be filed by it as of the date
hereof and has paid and discharged (or established
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adequate reserves for the payment therefor) all federal, state, local and
foreign taxes and Obligations which have become due and owing in respect of the
Assets, income, franchises, licenses, sales and payroll of HCAC pursuant to
such returns and any assessments which have been received by it, the failure of
which to pay, together with all such other failures, in the aggregate, would
exceed Twenty Thousand Dollars ($20,000). No Internal Revenue Service audit or
audit by any other state or governmental authority or agency of HCAC is pending
or threatened, and the results of any completed audits are properly reflect in
the HCAC Balance Sheet. HCAC has not granted, or been requested to grant, any
extension to any taxing authority of the limitation period during which any tax
liability may be asserted. All amounts required to be withheld by HCAC from
employees or collected for income taxes, social security taxes, unemployment
insurance taxes and other employee withholding taxes have been so withheld or
collected and either paid to the respective governmental agencies or set aside
in accounts for such purposes. HCAC has made adequate provisions in its
financial statements, in conformity with generally accepted accounting
principles, for all taxes of HCAC for all periods ending on or before the
respective dates of such financial statements.
4.13. LABOR RELATIONS. There are no Contracts with any labor union,
other labor organization or labor representatives applicable to or covering the
employees of HCAC, nor are any discussions or negotiations in anticipation of
any such agreement presently under way, nor does HCAC know of any current or
contemplated union organization efforts or negotiations, nor has there been any
request made to enter any such negotiations or to hold any type of election
relating to employer/employee relations or bargaining. HCAC has not
experienced and is not experiencing, work stoppage, slow downs, or other
material interference with or impairment of its business by labor. HCAC is not
a party to, involved in or, to HCAC's knowledge, threatened by, any labor
dispute or unfair labor charge, the existence of which would have a Material
Adverse Effect. The HCAC Disclosure Schedule contains the names of all current
officers and directors of HCAC and Acquisition.
4.14. ABSENCE OF MATERIAL ADVERSE CHANGES. Except as disclosed in
the HCAC Disclosure Schedule or in the Disclosure Documents, since the HCAC
Balance Sheet Date, HCAC has conducted its business in all material respects
only in the usual and ordinary course, and since the HCAC Balance Sheet Date,
there has not been any material adverse change in the business, results of
operations or financial condition of HCAC, nor has there occurred any
declaration or payment in respect of HCAC's shares of capital stock by way of
dividends, purchase or redemption of shares or otherwise.
4.15. CERTAIN FEES. Except as set forth in Section 5.02(a) hereof,
neither HCAC nor Acquisition has employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders' fees or commissions
in connection with the transactions contemplated hereby.
4.16. BOARD RECOMMENDATIONS. By a vote of the directors present at a
meeting of HCAC's Board of Directors (which meeting was duly called and held
and at which a quorum was present at all times), the Board of Directors of HCAC
(i) approved and adopted this Agreement,
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including the Merger and the other transactions contemplated herein, subject to
the receipt of the Fairness Opinion, and (ii) resolved to recommend approval
and adoption of this Agreement, including the Merger and the other transactions
contemplated herein, by the shareholders of HCAC, subject to HCAC's receipt of
the Fairness Opinion described in Section 7.02(g) hereof.
4.17. TRUST FUNDS; LIQUIDATION. As of the date hereof and at the
Effective Time, HCAC has and will have no less than $8,600,000 invested in
government securities in the Trust Fund. A true and correct copy of the
Investment Management Trust Agreement dated March 8, 1996 between the Trustee
and HCAC, which provides for the terms and conditions upon which the trust
proceeds shall be released has been made available for review by Encore.
4.18. [INTENTIONALLY OMITTED]
4.19. BENEFIT PLANS. HCAC does not maintain or contribute to any
Employee Benefit Plan.
4.20. S-4 REGISTRATION STATEMENT. At the time the S-4 Registration
Statement becomes effective and at the date the Definitive Proxy Statement is
mailed to the HCAC and Encore stockholders, the S-4 Registration Statement will
comply as to form in all material respects with the applicable provisions of
the 1933 Act and the rules and regulations of the SEC promulgated thereunder,
and the Definitive Proxy Statement will comply in all material respects with
the applicable provisions of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder, and at the time the S-4 Registration Statement
becomes effective, at the date the Definitive Proxy Statement is mailed to HCAC
and Encore stockholders, at the time of the Special Meetings, and at the
Closing Date, the S-4 Registration Statement as amended or supplemented by any
amendment or supplement filed with the SEC by HCAC and the Definitive Proxy
Statement included therein, as amended or supplemented by any amendment or
supplement filed with the SEC, will not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
in this Section 4.20 shall apply to statements in or omissions from the S-4
Registration Statement or Definitive Proxy Statement included therein made in
reliance upon and in conformity with information furnished by Encore for use in
the S-4 Registration Statement or Definitive Proxy Statement. HCAC, promptly
after becoming aware of any statement or omission which renders the
representations and warranties set forth in the preceding sentence not true and
correct, will amend, supplement or revise such material in order to make the
representation and warranty described in the preceding sentence true and
correct at all times up to and at the Effective Time.
4.21. AS TO ACQUISITION. Acquisition is a recently formed
wholly-owned subsidiary of HCAC with no material assets or liabilities or
employees.
4.22. VOTE REQUIRED. The only vote of the holders of any class or
series of capital stock of HCAC necessary to approve this Agreement and the
Merger is the affirmative vote cast by holders of a majority of the outstanding
shares of HCAC Common Stock, provided that HCAC will not be permitted to
consummate this Agreement or the Merger if the aggregate number of shares of
HCAC
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Common Stock held by the Public Stockholders (as defined in the Disclosure
Documents) who cast votes against this Agreement and the Merger equals or
exceeds 20% of the number of shares of HCAC Common Stock held by all Public
Stockholders as of the date of this Agreement and exercise their Conversion
Rights.
4.23. RELATED PARTY TRANSACTIONS. Except as disclosed in this
Agreement or the Disclosure Documents, no director, officer or affiliate of
HCAC or Acquisition has borrowed any moneys from, has any indebtedness or other
similar obligations to, HCAC or Acquisition or to the best of HCAC's knowledge,
is a party to any Contract relating to the voting or disposition of HCAC Common
Stock, and neither HCAC nor Acquisition is a party or subject to any contract
in which any officer, director or stockholder of HCAC has an interest, direct
or indirect, and there does not exist any commitment or liability of HCAC or
Acquisition to pay any remuneration or other consideration to any such officer,
director or stockholder, such as fees, rentals, loans, dividends or fixed or
contingent deferred or current compensation.
4.24. STATE TAKEOVER STATUTES. The Board of Directors of HCAC has
approved the Merger and this Agreement and such approval is sufficient to
render inapplicable to the Merger, this Agreement and the transactions
contemplated by this Agreement the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "GCL"). To the best of HCAC's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated by this Agreement.
4.25. [INTENTIONALLY OMITTED].
4.26. REAL PROPERTY. The HCAC Disclosure Schedule lists all real
property that is owned or leased by HCAC and used in its business.
4.27. CONTRACTS.
(a) The HCAC Disclosure Schedule and the HCAC Disclosure
Documents list each Contract of the following types to which HCAC is a party, or
by which it is bound, except for (x) any Contract that may be terminated by HCAC
on not more than 30 days' notice without any liability, and (y) any Contract,
irrespective of duration, under which the executory obligation of HCAC involves
an amount of less than $50,000 (such excepted Contracts referred to in clauses
(x) and (y) are referred to collectively as "Minor Contracts" and such included
Contracts are referred to collectively as "Material Contracts"):
(1) Contracts with any present shareholder,
director, officer, employee or partner of HCAC or any affiliate thereof;
(2) Any notes, debentures, bonds, conditional
sale agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other
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Contracts for the borrowing or lending of money, agreements or arrangements for
a line of credit or for a guarantee of, or other undertaking in connection
with, the indebtedness of any other person or entity;
(3) Any Contracts calling for payments thereunder
by HCAC under which any liens, mortgages, security interests or other
encumbrances exist with respect to any assets of HCAC; and
(4) Any other contracts that constitute material
contracts as described in Item 601(b)(10) of Regulation S-K.
(b) To HCAC's knowledge, HCAC is not in Default under any
Contract which default could, together with all such other Defaults, result in
a Material Adverse Effect. HCAC has not received any communication from, or
given any communication to, any other party indicating that HCAC or such other
party, as the case may be, is in Default under any Contract where such Default
could, together with all other such Defaults, have a Material Adverse Effect.
4.28. INSURANCE. The HCAC Disclosure Statement lists all policies
or binders of insurance held by or on behalf of HCAC or relating to its
business. To HCAC's knowledge, there is no Default with respect to any such
policy or binder, nor has there been any failure to give any notice or present
any claim under any such policy or binder, nor has there been any failure to
give any notice or present any claim under any such policy or binder in a
timely fashion or in the manner or detail required by the policy or binder,
except for any of the foregoing that would not, individually or in the
aggregate, have a Material Adverse Effect. There is no notice of nonrenewable
or cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by HCAC.
4.29. CORPORATE RECORDS. The respective minute books of HCAC and
Acquisition contain correct and current copies of their Certificate of
Incorporation and bylaws and of all minutes of all minutes of meetings,
resolutions and other proceedings of their boards of directors and stockholders.
The stock record book of Acquisition is correct and current. The stock records
of HCAC are maintained by the Exchange Agent and Encore has been furnished a
true and correct copy of such records as of September 30, 1996.
4.30. REPRESENTATIONS. The representations and warranties of HCAC
and Acquisition contained in this Agreement, disregarding all qualifications
and exceptions herein relating to materiality or Material Adverse Effect, are
true and correct with only such exceptions relating to materiality or Material
Adverse Effect as would not in the aggregate reasonably be expected to have a
Material Adverse Effect.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME
5.01. CONDUCT OF BUSINESS BY ENCORE. During the period from the
date of this Agreement to the Effective Time, and except as otherwise
specifically contemplated in this Agreement or consented to or approved by HCAC
in writing, Encore hereby covenants and agrees as follows:
(a) REGULAR COURSE OF BUSINESS. Encore and its
Subsidiary shall each conduct their respective operations in all material
respects only in the ordinary course of business, substantially consistent with
past practice, and neither Encore nor its Subsidiary shall engage in any
transaction or activity, enter into any agreement or make an commitment except
in the ordinary course of business.
(b) AMENDMENTS. No change or amendment shall be made in
the Articles of Incorporation, Bylaws or other governing instruments of Encore
or its Subsidiary or to any Material Contracts, to which Encore or its
Subsidiary is a party or by which Encore or its Subsidiary is bound, except for
the Severance Agreement Amendments.
(c) CAPITAL CHANGES. Except for the issuance of stock
options at an exercise price of $5.00 or more to distributors or surgeons
within the limits (as of the date of this Agreement) of the Designing Surgeon
Option Program, the 1993 Distributor Stock Option Plan and the 1993 Advisory
Surgeon Stock Option Plan, neither Encore nor its Subsidiary shall authorize
for issuance, issue, sell, pledge, dispose of or encumber, deliver or agree to
commit to issue, sell, pledge or deliver (whether through issuance or granting
of options, warrants, commitments, subscriptions, right to purchase or
otherwise) any stock of any class of, or any other interest in, Encore or its
Subsidiary or any securities convertible into or exercisable or exchangeable
for such stock or interest (other than issuances as may be required as a result
of the conversion of outstanding shares of Encore Preferred Stock or the
exercise of any Existing Stock Options), nor shall Encore split, combine or
reclassify any shares of its capital stock.
(d) DIVIDENDS; REDEMPTIONS. Encore shall not declare,
pay or set aside for payment any dividend or other distribution in respect of
the capital stock of Encore, nor shall Encore directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock, except prior to
the Effective Time, Encore may declare and pay any or all of the accumulated
dividends on the Encore Preferred Stock.
(e) SUBSIDIARIES. Neither Encore nor its Subsidiary
shall organize any new subsidiary, acquire any capital stock or other equity
securities of any other corporation or acquire any direct or indirect equity
interest in any Person.
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(f) ORGANIZATION. Encore shall use all reasonable
efforts to preserve, and to cause its Subsidiary to preserve, in all material
respects its respective corporate existence and business organization, and its
existing Assets, rights, privileges and franchisees intact and to preserve its
material relationships with its respective officers, employees, suppliers,
customers and others having business relations with it.
(g) CERTAIN CHANGES. Except in the ordinary course
consistent with past practice, Encore shall not, and shall not permit its
Subsidiary to waive any material right or incur any material liability,
including, without limitation, the issuance of any debt securities or the
assumption, guarantee or endorsement of the obligations of any other
individual.
(h) EMPLOYEE BENEFIT PLANS. Except as may be required
under existing written arrangements disclosed to HCAC prior to the date of this
Agreement and except for immaterial changes or changes required by Law, neither
Encore nor its Subsidiary shall adopt or amend any Employee Benefit Plan, or,
except in the ordinary course of business substantially consistent with past
practices, grant, or become obligated to grant, any general increase in the
compensation of officers or employees (including any such increase pursuant to
any Employee Benefit Plan) or any increase in the compensation payable or to
become payable to any officer, or institute any new Employee Benefit Plan, make
any changes in any employment agreement or written agreement (except the
Severance Agreement Amendments) or, except in the ordinary course of business
substantially consistent with past practices enter into any employment or
similar agreement or arrangement with any officer or employee.
(i) NO ACQUISITIONS. Neither Encore nor its Subsidiary
shall acquire (by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof or
make any material investment either by purchase of stock or securities,
contributions to capital, property transfer or purchase of any material amount
of properties or assets of any other individual or entity.
(j) SALE OF ASSETS OUTSIDE ORDINARY COURSE. Neither
Encore nor its Subsidiary shall sell, lease, transfer, dispose or subject to
any Encumbrance of any Assets outside the ordinary course of business
substantially consistent with past practice, except as may related to office
furniture or equipment leases in connection with the relocation of Encore's
facilities to its new facility or any assets which in the aggregate are
material to Encore and its Subsidiary taken as a whole, or enter into any
material Contract or transaction outside the ordinary course of business
substantially consistent with past practice.
(k) LIQUIDITY. Neither Encore nor its Subsidiary shall
take any action, or omit to take any action that would have the effect of
materially decreasing the liquidity or availability of Encore's current Assets
as of the date of this Agreement, or invest any funds not used by Encore for
working capital purposes between the date of this Agreement and the Effective
Time in any investment other than direct obligations of or instruments
guaranteed by the United Sates of America having a maturity of not more than
one year; provided, however, that Encore shall not dispose of any marketable
equity securities.
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(l) OTHERS. Neither Encore nor its Subsidiary shall take
any action which would make any representation or warranty contained in Article
III of this Agreement untrue or incorrect in any material respect.
5.02. CONDUCT OF BUSINESS BY HCAC. During the period from the date
of this Agreement to the Effective Time, and except as otherwise specifically
contemplated in this Agreement or consented to or approved by Encore in
writing, HCAC hereby covenants and agrees as follows:
(a) REGULAR COURSE OF BUSINESS. HCAC and Acquisition
shall each conduct their respective operations in all material respect only in
the ordinary course of business, substantially consistent with past practice,
and neither HCAC nor Acquisition shall engage in any transaction or activity,
enter into any agreement or make any commitment except in the ordinary course
of business. The parties agree that, subject to receiving the consent of
Encore, HCAC may enter into an agreement (the "Investment Banking Services
Agreement") with an investment banking firm to provide the Fairness Opinion
described in Section 7.02(g) hereof and additional investment advisory services
subsequent to the Effective Time, and that although the fee paid for the
Fairness Opinion will be considered an "account payable" for purposes of
Section 2.01(c) hereof if unpaid at the Effective Time, any other consideration
to be paid thereunder shall not be deemed an account payable for purposes of
Section 2.01(c).
(b) AMENDMENTS. No change or amendment shall be made in
the Certificate (or Articles) of Incorporation, Bylaws or other governing
instruments of HCAC or Acquisition or to any Material Contracts to which HCAC
or Acquisition is a party or by which HCAC or Acquisition is bound.
(c) CAPITAL CHANGES. Except as permitted in the
Investment Banking Services Agreement, neither HCAC nor Acquisition shall
authorize for issuance, issue, sell, pledge, dispose of or encumber, deliver or
agree or commit to issue, sell pledge or deliver (whether through issuance of
granting of options, warrants, commitments, subscriptions, right to purchase or
otherwise) any stock of any class of HCAC or Acquisition or any securities
convertible into or exercisable or exchangeable for shares of stock of any
class of HCAC or Acquisition (other than issuances as may be required as the
result of the exercise of warrants to purchase HCAC Common Stock outstanding as
of the date hereof), nor shall HCAC or Acquisition split, combine or reclassify
any of its shares or any other securities, or make any other changes in its
capital structure.
(d) DIVIDENDS; REDEMPTIONS. HCAC shall not declare, pay
or set aside for payment any dividend or other distribution in respect of the
capital stock of HCAC, nor shall HCAC directly or indirectly redeem, purchase
or otherwise acquire any shares of its capital stock, except as may be required
pursuant to the Conversion Rights.
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(e) SUBSIDIARIES. Neither HCAC nor Acquisition shall
organize any new subsidiary, acquire any capital stock or other equity
securities of any other corporation or acquire any direct or indirect equity
interest in any business.
(f) ORGANIZATION. HCAC shall use its reasonable efforts
to preserve, and to cause Acquisition to preserve, in all material respects its
respective corporate existence and business organization, and its existing
rights, privileges and franchises intact and to preserve its material
relationships with its respective officers, employees, suppliers, customers and
others having business relations with it.
(g) CERTAIN CHANGES. HCAC shall not, and shall not
permit Acquisition to incur any material liability, including, without
limitation, the issuance of debt securities or the assumption, guarantee or
endorsement of the obligations of any other individual.
(h) EMPLOYEE PLANS. Except as may be required under
existing arrangements and except for immaterial changes or changes required by
law, neither HCAC nor Acquisition shall adopt or amend any Employee Benefit
Plans, or grant, or become obligated to grant, any general increase in the
compensation of officers or employees (including any such increase pursuant to
any Employee Benefit Plan) or any increase in the compensation payable or to
become payable to any officer, institute any new employee benefit, welfare
program or Employee Benefit Plan, make any change in any Employee Benefit Plan
or other employee welfare or benefit arrangement or enter into any employment
or similar agreement or arrangement with any officer.
(i) NO ACQUISITIONS. Neither HCAC nor Acquisition shall
acquire (by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof or
make any material investment either by purchase of stock or securities,
contributions to capital, property transfer or purchase of any material amount
of properties or assets of any other individual or entity.
(j) SALE OF ASSETS OUTSIDE ORDINARY COURSE. Neither HCAC
nor Acquisition shall sell, lease, transfer or dispose of any assets outside
the ordinary course of business or any assets which in the aggregate are
material to HCAC, or enter into any material commitment or transaction outside
the ordinary course of business.
(k) LIQUIDITY. Neither HCAC nor Acquisition shall take
any action, or omit to take any action, which would have the effect of
materially decreasing the liquidity or availability of HCAC's current assets as
of the date of this Agreement, or invest any funds not used by HCAC for working
capital purposes between the date of this Agreement and Effective Time in any
investment other than direct obligations of or instruments guaranteed by the
United States of America having a maturity of not more than one year; provided,
however, that HCAC shall not dispose of any marketable equity securities.
(l) SEC REPORTS. Except for any of the following that
will not have a Material Adverse Effect: (i) HCAC shall duly and timely file
all reports and other documents required to be
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filed by it with the SEC and will deliver complete and accurate copies thereof
to Encore at the time of filing; and (ii) none of such reports and other
documents will contain at the time of filing any untrue statement of a material
fact or omit to state any material fact (excluding any such misstatement or
omission made in reliance upon information provided by Encore) required to be
stated therein or necessary to make the statements therein not misleading, and
all of such reports will comply as to form in all material respects with all of
the applicable rules and regulations promulgated under the Exchange Act and the
1933 Act, as the case may be, except as such non-compliance shall not have a
Material Adverse Effect.
(m) CONVERSION RIGHTS. Neither HCAC nor Acquisition
shall, nor shall they authorize any director, or officer or affiliate of HCAC
to, directly or indirectly, solicit or knowingly encourage any HCAC stockholder
to exercise its Conversion Rights, and HCAC shall give Encore prompt notice of
receipt by HCAC of any HCAC stockholder exercising such Conversion Rights.
(n) OTHERS. Neither HCAC nor Acquisition shall take any
action which would make any representation or warranty contained in Article IV
of this Agreement untrue or incorrect in any material respect.
ARTICLE VI
COVENANTS AND AGREEMENT OF THE PARTIES
6.01. COVENANTS OF ENCORE. Encore hereby covenants and agrees with
HCAC and Acquisition as follows:
(a) REASONABLE ACCESS. Between the date of this Agreement
and the Effective Time, Encore shall, and shall cause its Subsidiary to, afford
to HCAC, and to its counsel, accountants and other authorized representatives,
during normal business hours on reasonable notice, reasonable access to their
personnel, plants, offices, properties, contracts and books and records in order
that HCAC may have an opportunity to make such investigations as it shall
reasonably desire to make of the affairs of Encore and its Subsidiary, and they
shall cause their respective officers and accountants to furnish such additional
financial and operating data and other information as HCAC shall from time to
time reasonably request for such purpose; provided, however, that any such
investigation shall be conducted in such manner as not to interfere unreasonably
with the operation of the business of Encore and its Subsidiary.
(b) CONFIDENTIALITY; PRESS RELEASES. Prior to the
Effective Time, Encore shall not issue any press release relating to this
Agreement or the transactions contemplated hereby without first consulting with
HCAC as to the timing and contents of any such press release.
(c) SUPPLEMENTS TO DISCLOSURE SCHEDULE. From time to
time prior to the Closing Date, Encore shall promptly provide to HCAC in
writing proposed supplements or amendments to
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the Encore Disclosure Schedule with respect to any matter hereafter arising
which, if existing or occurring at the date of this Agreement, would have been
required to be set forth or described in said Encore Disclosure Schedule. HCAC
shall have the right to approve or disapprove any such proposed supplement or
amendment to the extent the matters disclosed in such supplement or amendment
could have a material and adverse effect on the business, financial condition
or results of operations of Encore and its Subsidiary taken as a whole and,
unless objected to in writing mailed or hand delivered within five (5) business
days after the date when HCAC actually receives the proposed supplement or
amendment (notwithstanding the notice provisions of Section 9.04 hereof), HCAC
shall be deemed to have approved the proposed change.
(d) NEGOTIATIONS. Until the Effective Time (or earlier
termination of this Agreement) except as contemplated under this Agreement, or
as consented to in writing by HCAC, Encore shall not, nor shall it permit its
Subsidiary to, nor shall it authorize or permit any director, officer or legal
or financial advisor of Encore or its Subsidiary to, directly or indirectly,
solicit, initiate or knowingly encourage the initiation of inquiries or
proposals from, or provide any information to, or participate in any
discussions or negotiations with, or enter into any agreement or agreement in
principle with, or announce any intention to do any of the foregoing, any
person or entity concerning any sale of assets (other than sales of inventory
in the ordinary course of business) or any material portion of the shares of
capital stock of Encore or its Subsidiary, or any merger, consolidation,
business combination, liquidation or similar transactions involving Encore or
its Subsidiary; provided, however, that to the extent required by the fiduciary
duty obligations of the Board of Directors of Encore, as determined in good
faith by the Board of Directors of Encore based on the written advice of
independent counsel, Encore may (i) in response to an unsolicited requested
therefor, furnish information with respect to Encore to any person pursuant to
a customary confidentiality agreement (as determined by Encore's independent
counsel) and discuss such information with such person, and (ii) upon receipt
by Encore of any proposal for any alternative transaction, participate in
negotiations regarding such proposal. Encore shall promptly communicate to
HCAC the terms of any such proposal that Encore may receive. Notwithstanding
the restrictions contained in the foregoing provisions of this Section 6.01(d),
in the event that the Board of Directors of Encore receives a proposal for a
transaction of the type prescribed by this Section 6.01(d) that, in the
exercise of its fiduciary obligations (as determined in good faith by the Board
of Directors based on the advice of independent counsel), it determines to be
superior to the transactions contemplated by this Agreement, the Board of
Directors of Encore may withdraw or modify its approval or recommendation of
this Agreement and the Merger, approve or recommend any such superior proposal,
enter into an agreement with respect to such superior proposal and/or terminate
this Agreement in accordance with Section 8.01(i). As used herein, "superior
proposal" means any bona fide proposal to acquire, directly or indirectly, all
or substantially all of the shares of Encore's capital stock or all or
substantially all of the assets of Encore, which is on financial terms which
the Board of Directors of Encore determines in its good faith reasonable
judgment (based on advice of its independent financial advisor) to be more
favorable to Encore's shareholders than the Merger.
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(e) NOTICES OF CERTAIN EVENTS. Encore shall promptly
notify HCAC of:
(1) any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement;
(2) any notice or other communication from any
foreign or domestic governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement;
(3) any actions, suits, claims, investigations or
Proceedings commenced or, to Encore's knowledge, threatened against, relating
to or involving or otherwise affecting Encore or its Subsidiary which, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.10 or which relate to the consummation of the
transactions contemplated by this Agreement; and
(4) the occurrence of any event relating to
Encore or its Subsidiary or the transactions contemplated hereby to which
Encore shall become aware that would require any amendment or supplement to the
S-4 Registration Statement.
(f) COMFORT LETTER. Encore shall use its reasonable
efforts to cause, at the sole cost and expense of HCAC (which HCAC agrees to
pay, or promptly reimburse Encore therefor), to be delivered to HCAC a letter
of Price Waterhouse, L.L.P., dated the date of the effectiveness of the S-4
Registration Statement with the SEC, and addressed to HCAC and Encore, in form
and substance reasonably satisfactory to HCAC (with such changes to which HCAC
shall consent, it being understood that such consent shall not be unreasonably
withheld) to the effect that:
(1) they are independent certified public
accountants with respect to Encore and its Subsidiary within the meaning of the
1933 Act and Exchange Act, including the applicable published rules and
regulations thereunder;
(2) the consolidated financial statements of
Encore certified by them and included in the S-4 Registration Statement comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act and Exchange Act, including the published rules and regulations
thereunder;
(3) they have carried out the following
procedures to a specified date not more than five (5) business days prior to
the effective date of the S-4 Registration Statement, which do not constitute
statements of Encore and its Subsidiaries: (A) read the unaudited financial
statements of Encore and its Subsidiary, if any, included in the S-4
Registration Statement, (B) read the unaudited financial statements of Encore,
and its Subsidiary for the period from the date of the most recent financial
statements included in the S-4 Registration Statement through the date of the
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latest available interim financial statements, (C) read the minutes of the
meetings of shareholders and Board of Directors of Encore and its Subsidiary
from the date of the most recent financial statements of Encore and its
Subsidiary included in the S-4 Registration Statement to such date not more than
five (5) business days prior to the effective date of the S-4 Registration
Statement, and (D) consulted with certain officers of Encore and its Subsidiary
responsible for financial and accounting matters as to whether any of the
charges or decreases referred to below has occurred, and based on such
procedures, nothing has come to their attention that would cause them to believe
that (1) any unaudited financial statements of Encore and its Subsidiary
included in the S-4 Registration Statement, if any, do not comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act, the Exchange Act and of the published rules and regulations thereunder; (2)
such unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements of Encore
and its Subsidiary included in the S-4 Registration Statement; (3) as of such
date not more than five (5) business days prior to the effective date of the S-4
Registration Statement; except as set forth in such letter, there was (a) any
change in capital stock, treasury stock or long-term debt of Encore or its
Subsidiary, or (b) any decrease in capital in excess of par value, retained
earnings, net assets, net current assets or investments of Encore or it
Subsidiary, in each case as compared with the amounts shown in the most recent
consolidated balance sheet of Encore included in the S-4 Registration Statement;
or (4) for the period from the date of such balance sheet to the end of the
month immediately preceding the effective date of the S-4 Registration
Statement, except as set forth in such letter, there were any decreases, as
compared with the corresponding period in the preceding year, in revenues or in
the total or per share amounts of income before extraordinary items, income
before income taxes or net income of Encore and its Subsidiary; and
(iv) they have compared specific dollar amounts,
numbers of shares, percentages or revenues and earnings, statements and other
financial information pertaining to Encore set forth in the S-4 Registration
Statement in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of Encore and its Subsidiary and excluding any questions
requiring an interpretations by legal counsel, with the results obtained from
the application of specific readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standard) set forth in the letter and found
them to be in agreement.
6.02. COVENANTS OF HCAC AND ACQUISITION. HCAC and Acquisition
hereby covenant and agree with Encore as follows:
(a) REASONABLE ACCESS. Between the date of this
Agreement and the Effective Time, HCAC and Acquisition shall afford to Encore,
and to its counsel, accountants and other authorized representatives, during
normal business hours on reasonable notice, reasonable access to their
personnel, plants, offices, properties, contracts and books and records in
order that Encore may have an opportunity to make such investigations as it
shall reasonably desire to make of the affairs of HCAC, and they shall cause
their respective officers and accountants to furnish such additional
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financial and operating data and other information as Encore shall from time to
time reasonably request for such purpose; provided, however, that any such
investigation shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of HCAC.
(b) PRESS RELEASES. Prior to the Effective Time, neither
HCAC nor any of its associates or affiliates shall issue any press release
relating to this Agreement or the transactions contemplated hereby without
consulting with Encore as to the timing and contents of any such press release,
except that HCAC need not delay any press release to consult with Encore, if,
in the reasonable opinion of HCAC, the delay associated with such consultation
would result in a violation of law or the requirements of the National
Association of Securities Dealers, Inc. applicable to HCAC.
(c) NASDAQ/NMS LISTING. HCAC shall promptly as
practicable, in cooperation with Encore, prepare and file an application with
the National Association of Securities Dealers, Inc. to list on the NASDAQ
National Market System ("NASDAQ/NMS") the HCAC Common Stock, including the HCAC
Common Stock to be issued in the Merger, effective as of the Effective Time and
shall use all reasonable efforts to cause such application to be approved prior
to the Effective Time, and shall comply in all material respects with the
requirements of the National Association of Securities Dealers, Inc. in
connection with such listing.
(d) SUPPLEMENTS TO DISCLOSURE SCHEDULE. From time to
time prior to the Closing, HCAC shall promptly provide to Encore proposed
supplements or amendments to the HCAC Disclosure Schedule with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set for or described in said HCAC
Disclosure Schedule. Encore shall have the right to approve or disapprove any
such proposed supplement or amendment to the extent the matters disclosed in
such supplement or amendment could have a material adverse effect on the
business, financial condition or results of operations of HCAC and, unless
objected to in writing mailed or hand delivered within five (5) business days
after the date when Encore actually receives the proposed supplement or
amendment (notwithstanding the notice provisions of Section 9.04 hereof),
Encore shall be deemed to have approved the proposed change.
(e) [INTENTIONALLY OMITTED].
(f) NEGOTIATIONS. Until the Closing (or the earlier
termination of this Agreement), except as contemplated under this Agreement,
HCAC shall not, nor shall it authorize or permit any director, officer or legal
or financial advisor of HCAC to, directly or in directly, solicit, initiate or
knowingly encourage the initiation of inquiries or proposals from, or provide
any information to, or participate in any discussions or negotiations with, or
enter into any agreement or agreement in principal with, or announce any
intention to do any of the foregoing, any person or entity concerning any sale
of assets or any material portion of the shares of capital stock of HCAC, or
any merger, consolidation, business, combination, liquidation or similar
transactions involving
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HCAC or concerning the acquisition by HCAC of any corporation, partnership or
other business organization or division thereof; provided, however, that to the
extent required by the fiduciary duty obligations of the Board of Directors of
HCAC, as determined in good faith by the Board of Directors of HCAC based on
the written advice of independent counsel, HCAC may (i) in response to an
unsolicited request therefor, furnish information with respect to HCAC to any
person pursuant to a customary confidentiality agreement (as determined by
HCAC's independent counsel) and discuss such information with such person, and
(ii) upon receipt by HCAC of any proposal for any alternative transaction,
participate in negotiations regarding such proposal. HCAC shall promptly
communicate to Encore the terms of such proposal that HCAC may receive.
Notwithstanding the restrictions contained in the forgoing provisions of this
Section 6.02(f), in the event that the Board of Directors of HCAC receives a
proposal for a transaction of the type prescribed by this Section 6.02(f) that,
in the exercise of its fiduciary obligations (as determined in good faith by
the Board of Directors based on the advice of independent counsel), it
determines to be superior to the transactions contemplated by this Agreement,
the Board of Directors of HCAC may withdraw or modify its approval or
recommendation of this Agreement and the Merger, approve or recommend with such
superior proposal, enter into an agreement with respect to such superior
proposal and/or terminate this Agreement in accordance with Section 8.01(j).
As used herein, a "superior proposal" means any bona fide proposal to acquire,
directly or indirectly, all or substantially all of the shares of HCAC's
capital stock or all or substantially all of the assets of HCAC, or any merger,
consolidation, business combination, liquidation or similar transaction
involving HCAC, which is on financial terms which the Board of Directors of
HCAC determines in good faith reasonable judgment (based on advice of its
independent financial advisor) to be more favorable to HCAC's shareholders than
the Merger.
(g) NOTICES OF CERTAIN EVENTS. HCAC shall promptly
notify Encore of:
(1) any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement;
(2) any notice or other communication from any
foreign or domestic governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement;
(3) any actions, suits, claims, investigations or
Proceedings commenced or, to HCAC's knowledge, threatened against, relating to
or involving or otherwise affecting HCAC or Acquisition which, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.10 or which relate to the consummation of the
transactions contemplated by this Agreement; and
(4) the occurrence of any event relating to HCAC
or Acquisition or the transactions contemplated hereby which HCAC shall become
aware or that would require any amendment or supplement to the S-4 Registration
Statement.
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(h) PRE-CLOSING CONFIRMATION. Immediately prior to the
Closing, HCAC shall (i) cause the Trustee to provide a written confirmation to
Encore confirming the dollar amount of the account balance held by the Trustee
in trust for the benefit of HCAC that will be released to HCAC upon consummation
of the Merger, and (ii) provide to Encore a schedule of the Certified Accounts
Payable as of the Effective Time which remain unpaid as of such time, which
schedule shall be accompanied by a certificate from the Chairman of the Board of
HCAC to the effect that to the best of his knowledge, such schedule is a true
and correct estimation of HCAC's accounts payable as of the Effective Time. The
Certified Accounts Payable reflected on such schedule shall be subject to review
and approval by Encore, in its reasonable discretion, for purposes of the
calculation provided for in Section 2.01 hereof.
6.03. REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties to this Agreement agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do or cause to be
done all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, and shall use all reasonable efforts to obtain as soon as
practicable, and, in any event prior to the Closing Date, all Consents,
authorizations, order and approvals required in connection with, and waivers of
violations, breaches and defaults that may be caused by, the consummation of
the Merger and the other transactions contemplated by this Agreement, and to
make all declarations, filings and registrations, required to be obtained or
made by it pursuant to any law (including, without limitation, the 1933 Act and
the Exchange Act), regulation, order agreement or instrument prior to
consummating the transactions contemplated hereby, whether any such consent,
waiver, authorization or approval, or such declaration, filing or registration,
is to be obtained from or made with private parties or governmental or
regulatory authorities. As used in this Agreement, "reasonable efforts" shall
not include any obligation on the part of any party to agree to any material
adverse modification of the terms of any document or contractual arrangement or
to prepay or incur additional material obligations to any person that would be
effective prior to the Effective Time. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall (i) take all reasonable action necessary to ensure that no
state takeover statute or similar statute or regulation becomes so applicable
to the Merger, this Agreement or any of the other transactions contemplated by
this Agreement, and (ii) if any state takeover statute or similar statute or
regulation becomes so applicable to the Merger, this Agreement or any of the
other transactions contemplated by this Agreement, may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger
and the other transactions contemplated by this Agreement.
(b) Subject to the terms and conditions provided herein,
Encore agrees to use all reasonable efforts to obtain promptly those Required
Consents required in connection with the Merger as set forth in the Encore
Disclosure Schedule; provided, however, that this Section 6.03
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shall not impose any obligations on or confer any rights upon any person or
entity other than the parties to this Agreement.
6.04. LOCK-UP AGREEMENTS OF CERTAIN PARTIES. Encore agrees to use
its reasonable efforts to cause all of the Lock-Up Agreements (as defined in
Section 7.01(m) hereof) to be duly executed and delivered to HCAC prior to
Closing, and the Lock-Up Agreements from the Persons identified under item 6.04
in the Encore Disclosure Schedule to be duly executed and delivered to HCAC
prior to the time that the Definitive Proxy Statement is to be sent by HCAC and
Encore to their respective shareholders. Copies of the Lock-Up Agreements,
when executed and delivered to Encore, will be promptly furnished to HCAC.
Encore has attached to the Encore Disclosure Schedule such Lock-Up Agreements
that have already been executed and delivered to Encore.
6.05. HCAC CHARTER AMENDMENT; DIRECTORS.
(a) Consistent with applicable law, HCAC shall cause to
be presented to its stockholders and shall cause to be voted upon at the
Special Meeting of HCAC stockholders referred to in Section 1.07(a) hereof, in
addition to the consideration and action upon this Agreement and the Merger, to
become effective at the Effective Time (i) a proposed amendment to the
Certificate of Incorporation which shall change the name of HCAC to "Encore
Medical Corporation", (ii) further proposed amendments to the Certificate of
Incorporation of HCAC, as shown on Exhibit "B" hereto, and (iii) the adoption
of the HCAC Stock Option Plan, as shown on Exhibit "D" hereto. Subject to the
fiduciary duties of the Board of Directors of HCAC (as evidenced by written
independent legal advice addressed to such Board of Directors) and the receipt
of the Fairness Opinion, the Board of Directors of HCAC shall recommend that
the stockholders of HCAC authorize and approve such amendments to the
Certificate of Incorporation of HCAC, and the adoption of the HCAC Stock Option
Plan, and include such recommendations in the Preliminary Proxy Statement and
the Definitive Proxy Statement referred to in Section 1.07(b) to be distributed
in connection with the Special Meetings.
(b) Consistent with applicable law, HCAC shall procure
prior to the Effective Time, resignations of all of the members of HCAC's Board
of Directors from the Board of Directors of HCAC, effective as of the Effective
Time, and HCAC shall cause HCAC's Board of Directors, prior to the effectiveness
of such resignations and prior to the Effective Time, to elect to the Board of
Directors of HCAC, effective as of the Effective Time, Lamar Laster, Richard
Relyea and John Abeles for a term of office expiring at the Annual Meeting of
Stockholders of HCAC occurring in 1998 or until their successors shall have been
duly elected and qualified; and Dennis Enright, Kenneth Davidson and Jay Haft
for a term of office expiring at the Annual Meeting of Stockholders of HCAC
occurring in 1999 or until their successor shall have been duly elected and
qualified; and Nick Cindrich, Craig L. Smith, Richard Martin and Joel Kanter for
a term of office expiring at the Annual Meeting of Stockholders occurring in
2000 or until their successors shall have been duly elected and qualified.
6.06 [INTENTIONALLY OMITTED].
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6.07. DIRECTORS' AND OFFICERS' INDEMNIFICATION. From and after the
Effective Time, to the extent permitted by applicable law, HCAC shall, with
respect to any claim made prior to the third anniversary of the Effective Time,
indemnify and hold harmless to the same extent as provided as of the date of
this Agreement in the Certificate of Incorporation and Bylaws of HCAC each
person who shall have served as an officer or director of HCAC or Acquisition
prior to the Effective Time.
6.08. SEVERANCE AGREEMENT AMENDMENTS. The Severance Agreements (as
defined in Section 3.22 of the Encore Disclosure Schedule shall have been
amended, effective as of the Effective Date, by amendments (the "severance
Agreement Amendments") in form and substance satisfactory to HCAC, to provide
that, from and after two (2) years from the Effective Date, the severance
benefits payable under such agreements shall be as set forth in such agreement
except that the severance payment will only be one hundred percent of the full
base salary, and one hundred percent of the average bonus paid during the two
(2) proceeding years, and the insurance benefits will only be provided for five
(5) years after the date of termination.
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
7.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) The Merger shall have been approved and adopted by
the shareholders of Encore in accordance with the TBCA and Encore's Articles of
Incorporation.
(b) The Merger shall have been approved by the
stockholders of HCAC in accordance with HCAC's Certificate of Incorporation,
and less than twenty percent (20%) in interest of the Public Stockholders shall
have exercised their Conversion Rights.
(c) The S-4 Registration Statement shall have become
effective under the 1933 Act, no stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted.
(d) The NASDAQ/NMS shall have approved the listing,
subject to official notice of issuance, of the HCAC Common Stock, including the
HCAC Common Stock to be issued in the Merger.
(e) All applicable waiting periods (and any extensions
thereof), if any, applicable to the Merger shall have terminated or shall have
expired and the parties shall have received all other required authorizations,
consents and approvals of governments and governmental agencies.
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(f) The aggregate number of Dissenting Shares held by
shareholders of Encore shall not exceed five percent (5%) of the aggregate
number of shares of Encore Common Stock and Encore Preferred Stock outstanding
as of the date of this Agreement.
7.02. CONDITIONS TO OBLIGATIONS OF HCAC AND ACQUISITION. The
obligations of HCAC and Acquisition to effect the Merger shall, at the option
of HCAC, be subject to the satisfaction or wavier, on or before the Effective
Time, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of Encore contained herein shall be true and
correct in all material respects at and as of the date thereof and at and as of
the Effective Time as though such representations and warranties were made
again at and as of the Effective Time, except for changes expressly permitted
or contemplated by this Agreement.
(b) PERFORMANCE. Encore shall have performed and
complied in all material respects with the agreements contained in this
Agreement required to be performed or complied with by it on or prior to the
Effective Time
(c) CONSENTS AND APPROVALS. Encore shall have obtained
all Required Consents necessary, proper or advisable to consummate the Merger,
except for those which would not have a Material Adverse Effect.
(d) NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. There
shall not be pending or threatened any action, proceeding, claim or
counterclaim by any United States governmental authority or agency or by any
third party which seeks to or would (i) prohibit the consummation of the Merger
or seeks damages in connection therewith, (ii) require the disposition of or
the holding separate of any of the stock or assets of Encore or its Subsidiary,
or (iii) have a material adverse effect on HCAC's business or materially impair
the ability of HCAC or Acquisition to perform their obligations hereunder.
There shall not be in effect any order, decree or injunction (whether
preliminary, final or appealable) of a United States federal or state court of
competent jurisdiction, and no statute, rule or regulation shall have been
enacted or promulgated by any governmental authority or agency, which (i)
prohibits consummation of the Merger or the transactions contemplated thereby,
(ii) requires HCAC to hold separate or dispose of any of the stock or assets of
Encore or its Subsidiary, or (iii) has a material adverse effect on the
business of HCAC and Acquisition or materially impairs the ability of HCAC or
Acquisition to perform their obligations hereunder.
(e) LEGAL OPINION. HCAC shall have received an opinion
of Sutherland, Asbill & Brennan, counsel to Encore, dated as of the Effective
Time, in the form and substance reasonably satisfactory to HCAC.
(f) OTHER DOCUMENTS. All documents required to be
delivered to HCAC by Encore on or prior to the Closing Date shall have been so
delivered.
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(g) FAIRNESS OPINION. HCAC shall have received a written
opinion of an investment banking firm satisfactory to HCAC (the "Fairness
Opinion") to the fairness to HCAC and HCAC's stockholders of the Merger from a
financial point of view at and as of the date that the Definitive Proxy
Statement is mailed to the stockholders of HCAC in form and substance
reasonably satisfactory to the Board of Directors of HCAC and that the fair
market value of Encore is at least eighty percent (80%) of the net assets of
HCAC.
(h) OPTIONS. Encore shall have obtained the consent, if
required, of each holder of outstanding Existing Stock Options to the treatment
of the Existing Options provided in subparagraph (a) of Section 2.05.
(i) CERTIFICATES. Encore shall have furnished to HCAC
such certificates of its chief executive officer, dated the Effective Time,
certifying compliance as of the Effective Time, with the conditions set forth
in subparagraph (a) and (b) of this Section 7.02 or as may otherwise be
reasonably requested by HCAC.
(j) SALES TARGET. Encore's sales for the nine (9)-month
period ended September 27, 1996 shall have been at least $11,400,000 and Encore
shall have delivered to HCAC an unaudited income statement reflecting same,
certified as true by the President of Encore and reviewed by Price Waterhouse
L.L.P.
(k) ELIMINATION OF PUT WARRANT. All rights of any
shareholder, warrant holder or other security holder to require Encore or its
successors to pay any amount (including, but not limited to, the "put" rights
of Sirrom Capital Corporation and Explorer L.L.C. under their Existing Stock
Options) in cash or property upon surrender of such security shall have been
terminated and shall be of no further force or effect.
(l) ELIMINATION OF MVI AG PREEMPTIVE RIGHT. All MVI AG
Preemptive Rights shall have been terminated.
(m) LOCK-UP AGREEMENTS. HCAC shall have received duly
executed and delivered Lock-Up Agreements in the form specified below
(collectively, the "Lock-Up Agreements") from each of Encore's officers and
directors and from each shareholder and Existing Option holders of Encore who,
upon consummation of the Merger, will own, have the right to acquire, or
otherwise be the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of over 5,000 shares of HCAC Common Stock:
(i) Such Persons who will own, have the right to
acquire, or be the beneficial owner of between 5,001 and 99,999 shares of HCAC
Common Stock shall enter into Lock-Up Agreements in the form of Exhibit C-1
hereto;
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(ii) Such Persons who will own, have the right to
acquire, or be the beneficial owner of 100,000 or more shares of HCAC Common
Stock shall enter into Lock-Up Agreements in the form of Exhibit C-2 hereto;
and
(iii) The officers and directors of Encore, Lois
and Sandor Turanyi, Wolfgang Schweizer (individually and for MVI AG and Medica
Holding AG), Helmut Vogel, and Michael A. and Judith Pentopoulos shall enter
into Lock-Up Agreements in the form of Exhibit C-3.
If all of the Lock-Up Agreements required pursuant to (ii) and (iii) above, and
such additional Lock-Up Agreements as shall be required so that ninety percent
(90%) of the HCAC Common Stock that would be covered by the Lock-Up Agreements
described in (i), (ii) and (iii) above, are executed and delivered to HCAC in
accordance with this Section 7.02(m), then this condition shall be deemed
satisfied.
7.03. CONDITIONS TO OBLIGATIONS OF ENCORE. The obligations of
Encore to effect the Merger shall, at the option of Encore, be subject to the
satisfaction or waiver, on or before the Effective Time, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of HCAC and Acquisition contained herein shall
be true and correct in all material respects at and as of the date when made
and at and as of the Effective Time as though such representations and
warranties were made again at and as of the Effective Time, except for changes
expressly permitted or contemplated by this Agreement.
(b) PERFORMANCE. HCAC and Acquisition shall have
performed and complied in all material respects with the agreements contained
in this Agreement and required to be performed or complied with by them on or
prior to the Effective Time.
(c) CONSENTS AND APPROVALS. HCAC shall have obtained all
third party consents and approvals necessary, proper or advisable to consummate
the Merger, except for those which would not have a Material Adverse Effect.
(d) NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. There
shall not be pending or threatened any action, proceeding, claim or counterclaim
by any United States governmental authority or agency or by any third party
which seeks to or would (i) prohibit the consummation of the Merger or seeks
damages in connection therewith, (ii) require the disposition of or the holding
separate of any of the stock or assets of Encore or its Subsidiary, or (iii)
have a material adverse effect on Encore's business or materially impair the
ability of Encore to perform its obligations hereunder. There shall not be in
effect any order, decree or injunction (whether preliminary, final or
appealable) of a United States federal or state court of competent jurisdiction,
and no statute, rule or regulation shall have been enacted or promulgated by any
governmental authority or agency, which (i) prohibits consummation of the Merger
or the transactions contemplated thereby, (ii) requires HCAC to hold separate or
dispose of any of the stock or assets of Encore or its Subsidiary,
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or (iii) has a material adverse effect on the business of Encore and its
Subsidiary or materially impairs the ability of Encore to perform its
obligations hereunder.
(e) LEGAL OPINION. Encore shall have received an opinion of
Ruden, McClosky, Smith, Schuster & Russell, P.A., counsel to HCAC, dated as of
the Effective Time, in the form and substance reasonably satisfactory to
Encore.
(f) TAX OPINION. Encore shall have received an opinion
of Sutherland, Asbill & Brennan, counsel for Encore, dated as of the Effective
Time, to the effect that for federal income tax purposes (i) the Merger will
constitute a "reorganization" within the meaning of Sections 368(a) of the
Internal Revenue Code of 1986, as amended; (ii) no gain or loss will be
recognized to Encore shareholders upon receipt of HCAC Common Stock in exchange
for their Encore Common Stock or Encore Preferred Stock pursuant to the Merger;
(iii) the basis of the shares of HCAC Common Stock of the Encore shareholders
will be the same as the basis of the Encore Common Stock or Encore Preferred
Stock surrendered for exchange in the Merger; and (iv) Encore shareholders in
the Merger will include the holding period for the Encore Common Stock or
Encore Preferred Stock in their holding period of HCAC Common Stock received in
the Merger.
(g) OTHER DOCUMENTS. All documents required to be
delivered to Encore by HCAC or Acquisition on or prior to the Closing Date
shall have been so delivered.
(h) CERTIFICATES. HCAC shall have furnished to Encore
such certificates of its chief executive officer, dated the Effective Time,
certifying compliance with the conditions set forth in subparagraphs (a) and
(b) of this Section 7.03, or as may otherwise be reasonably requested by
Encore.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.01. METHODS OF TERMINATION. Subject to the provisions of this
Section 8.01 below, this Agreement may, by written notice given at or prior to
the Effective Time in the manner hereinafter provided, be terminated and the
transaction herein contemplated may be abandoned prior to the Effective Date,
notwithstanding approval of the stockholders of HCAC and/or Encore:
(a) By HCAC if there has been a material breach of the
representations and warranties of Encore contained in this Agreement or if
Encore has failed to comply in any material respect with any of its covenants
or agreements contained in this Agreement and Encore shall not have cured such
breach or failure within five (5) business days after receipt of written notice
thereof from HCAC;
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(b) By Encore if there has been a material breach of the
representations and warranties of HCAC or Acquisition contained in this
Agreement or if HCAC or Acquisition has failed to comply in any material
respect with any of their covenants or agreements contained in this Agreement
and HCAC and Acquisition shall not have cured such breach or failure within
five (5) business days after receipt of written notice thereof from Encore;
(c) By either HCAC or Encore, if at the Special Meetings
(including any adjournments thereof) this Agreement and the Merger shall fail
to be approved and adopted by the affirmative vote of the holders of HCAC
Common Stock required under HCAC's Certificate of Incorporation, and by the
affirmative vote of the holders of Encore Common Stock and Encore Preferred
Stock required under the TBCA and Encore's Articles of Incorporation;
(d) (i) By HCAC or Acquisition if all of the
conditions set forth in Section 7.01 and Section 7.02 shall not have been
satisfied on or before the Closing Date, other than through failure of HCAC or
Acquisition to comply with their obligations hereunder, and shall not have been
waived by HCAC or Acquisition on or before such date; or
(ii) By Encore, if all of the conditions set forth
in Sections 7.01 and 7.03 shall not have been satisfied on or before the
Closing Date, other than through failure of Encore to comply with its
obligations hereunder, and shall not have been waived by Encore on or before
such date;
(e) By mutual written consent duly authorized by the
Boards of Directors of HCAC and Encore;
(f) By either HCAC or Encore if the Effective Time shall
have not occurred on or before February 28, 1997, or such later date as may be
mutually agreed upon in writing by the parties; provided, however, that the
right to terminate the Agreement under this Section 8.01(f) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date;
(g) By HCAC or Encore if any court of competent
jurisdiction or other governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the consummation of this Agreement;
(h) By HCAC if any supplement or amendment to the Encore
Disclosure Schedule required to be provided by Encore to HCAC in accordance
with Section 6.01(c), or by Encore if any supplement or amendment to the HCAC
Disclosure Schedule required to be provided by HCAC to Encore in accordance
with Section 6.02(d), reveals a material adverse change in the applicable
Disclosure Schedule previously provided; provided, such party must exercise its
right to terminate pursuant to this provision by giving the other party written
notice thereof within five (5) business days after the receipt by such party of
such amendment or supplement;
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(i) By Encore in accordance with the provisions of
Section 6.01(d) of this Agreement, provided, however, if Encore shall terminate
this Agreement pursuant to this provision, it shall pay HCAC Two Hundred
Thousand Dollars ($200,000) at the time it sends its notice of termination to
HCAC;
(j) By HCAC in accordance with Section 6.02(f) of this
Agreement provided, however, if HCAC shall terminate this Agreement pursuant to
this provision, it shall pay Encore Two Hundred Thousand Dollars ($200,000) at
the time it sends its notice of termination to Encore;
(k) By HCAC if, at the time that the Definitive Proxy
Statement referred to in Section 1.07(b) hereof is to be mailed to the
stockholders of HCAC, the opinion rendered by HCAC's independent financial
advisor, as to the fairness to HCAC's stockholders of the Merger from a
financial point of view is not reasonably satisfactory, in form or substance,
to the Board of Directors of HCAC; or
(l) By HCAC if, at the time that the Definitive Proxy
Statement referred to in Section 1.07(b) is to be mailed to the stockholders of
HCAC, the Lock-Up Agreements from the parties identified in Section 6.04 shall
have not been obtained by Encore.
8.02. EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Section 8.01 hereof, all further obligations of the
parties hereunder shall terminate, except the obligations set forth in Sections
6.02(b) and 9.08 shall survive, and there shall be no liability on the part of
any party; provided, that if this Agreement is so terminated by a party because
of one or more of the conditions to such party's obligations hereunder is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement or in the event of a breach by the other party
of its obligations hereunder, the terminating party's right to pursue all legal
remedies for breach of contract or otherwise, including, without limitation,
damages relating thereto, shall also survive such termination unimpaired. Each
party's right of termination hereunder is in addition to any other rights it
may have hereunder or otherwise and the exercise of a right of termination
shall not be an election of remedies.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01. LIMITATION AS TO KNOWLEDGE. Whenever a statement regarding
the existence or absence of facts in this Agreement is qualified by a phrase
such as "to such person's knowledge," "known to such person," or variations
thereof, it is intended by the parties that the only information to be
attributed to such person is information actually or constructively known to
(i) such person, in the case of an individual, or (ii) in the case of a
corporation, any director or officer of such corporation, and additionally in
the case of Encore, any director or officer of its Subsidiary. A person shall
be deemed to have "constructive knowledge" of those matters which the
individual
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involved could reasonably be expected to have discovered as a result of
undertaking an investigation of such a scope and extent as a reasonably prudent
man would undertake concerning the particular subject matter during the
ordinary course of conducting his business affairs. Unless otherwise provided
in this Agreement, no such person is represented to have undertaken a separate
investigation in connection with the transactions contemplated hereunder to
determine the existence or absence of facts in any statement qualified by such
phrases as "known to," "to the knowledge of," or variations thereof.
9.02 GOVERNING LAW; BINDING EFFECT; SEVERABILITY. This Agreement
shall be construed under and in accordance with the laws of the State of Texas,
and the consummation and effectiveness of the Merger shall be governed by, and
construed in accordance with, the TBCA. All of the terms, agreements,
covenants, warranties, representations, promises and conditions contained in
this Agreement shall apply to, be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns, and shall survive the Closing
hereunder. This Agreement may not be assigned (by operation of law or
otherwise) by an party without the prior written consent of the other parties
hereto. In case any one or more of the provisions contained in this Agreement
or any instrument(s) executed pursuant to the terms of this Agreement shall be
held to be invalid, illegal or unenforceable in any respect for any reason,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as it such invalid,
illegal or unenforceable provision(s) had never been contained herein.
9.03. ENTIRE AGREEMENT MODIFICATION. This Agreement supersedes any
and all other prior understandings and agreements, either oral or in writing,
between the parties hereto with respect to the subject matter hereof (including
that certain Letter Agreement between the parties dated October 11, 1996) and,
together with the Schedules and Exhibits hereto and the documents and
agreements to be executed or delivered pursuant to this Agreement, constitutes
the sole and only agreement between the parties with respect to the matter
covered hereby. Each party to this Agreement acknowledges that no
representations, inducements, warranties, covenants, guarantees, promises or
other agreement, oral or otherwise, have been made by any party, as to the
transaction contemplated hereby or by anyone acting on behalf of any party,
which are not embodied herein. No change or modification of this Agreement
shall be valid or binding upon the parties hereto unless such change or
modification shall be in writing and signed by all of the parties hereto.
9.04. NOTICES. Except as expressly provided herein, all notices
permitted or required to be given in connection with this Agreement shall be in
writing and shall be delivered either by personal delivery, telegram, telex,
telecopy or similar facsimile means, by certified or registered mail, return
receipt requested, or by express courier or delivery service, addressed to the
parties hereto at the following addresses:
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ENCORE: Encore Orthopedics, Inc.
8900 Shoal Creek Blvd., Bldg. 300
Austin, Texas 78757
Attention: Harry L. Zimmerman
Vice President - General Counsel
Telephone No.: (512) 795-8696
Fax No.: (512) 795-8701
With a copy to: Jackson & Walker, L.L.P.
111 Congress Avenue, Suite 2300
Austin, Texas 78701
Attention: Larry Waks, Esq.
Telephone No.: (512) 494-2444
Fax No.: (512) 494-2442
HCAC AND Healthcare Acquisition Corp.
ACQUISITION 2365 N.W. 41st Street
Boca Raton, Florida 33431
Attention: Jay M. Haft
Telephone No.: (305) 373-9464
Fax No.: (305) 373-9443
With a copy to Ruden, McClosky, Smith, Schuster & Russell, P.A.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Scott H. Margol, Esq.
Telephone No.: (954) 764-6660
Fax No.: (954) 764-4996
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner herein and
above set forth. Notices shall be deemed given when received, if sent by
telegram, telex, telecopy or similar facsimile means (confirmation of such
receipt by confirmed facsimile transmission being deemed receipt of
communications sent by telex, telecopy or other facsimile means); and when
delivered and receipted for (or upon the date of attempted delivery for
delivery as refused), if hand delivered, sent by express courier or delivery
service, or sent by certified or registered mail, return receipt requested.
9.05. COUNTERPARTS. This Agreement may be executed in separate or
multiple counterparts, each of which shall be deemed an original, but all of
which together shall be considered as one and the same Agreement.
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9.06. CONSTRUCTION; SECTION HEADINGS. Whenever the context hereof
shall so require, the singular shall include the plural, the male gender shall
include the female gender and the neuter, and vice versa. The Section headings
contained in this Agreement are provided for convenience only and form no part
of this Agreement and shall not effect its construction or interpretation.
Unless the context of this Agreement clearly requires otherwise, (a) "or" has
the inclusive meaning frequently identified with the phrase "and/or," (b)
"including" has the inclusive meaning frequently identified with the phrase
"but not limited to" and "without limitation" and (c) the ordinary course means
the ordinary course consistent with past practice. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein shall have the meaning given to it
under generally accepted account principles.
9.07. WAIVER. Neither the failure nor any delay on the part of any
party in exercising any right, power or privilege under this Agreement or the
documents referred to herein shall operate as a waiver thereof, nor shall nay
single or partial exercise of any such right, power or privilege preclude any
other or further exercise thereof or the exercise of any right, power or
privilege.
9.08 EXPENSES. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
9.09. TIME OF THE ESSENCE. With regard to all time periods set
forth or referred to in this Agreement, time is of the essence.
9.10 INCORPORATION BY REFERENCE. All Exhibits and Schedules
referred to herein are incorporated by reference, including but not limited to,
the HCAC Disclosure Schedule and the Encore Disclosure Schedule.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
HEALTHCARE ACQUISITION CORP.
By: /s/ Jay M. Haft
___________________________________
Jay M. Haft, Chairman of the Board
HEALTHCARE ACQUISITION, INC.
By: /s/ Jay M. Haft
_____________________________________
Jay M. Haft, President
ENCORE ORTHOPEDICS, INC.
By: /s/ Nick Cindrich
______________________________________
Nick Cindrich, Chairman of the Board,
and Chief Executive Officer
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EXHIBIT A
DEFINED TERMS
All defined terms used in this Agreement and not specifically defined
in context are as defined in this Exhibit A.
"ACCOUNTS RECEIVABLE" means any right to payment for goods sold,
leased or licensed or for services rendered whether or not it has been earned
by performance, any note receivable, and any other receivable or right to
payment of any nature whatsoever.
"ASSET" means any real, personal, mixed, tangible or intangible
property of any nature whatsoever, including, without limitation, Real
Property, Equipment, Accounts Receivable, Inventory, Permits, Intangibles and
Contract Rights.
"CONSENT" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application or report to,
or any waiver by, or any other action (whether similar or dissimilar to any of
the foregoing) of, by or with, any person, which is necessary in order to take
a specified action or actions, in a specified manner and/or to achieve a
specific result.
"CONTRACT" means any written or oral contract, agreement, order or
commitment of any nature whatsoever, including, without limitation, any sales
order, purchase order, lease, sublease, license agreement, sub-license
agreement, loan agreement, security agreement, guarantee, management contract,
employment agreement, consulting agreement, partnership agreement, buy-sell
agreement, option, warrant, subscription, call or put.
"CONTRACT RIGHT" means any right, power or remedy under any Contract,
including, without limitation, any right to receive goods or services or
otherwise derive benefit from the payment, satisfaction or performance of
another party's Obligations, and right to demand that another party accept
goods or services or take any other action, and any right to pursue or exercise
any remedy or option.
"EMPLOYEE BENEFIT PLAN" means any bonus, severance, hospitalization,
vacation, deferred compensation, pension, profit sharing, retirement, payroll
savings, stock option, group insurance, death benefit or welfare plan, or any
other employee benefit plan or fringe benefit arrangement of any nature
whatsoever.
"ENCUMBRANCE" means any lien, security interest, pledge, mortgage,
easement, leasehold, assessment, covenant, restriction, reservation,
conditional sale, prior assignment, or any other encumbrance, claim, burden or
charge of any nature whatsoever.
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"EQUIPMENT" means any equipment, machinery, fixtures, furniture,
leasehold improvements, vehicles, vessels, office equipment, office supplies or
other tangible personal property of any nature whatsoever, but not any such
item which constitutes Inventory.
"INTANGIBLE" means any name, corporate name, partnership name,
fictitious name, trademark, trademark application, trade name, brand name,
slogan, trade secret, know-how, patent, patent application, copyright,
copyright application, design, formula, invention, blueprint, product right,
software right, license, franchise, authorization or any other intangible
property of any nature whatsoever.
"INVENTORY" means items held for sale or lease in the ordinary course
of business including, without limitation, raw materials, supplies, work in
process, finished goods, or any other inventory of any nature whatsoever.
"JUDGMENT" means any order, writ, injunction, fine, citation, award,
decree, or any other judgment of any nature whatsoever of any foreign, federal,
state or local court, any governmental, administrative or regulatory authority,
or any arbitration tribunal.
"LAW" means any provision of any law, statute, ordinance,
constitution, charter, treaty, rule or regulation of any foreign, federal,
state or local governmental, administrative or regulatory authority.
"OBLIGATION" means any debt, liability or obligation of any nature
whatsoever, whether secured, unsecured, recourse, non-recourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained,
known, unknown or otherwise, including but not limited to obligations under
executory Contracts.
"PERMIT" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature whatsoever, granted, issued,
approved or allowed by any foreign, federal, state or local governmental,
administrative or regulatory authority.
"PERSON" means any individual, sole proprietorship, joint venture,
partnership, corporation, association, cooperation, trust, estate, government
(or any branch, subdivision or agency thereof), governmental, administrative or
regulatory authority, or any other entity of any nature whatsoever.
"PROCEEDING" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing, or any other proceeding of
any nature whatsoever.
"REAL PROPERTY" means any real estate, land, building, structure,
improvement, fixture or other real property of any nature whatsoever.
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EXHIBIT B
FORM OF AMENDMENTS REQUIRED TO HCAC'S CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
HEALTHCARE ACQUISITION CORP.
In accordance with Section 242 of the Delaware General Corporation Law
("GCL"), the following provisions of the Certificate of Incorporation of
Healthcare Acquisition Corp., a Delaware corporation (the "Corporation"), filed
with the Office of the Secretary of State of Delaware on March 21, 1995,
Authentication Number 7504947, are hereby amended as follows:
1. Paragraph FIRST of the Certificate of Incorporation of the Corporation
is amended to provide in its entirety as follows:
FIRST: The name of the Corporation is Encore Medical Corporation.
2. The first sentence of Paragraph FOURTH of the Certificate of
Incorporation of the Corporation is amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 36,000,000
of which 35,000,000 shares shall be Common Stock of the par value of
$0.001 per share, and 1,000,000 shares shall be Preferred Stock of the
par value of $0.001 per share.
3. Paragraph SIXTH of the Certificate of Incorporation of the
Corporation is amended to provide in its entirety as follows:
SIXTH: The Board of Directors shall be divided into three (3)
classes, which are hereby designated Class A, Class B and Class C,
respectively. The names of the members of the Board of Directors of
the Corporation who shall hold office until the annual meeting of
stockholders at which their respective class of directors shall be
elected and until their respective successors are duly elected and
qualified, are as follows:
Class A Class B Class C
------- ------- -------
Lamar Laster Dennis Enright Nick Cindrich
Richard Relyea Kenneth Davidson Craig L. Smith
John Abeles Jay Haft Richard Martin
Joel Kanter
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The term of office of the initial Class A directors shall expire at
the 1998 annual meeting of the stockholders; that of the Class B
directors at the 1999 annual meeting of the stockholders; and that of
the Class C directors at the 2000 annual meeting of the stockholders.
At each annual meeting after the initial classification of directors,
directors to replace those whose terms expire at such meeting shall be
elected to hold office until the third succeeding annual meeting. In
addition to the limitations imposed by law, the classification of
directors shall be subject to the following limitations: (a) the
number of directors shall be determined in accordance with the Bylaws
of the Corporation and (b) the classes must be equal in number of
possible.
The foregoing amendments were duly adopted in accordance with Section
242 (b) of the Delaware General Corporation Law on _________________, 1997.
IN WITNESS WHEREOF, this Certificate of Amendment is made the ____ day
of _______, 1997.
HEALTHCARE ACQUISITION CORP.
By:
__________________________________
_____________________, President
ATTEST:
By: ____________________________
________________, Secretary
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EXHIBIT C
FORM OF LOCK-UP AGREEMENT
EXHIBIT "C-1"
__________________, 1996
Healthcare Acquisition Corp.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Re: Encore Orthopedics, Inc. ("Encore")
Ladies and Gentlemen:
The undersigned is delivering this agreement to Healthcare Acquisition
Corp. ("HCAC") pursuant to the terms of the Agreement and Plan of Merger dated
November __, 1996, among Encore, HCAC and HCAC's subsidiary, Healthcare
Acquisition Inc. (the "Merger Agreement"). Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in the
Merger Agreement.
The Merger Agreement provides for (a) the issuance of HCAC Common
Stock and HCAC $7.00 Warrants to the undersigned and/or (b) the assumption of
an Existing Stock Option issued to the undersigned under which the undersigned
will have the right to receive from HCAC, upon the due exercise of such
Existing Stock Option, Units consisting of shares of HCAC Common Stock and HCAC
$7.00 Warrants. The HCAC Common Stock, the HCAC $7.00 Warrants and the HCAC
Common Stock underlying the HCAC $7.00 Warrants issued pursuant to the Merger
or upon exercise of an Existing Stock Option are hereinafter called the "Merger
Securities".
In consideration of HCAC's proceeding with the actions contemplated by
the Merger Agreement, the undersigned agrees that from and after the Effective
Time it will not, directly or indirectly, sell, offer or contract to sell,
grant an option to purchase, or otherwise transfer any of the Merger Securities
which the undersigned owns, will own of record or of which the undersigned has
or will have the power to control the disposition.
The foregoing restriction on sales and other transfers shall be
effective from the date hereof until the expiration of twelve (12) months from
the Effective Time; provided, however, the undersigned may sell or transfer
one-half (1/2) of the undersigned's HCAC Common Stock included in the Merger
Securities on the expiration of nine (9) months from the Effective Time. For
example, if the undersigned acquired 10,000 shares of HCAC Common Stock and
1,500 HCAC $7.00 Warrants pursuant to the Merger, the undersigned would be
permitted to sell and transfer up to 5,750 shares of HCAC Common Stock (less
the number of HCAC $7.00 Warrants sold or transferred by the undersigned) after
the expiration of nine (9) months from the Effective Time. This agreement
shall be binding on any successors and assigns of the undersigned.
Very truly yours,
_________________________________
Name of Shareholder
By: ____________________________
Title: _________________________
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EXHIBIT "C-2"
__________________, 1996
Healthcare Acquisition Corp.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Re: Encore Orthopedics, Inc. ("Encore")
Ladies and Gentlemen:
The undersigned is delivering this agreement to Healthcare Acquisition
Corp. ("HCAC") pursuant to the terms of the Agreement and Plan of Merger dated
November __, 1996 among Encore, HCAC and HCAC's subsidiary, Healthcare
Acquisition Inc. (the "Merger Agreement"). Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in the
Merger Agreement.
The Merger Agreement provides for (a) the issuance of HCAC Common
Stock and HCAC $7.00 Warrants to the undersigned and/or (b) the assumption of an
Existing Stock Option issued to the undersigned under which the undersigned will
have the right to receive from HCAC, upon the due exercise of such Existing
Stock Option, Units consisting of shares of HCAC Common Stock and HCAC $7.00
Warrants. The HCAC Common Stock, the HCAC $7.00 Warrants and the HCAC Common
Stock underlying the HCAC $7.00 Warrants issued pursuant to the Merger or upon
exercise of an Existing Stock Option are hereinafter called the "Merger
Securities".
In consideration of HCAC's proceeding with the actions contemplated by
the Merger Agreement, the undersigned agrees that from and after the Effective
Time it will not, directly or indirectly, sell, offer or contract to sell,
grant an option to purchase, or otherwise transfer any of the Merger Securities
which the undersigned owns, will own of record or of which the undersigned has
or will have the power to control the disposition.
The foregoing restriction on sales and other transfers shall be
effective from the date hereof until the expiration of eighteen (18) months
from the Effective Time; provided, however, the undersigned may sell or
transfer one-third (1/3) of the undersigned's HCAC Common Stock included in
the Merger Securities on the expiration of twelve (12) months from the
Effective Time and an additional one-third (1/3) of the undersigned's HCAC
Common Stock included in the Merger Securities on the expiration of fifteen
(15) months from the Effective Time. For example, if the undersigned acquired
10,000 shares of HCAC Common Stock and 1,500 HCAC $7.00 Warrants pursuant to
the Merger, the undersigned would be permitted to sell and transfer up to 3,833
shares of HCAC Common Stock (less the number of HCAC $7.00 Warrants sold or
transferred by the undersigned) after the expiration of twelve (12) months from
the Effective Time and up to 7,666 shares of HCAC Common Stock (less the number
of shares of HCAC Common Stock and HCAC $7.00 Warrants previously sold or
transferred by the undersigned) after the expiration of fifteen (15) months
from the Effective Time. This agreement shall be binding on any successors and
assigns of the undersigned.
Very truly yours,
_____________________________
Name of Shareholder
By: ____________________________
Title: _________________________
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EXHIBIT "C-3"
__________________, 1996
Healthcare Acquisition Corp.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Re: Encore Orthopedics, Inc. ("Encore")
Ladies and Gentlemen:
The undersigned is delivering this agreement to Healthcare Acquisition
Corp. ("HCAC") pursuant to the terms of the Agreement and Plan of Merger dated
November __, 1996 among Encore, HCAC and HCAC's subsidiary, Healthcare
Acquisition Inc. (the "Merger Agreement"). Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in the
Merger Agreement.
The Merger Agreement provides for (a) the issuance of HCAC Common
Stock and HCAC $7.00 Warrants to the undersigned and/or (b) the assumption of
an Existing Stock Option issued to the undersigned under which the undersigned
will have the right to receive from HCAC, upon the due exercise of such
Existing Stock Option, Units consisting of shares of HCAC Common Stock and HCAC
$7.00 Warrants. The HCAC Common Stock, the HCAC $7.00 Warrants and the HCAC
Common Stock underlying the HCAC $7.00 Warrants issued pursuant to the Merger
or upon exercise of an Existing Stock Option are hereinafter called the "Merger
Securities".
In consideration of HCAC's proceeding with the actions contemplated by
the Merger Agreement, the undersigned agrees that from and after the Effective
Time it will not, directly or indirectly, sell, offer or contract to sell,
grant an option to purchase, or otherwise transfer any of the Merger Securities
which the undersigned owns, will own of record or of which the undersigned has
or will have the power to control the disposition.
The foregoing restriction on sales and other transfers shall be
effective from the date hereof until the expiration of twenty-four (24) months
from the Effective Time; provided, however, the undersigned may sell or
transfer one-quarter (1/4) of the undersigned's HCAC Common Stock included in
the Merger Securities on the expiration of twelve (12) months from the
Effective Time, an additional one-quarter (1/4) of the undersigned's HCAC
Common Stock included in the Merger Securities on the expiration of fifteen
(15) months from the Effective Time and an additional one-quarter (1/4) of the
undersigned's HCAC Common Stock included in the Merger Securities on the
expiration of eighteen (18) months from the Effective Time. For example, if
the undersigned acquired 10,000 shares of HCAC Common Stock and 1,500 HCAC
$7.00 Warrants pursuant to the Merger, the undersigned would be permitted to
sell and transfer up to 2,875 shares of HCAC Common Stock (less the number of
HCAC $7.00 Warrants previously sold or transferred by the undersigned) after
the expiration of twelve (12) months from the Effective Time, up to 5,750
shares of HCAC Common Stock (less the number of shares of HCAC Common Stock and
HCAC $7.00 Warrants previously sold or transferred by the undersigned) after
the expiration of fifteen (15) months from the Effective Time, and up to 8,625
shares of HCAC Common Stock (less the number of shares of HCAC Common Stock and
HCAC $7.00 Warrants previously sold or transferred by the undersigned) after
the expiration of eighteen (18) months from the Effective Time. This agreement
shall be binding on any successors and assigns of the undersigned.
Very truly yours,
_____________________________
Name of Shareholder
By: ________________________
Title: _____________________
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EXHIBIT D
FORM OF HCAC STOCK OPTION PLAN
ENCORE MEDICAL CORPORATION
1996 INCENTIVE STOCK PLAN
1. PURPOSE. The purpose of the Encore Medical Corporation 1996
Incentive Stock Plan is to promote the interests of Encore Medical Corporation
and its shareholders by enabling selected key employees of the Company and its
Subsidiaries to participate in the long-term growth of the Company by receiving
the opportunity to acquire shares of the Company's Stock and to provide for
additional compensation based on appreciation in the Company's Stock. The Plan
provides a means to attract and retain key employees of merit and is intended
to stimulate the efforts of such employees by providing an opportunity for
capital appreciation and recognizing outstanding service to the Company, thus
contributing to the long-term growth and profitability of the Company.
2. DEFINED TERMS. The following defined terms have the meanings
set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(b) "Award" or "Awards," except where referring to a
particular category of grant under the Plan, includes Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance Unit
Awards and Other Stock-Based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor code and related rules, regulations and
interpretations.
(e) "Committee" means the Management Compensation and
Organization Committee of the Board (or any successor committee as described in
Section 5 below); such Committee shall consist of at least two members of the
Board, each of whom shall be a Non-Employee Director.
(f) "Company" means Encore Medical Corporation.
(g) "Deferred Stock Award" shall have the meaning set
forth in Section 11(a), and Stock issued pursuant to such an Award shall be
deemed "Deferred Stock."
(h) "Disability" means permanent and total disability, as
determined under procedures established by the Committee for purposes of the
Plan.
(i) "Fair Market Value" on a specified date shall be the
average of the closing prices of the Stock on the NASDAQ Stock Market's
National Market System or whichever other exchange the Company's stock is being
traded on the last three trading days prior to the day immediately following
the specified date.
(j) "Incentive Stock Option" means any Stock Option
intended to be and designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(k) "Non-Employee Director" shall have the meaning set
forth in Rule 16b-3, promulgated under the Act, or any successor definition
promulgated by the Securities and Exchange Commission under the Act.
(l) "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
(m) "Other Stock-Based Award" shall have the meaning set
forth in Section 13(a).
(n) "Performance Unit Award" shall have the meaning set
forth in Section 12(a).
(o) "Plan" means the Encore Medical Corporation 1996
Incentive Stock Plan, as amended from time to time.
(p) "Restricted Stock Award" shall have the meaning set
forth in Section 9(a).
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(q) "Retirement" means a severance from the active
employment of the Company or its Subsidiaries by reason of retirement pursuant
to the provisions of any profit sharing, pension or other retirement plan of
the Company or its Subsidiaries, or any contract between the Company or any of
its Subsidiaries and the participant.
(r) "Rule 16b-3" means Rule 16b-3, as promulgated by the
Securities and Exchange Commission under Section 16(b) of the Act, as amended
from time to time.
(s) "Stock" means the common stock, $.001 par value, of
the Company.
(t) "Stock Appreciation Right" shall have the meaning set
forth in Section 8(a).
(u) "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 7.
(v) "Subsidiary" means any corporation a majority of
whose stock the Company owns or controls, either directly or indirectly through
another corporation or series of corporations, domestic or foreign.
(w) "Unrestricted Stock Award" shall have the meaning set
forth in Section 10.
3. STOCK SUBJECT TO THE PLAN.
(a) SHARES ISSUABLE. The maximum number of shares of
Stock reserved and available for distribution pursuant to Awards under the Plan
shall be 2,000,000 shares. Such shares of Stock may consist, in whole or in
part, of authorized and unissued shares or treasury shares. If (i) an Award
expires or terminates for any reason without being exercised in full or is
satisfied without the distribution of Stock, or (ii) Stock distributed pursuant
to an Award is forfeited or reacquired by the Company, or is surrendered upon
exercise of an Award, the Stock subject to such Award or so forfeited,
reacquired or surrendered shall again be available for distribution for
purposes of the Plan.
(b) CHANGES IN CAPITALIZATION. In the event of a stock
dividend, spin-off, stock split, any increase or decrease in the number of
issued shares of Stock resulting from a subdivision or combination of shares
effected without receipt of consideration by the Company or any other change in
corporate structure or other distribution of stock or property (except ordinary
cash dividends) affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number of and kind of shares of stock or securities
underlying Awards that may thereafter be granted, (ii) the number and kind of
shares remaining subject to outstanding Awards and (iii) the option or purchase
price in respect of such shares. In the event of any such change in
capitalization of the Company, the Committee may make such additional
adjustments in the number and class of shares of Stock or other securities with
respect to which outstanding Awards are exercisable and with respect to which
future Awards may be granted as the Committee in its sole discretion shall deem
equitable or appropriate, subject to the provisions of Section 18 below. In
the event the Stock is changed into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be the Stock within the meaning of the Plan. Except (i) as
expressly provided in the preceding sentences or (ii) for any distribution or
adjustment made with respect to outstanding shares of Restricted Stock in
connection with a distribution or adjustment made with respect to all other
outstanding shares of Stock, any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Stock subject to any Award. The existence of the
Plan and the Awards granted pursuant to the Plan shall not affect in any way
the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other corporate
act or proceeding.
(c) SUBSTITUTE AWARDS. The Company may grant Awards
under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who concurrently become employees of the
Company or a Subsidiary, as the result of a merger or consolidation of the
employing corporation with the Company or a Subsidiary or the acquisition by
the Company or a Subsidiary of property or stock of the employing corporation.
The Committee may direct that the substitute Awards be granted on such terms
and conditions as the Committee considers appropriate in the circumstances.
4. ELIGIBILITY. Participants in the Plan will be such officers
and other key employees of the Company and its Subsidiaries who are responsible
for or contribute to the management, growth or profitability of the Company and
its Subsidiaries and who are selected from time to time by the Committee, in
its sole discretion. In the case of Awards payable in Stock, no participant
shall be granted during any fiscal year the right to acquire pursuant to Awards
granted under the Plan more than 1,000,000 shares of Stock. In the case of
Awards payable in cash, no participant shall be granted Awards entitling the
participant to receive more than $10,000,000 in compensation during the life of
the Plan or during the period within which Awards may be payable under the
Plan.
5. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board, the Committee or such other committee of the Board, composed of not
less than two Non-Employee Directors who shall be appointed by the Board and
who shall serve at the pleasure of the Board. (All references to the Committee
hereinafter shall also be deemed to refer to the Board.) The Committee shall
have the power and authority to grant Awards consistent with the terms of the
Plan, including the power and authority:
(i) to select the officers and other key employees of the
Company and its Subsidiaries to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the
extent, if any, of Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock Awards,
Unrestricted Stock Awards, Deferred Stock Awards, Performance Units
Awards, and any Other Stock-Based Awards, or any combination of the
foregoing, granted to any one or more participants;
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(iii) to determine the number of shares to be covered by
any Award;
(iv) to establish the terms and conditions of any Award,
including, but not limited to:
(A) the share price;
(B) any restriction or limitation on the
grant, vesting or exercise of any Award including,
but not limited to, the attainment (and certification
of the attainment) of one or more performance goals
based on one or more (or any combination) of the
following business criteria that may apply to the
individual participant, a Company business unit, or
the Company as a whole: revenues, net income (before
or after tax), earnings, earnings per share,
shareholders' equity, return on equity, assets,
return on assets, capital, return on capital, book
value, economic value added, operating margins,
profit margins, cash flow, shareholder return,
expenses, sales or market share, expense management,
return on investment, improvements in capital
structure, net revenue per employee, profitability of
an identifiable business unit or product, or stock
price, or shall be based on any one or more (or any
combination) of the foregoing business criteria
before the effect of acquisitions, divestitures,
accounting changes, restructuring or other special
charges or extraordinary items, to the extent the
Committee specifies, when granting the Award, that
the effect of any such extraordinary items shall be
disregarded; and
(C) any waiver of vesting, acceleration
or forfeiture provisions regarding any Stock Option
or other Award and the Stock relating thereto, based
on such factors as the Committee shall determine; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the Participant, and
whether and to what extent the Company shall pay or credit amounts equal to
interest (at rates determined by the Committee), dividends or deemed dividends
on such deferrals.
Subject to the provisions of the Plan, the Committee shall have full and
conclusive authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Award agreements and to make all other
determinations necessary or advisable for the proper administration of the
Plan. The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan (whether or not such persons are similarly
situated). Any determination made by the Committee pursuant to the provisions
of the Plan with respect to any Award shall be made in its sole discretion at
the time of the grant of the Award or, unless in contravention of any express
term of the Plan, at any time thereafter. All decisions by the Committee made
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Plan participants.
6. LIMITATIONS ON TERM AND DATE OF AWARDS.
(a) DURATION OF AWARDS. Subject to Section 19(c) below,
no restrictions or limitations on any Award shall extend beyond ten years from
the grant date, except that deferrals of the receipt of Stock or other benefits
under the Plan elected by participants may extend beyond such date.
(b) TERM. No Award shall be granted more than ten years
after the effective date of the Plan as specified in Section 20 below, but then
outstanding Awards may extend beyond such date.
7. STOCK OPTIONS. Stock Options may be granted alone or in
addition to other Awards and may be of two types: Incentive Stock Options and
Non-Qualified Stock Options. Each Stock Option shall be clearly identified as
to its status as an Incentive Stock Option or a Non-Qualified Stock Option at
the date of grant. To the extent that any Stock Option denominated as an
Incentive Stock Option does not qualify as an "incentive stock option" within
the meaning of Section 422 of the Code, it shall constitute a separate
Non-Qualified Stock Option. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall be evidenced by option
agreements, which shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and set forth in the option agreement but shall be (i) in the
case of Incentive Stock Options, not less than 100% of the Fair Market Value on
the date of grant and (ii) in the case of Non-Qualified Stock Options, not
less than 50% of Fair Market Value on the date of grant; provided, however,
that the option price per share of Stock purchasable under a Non-Qualified
Stock Option may also be the par value per share of Stock. If an officer or
key employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation, and an Incentive Stock Option is granted to such officer or key
employee, the option price shall be no less than 110% of the Fair Market Value
on the date of grant. The grant of a Stock Option shall occur on the date the
Committee by resolution designates an officer or employee to receive a grant of
a Stock Option, determines the number of shares of Stock covered by the Stock
Option and specifies the terms and provisions of the option agreement.
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(b) OPTION TERM. Unless an option agreement provides for
a shorter exercise period, any Stock Option shall be exercisable not later than
ten years after the Stock Option is granted; provided, however, that if an
Incentive Stock Option is granted to an employee who owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation, the term of such Incentive Stock Option shall
be no more than five years from the date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions, and in such
amounts, as the Committee shall specify in the option agreement. Notwithstanding
the foregoing, subsequent to the grant of a Stock Option, the Committee, at any
time before the complete expiration of such Stock Option, may accelerate the
time or times at which such Stock Option may be exercised in whole or in part.
Except as provided in subsections (f), (g), (h) and (i) below, a Stock Option
may not be exercised by the holder unless the holder is then, and continually
after the grant of the Stock Option has been, an employee of the Company or one
of its Subsidiaries.
(d) METHOD OF EXERCISE. Stock Options may be exercised
at any time during the option period by giving written notice of exercise to
the Company specifying the number of shares to be purchased. Except as
provided in subsection (k) below, such notice shall be accompanied by payment
in full of the purchase price, either by certified or bank check or other
instrument acceptable to the Committee, or by delivery of shares of Stock as
provided in this subsection. As determined by the Committee, in its
discretion, at (or, in the case of Non-Qualified Stock Options, at or after)
the time of grant, payment in full or part may also be made in the form of
shares of Stock not then subject to restrictions (but which may include shares
the disposition of which constitutes a disqualifying disposition for purposes
of obtaining incentive stock option treatment under the Code). Shares of Stock
so surrendered shall be valued at Fair Market Value on the exercise date.
Except as provided in subsection (k) below, no shares of Stock shall be issued
until full payment therefor has been made. An optionee shall have all of the
rights of a shareholder of the Company, including the right to vote the shares
and the right to receive dividends, with respect to shares subject to a Stock
Option when the optionee has given written notice of exercise, has paid in full
for such shares and, if requested, has given the representation described in
Section 19(c) below.
(e) NONTRANSFERABILITY. No Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or the guardian or legal representative of the
optionee.
(f) TERMINATION BY DEATH. If an optionee's employment
with the Company or any Subsidiary terminates by reason of death, any Stock
Option held by such optionee may thereafter be exercised, to the extent
exercisable at the time of death (or on such accelerated basis as the Committee
shall at any time determine), by the legal representative or legatee of the
optionee, for a period of one year (or such other period as the Committee shall
specify at or after the time of grant) from the date of death or until the
expiration of the stated term of the Stock Option, whichever period is the
shorter.
(g) TERMINATION BY DISABILITY. If an optionee's
employment with the Company or any Subsidiary terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of termination
(or on such accelerated basis as the Committee may at any time determine) for a
period of one year (or such other period as the Committee shall specify at or
after the time of grant) from the date of such termination or until the
expiration of the stated term of the Stock Option, whichever period is the
shorter. Except as otherwise provided by the Committee at the time of grant,
the death of an optionee during such exercise period shall extend such period
for one year following death, or until the expiration of the stated term of the
Stock Option, whichever period is the shorter.
(h) TERMINATION BY RETIREMENT. If an optionee's
employment with the Company or any Subsidiary terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of Retirement (or
on such accelerated basis as the Committee may at any time determine) for a
period of (i) in the case of Incentive Stock Options, three months, and (ii) in
the case of Non- Qualified Stock Options, one year (or such other period as the
Committee shall specify at or after the time of grant), from the date of
Retirement or until the expiration of the stated term of the Stock Option,
whichever period is the shorter. Except as otherwise provided by the Committee
at the time of grant, the death of an optionee during such exercise period
shall extend such period for one year following death, or until the expiration
of the stated term of the Stock Option, whichever period is the shorter.
(i) OTHER TERMINATION. Unless otherwise determined by
the Committee, if an optionee's employment with the Company or any Subsidiary
terminates for any reason other than death, Disability or Retirement, the Stock
Option held by such optionee may thereafter be exercised by the optionee, to
the extent it was exercisable at the time of termination, for a period of
thirty (30) days from the date of such termination or until the expiration of
the stated term of the Stock Option, whichever period is the shorter.
(j) FORM OF SETTLEMENT. The Committee may provide in the
option agreement that upon receipt of written notice of exercise, the Committee
may elect to settle all or a part of the portion of any Stock Option so
exercised by paying the optionee an amount, in cash or Stock, equal to the
excess of the Fair Market Value of the Stock over the exercise price (the
"Spread Value") (determined on the date the Stock Option is exercised).
(k) PROCEDURE FOR CERTAIN CREDIT ASSISTED TRANSACTIONS.
To the extent not inconsistent with the provisions of Section 422 of the Code
or Rule 16b-3, any optionee desiring to obtain credit from a broker, dealer or
other "creditor" as defined in Regulation T issued by the Board of Governors of
the Federal Reserve System (provided that such broker, dealer or creditor has
been approved by the Committee) to assist in exercising a Stock Option may
deliver to such creditor an exercise notice properly executed by such optionee
with respect to such Stock Option, together with instructions to the Company to
deliver the resulting Stock to the creditor for deposit into a designated
account. Upon receipt of such exercise notice and related instructions in a
form acceptable to the Company, the Company shall confirm to the creditor that
it will deliver to the creditor the Stock covered by such exercise notice and
instructions promptly following receipt of the exercise price from the
creditor. To
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the extent not inconsistent with the provisions of Section 422 of the Code or
Rule 16b-3, upon request the Company may in its discretion, but shall not be
obligated to, deliver to the creditor shares of Stock resulting from an
assisted exercise prior to receipt of the option price for such shares if the
creditor has delivered to the Company, in addition to the other documents
contemplated hereby, the creditor's agreement to pay the Company such exercise
price in cash within five days after delivery of such shares. The credit
assistance contemplated hereby may include a margin loan by the creditor
secured by the Stock purchased upon exercise of a Stock Option or an immediate
sale of some or all of such Stock by the creditor to obtain or recover the
option price that the creditor has committed to pay to the Company.
(l) SPECIAL PROVISIONS RELATING TO INCENTIVE STOCK
OPTIONS. At the time any Incentive Stock Option granted under the Plan is
exercised, the Company shall be entitled to legend the certificates
representing the shares of Stock purchased pursuant to such Incentive Stock
Option to clearly identify them as representing shares purchased upon exercise
of an Incentive Stock Option that may be subject to income tax withholding
requirements as set forth in Section 15 below. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code or, without the consent of the affected optionee,
to disqualify any Incentive Stock Option under Section 422 of the Code.
8. STOCK APPRECIATION RIGHTS.
(a) GENERAL. A Stock Appreciation Right is an Award
entitling the recipient to receive an amount in cash or shares of Stock (or
forms of payment permitted under subsection (d) below) or a combination thereof
having a value equal to (or if the Committee shall so determine at time of
grant, less than) the excess of the Fair Market Value of a share of Stock on
the date of exercise over the Fair Market Value of a share of Stock on the date
of grant (or over the option exercise price, if the Stock Appreciation Right
was granted in tandem with a Stock Option) multiplied by the number of shares
with respect to which the Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the form of payment.
(b) GRANT AND EXERCISE. Stock Appreciation Rights may be
granted in tandem with, or independently of, any Stock Option granted under the
Plan. In the case of a Stock Appreciation Right granted in tandem with a Non-
Qualified Stock Option, such Stock Appreciation Right may be granted either at
or after the time of grant of such option. In the case of a Stock Appreciation
Right granted in tandem with an Incentive Stock Option, such Stock Appreciation
Right may be granted only at the time of grant of such option. A Stock
Appreciation Right or applicable portion thereof granted in tandem with a Stock
Option shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option, except that a Stock Appreciation Right
granted with respect to less than the full number of shares covered by a
related Stock Option shall not be reduced until the exercise or termination of
the related Stock Option exceeds the number of shares not covered by the Stock
Appreciation Right.
(c) TERMS AND CONDITIONS. Stock Appreciation Rights
shall be subject to such terms and conditions as shall be determined from time
to time by the Committee, including the following:
(i) Stock Appreciation Rights granted in tandem
with Stock Options shall be exercisable only at such time or times and to the
extent that the related Stock Option shall be exercisable. Upon the exercise
of a Stock Appreciation Right, the applicable portion of any related Stock
Option shall be surrendered.
(ii) Stock Appreciation Rights granted in tandem
with a Stock Option shall be transferable only with such Stock Option. Stock
Appreciation Rights shall not be transferable otherwise than by will or the
laws of descent and distribution. All Stock Appreciation Rights shall be
exercisable during the participant's lifetime only by the participant or the
participant's legal representative or guardian.
(iii) Stock Appreciation Right granted in tandem
with an Incentive Stock Option may be exercised only when the market price of
the Stock subject to the Incentive Stock Option exceeds the exercise price of
such option.
(d) FORM OF SETTLEMENT. Subject to Section 19(c) below,
shares of Stock issued upon exercise of a Stock Appreciation Right shall be
free of all restrictions under the Plan, except as otherwise provided in this
subsection (d). The Committee may provide at time of grant of a Stock
Appreciation Right that such shares shall be in the form of Restricted Stock or
rights to acquire Deferred Stock or may reserve the right to provide so at any
time after the date of grant. Any such shares and any shares subject to rights
to acquire Deferred Stock shall be valued at Fair Market Value on the date of
exercise of the Stock Appreciation Right without regard to any restrictions or
deferral limitations.
(e) RULES RELATING TO EXERCISE. Where a Stock
Appreciation Right relates to an Incentive Stock Option, the Committee may
prescribe, by rule of general application, such other measure of value as it
may determine but not in excess of an amount consistent with the qualification
of such Stock Option as an "incentive stock option" under Section 422 of the
Code.
9. RESTRICTED STOCK.
(a) GENERAL. A Restricted Stock Award is an Award
entitling the recipient to acquire shares of Stock, subject to such conditions,
including the right of the Company during a specified period or periods to
repurchase such shares at their original price or to require forfeiture of such
shares (if no cash consideration was paid) upon the participant's termination
of employment, as the Committee may determine at the time of grant. Shares of
Restricted Stock may be granted or sold in respect of past services or other
valid consideration.
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(b) AWARD AGREEMENT AND CERTIFICATES. A participant who
is granted a Restricted Stock Award shall have no rights with respect to such
Award unless the participant shall have accepted the Award within sixty days
(or such shorter period as the Committee may specify) following the Award date
by executing and delivering to the Company a Restricted Stock Award agreement
in such form as the Committee shall determine and by making payment to the
Company by certified or bank check or other instrument acceptable to the
Committee for any cash consideration required to be paid in connection with
such Restricted Stock Award. Each participant receiving a Restricted Stock
Award shall be issued a certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of the participant and
deposited with the Company or its designee, and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to such
Award, substantially in the following form:
"This certificate and the shares of stock represented hereby are subject
to the terms and conditions (including forfeiture and restrictions
against transfer) contained in the Encore Medical Corporation 1996
Incentive Stock Plan and an agreement entered into between the
registered owner and Encore Medical Corporation. Release from such
terms and conditions shall be obtained only in accordance with the
provisions of the Plan and the Agreement, copies of which are on file
in the office of the Secretary of Encore Medical Corporation, located
in its corporate headquarters in Austin, Texas.
The Committee may require that, as a condition of any Restricted Stock Award,
the participant shall have delivered to the Company a stock power, endorsed in
blank, relating to the Stock covered by such Award.
(c) RIGHTS AS A SHAREHOLDER. Upon complying with
subsection (b) above, a participant shall have all the rights of a shareholder
with respect to the Restricted Stock, including voting and dividend rights,
subject to nontransferability restrictions, Company repurchase or forfeiture
rights and any other condition described in this Section 9 or contained in the
Restricted Stock Award agreement. The Restricted Stock Award agreement may
require or permit the immediate payment, waiver, deferral, or investment of
dividends paid on the Restricted Stock.
(d) RESTRICTIONS. Shares of Restricted Stock may not be
sold, assigned, transferred, pledged, or otherwise encumbered or disposed of
except as specifically provided herein and in the Restricted Stock Award
agreement. The Committee shall specify the date or dates (which may depend
upon or be related to the attainment of performance goals or such other factors
or criteria as the Committee shall determine) on which the non-transferability
of the Restricted Stock and the obligation to forfeit or resell such shares to
the Company shall lapse. The Committee may provide for the lapse of such
restrictions in installments and at any time may accelerate such date or dates
and otherwise waive or, subject to Section 18 below, amend any terms and
conditions of the Award. Except as otherwise may be provided in the Award
agreement or determined by the Committee at any time after the date of grant,
in the event of termination of employment of a participant with the Company and
its Subsidiaries for any reason (including death), the participant or the
participant's legal representative shall resell to the Company, at the cash
consideration paid therefor, all Restricted Stock, and the Company shall
purchase such shares at that price, or if no cash consideration was paid, all
shares of Restricted Stock awarded to the participant shall automatically be
forfeited to the Company. Any shares of Stock or other securities of the
Company or any other entity that are issued as a distribution on, or in
exchange for, Restricted Stock or into which Restricted Stock is converted as a
result of a recapitalization, stock dividend, distribution of securities, stock
split or combination of shares or a merger, consolidation or sale of
substantially all of the assets of the Company shall be subject to the
restrictions set forth in the Restricted Stock Award agreement, which shall
inure to the benefit of any surviving or successor corporation that is the
issuer of such securities. Upon the lapse of the restrictions applicable to a
participant's Restricted Stock, certificates for shares of Stock free of any
restrictive legend shall be delivered to the participant or his legal
representative or guardian.
(e) SECTION 83(B) ELECTION. Any Restricted Stock Award
agreement may provide that the participant may not elect to be taxed with
respect to such Award in accordance with Section 83(b) of the Code.
10. UNRESTRICTED STOCK. The Committee may, in its sole discretion,
grant or sell to any participant shares of Stock free of restrictions under the
Plan ("Unrestricted Stock"). Shares of Unrestricted Stock may be granted or
sold in respect of past services or other valid consideration. Any purchase of
Unrestricted Stock by a recipient must take place within sixty days after the
time of grant of the right to purchase such shares.
11. DEFERRED STOCK AWARDS.
(a) GENERAL. A Deferred Stock Award is an Award
entitling the recipient to acquire shares of Stock without payment in one or
more installments at a future date or dates, all as determined by the
Committee. The Committee may also condition such acquisition on the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine.
(b) AWARD AGREEMENT. A participant who is granted a
Deferred Stock Award shall have no rights with respect to such Award unless
within sixty days of the grant of such Award (or such shorter period as the
Committee may specify) the participant shall have accepted the Award by
executing and delivering to the Company a Deferred Stock Award agreement.
(c) RESTRICTION ON TRANSFER. Deferred Stock Awards and
rights with respect to such Awards may not be sold, assigned, transferred,
pledged or otherwise encumbered. Rights with respect to such Awards shall be
exercisable during the participant's lifetime only by the participant or the
participant's legal representative or guardian.
(d) RIGHTS AS A SHAREHOLDER. A participant receiving a
Deferred Stock Award will have rights of a shareholder only as to shares
actually received by the participant under the Plan and not with respect to
shares subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a certificate for shares of Stock only
upon satisfaction of all conditions specified in the Deferred Stock Award
agreement.
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(e) ELECTIVE DEFERRAL. A participant may elect to
further defer receipt of the Stock payable under a Deferred Stock Award (or an
installment of the Award) for a specified period or until a specified event,
subject in each case to the Committee's approval and under such terms as
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must generally be made at least 12 months prior to
completion of the deferral period for the Award (or for such installment of the
Award).
(f) TERMINATION. Except as may otherwise be provided in
the Deferred Stock Award agreement, a participant's rights in all Deferred
Stock Awards shall automatically terminate thirty (30) days after the
participant's termination of employment with the Company or any of its
Subsidiaries for any reason excluding death, in which case the participant's
rights shall automatically terminate one (1) year after such termination.
Unless otherwise provided in the terms of an Award, at any time prior to the
participant's termination of employment, the Committee may in its discretion
accelerate, waive, or, subject to Section 18 below, amend any or all of the
restrictions or conditions imposed under any Deferred Stock Award.
(g) PAYMENTS IN RESPECT OF DEFERRED STOCK. Without
limiting the right of the Committee to specify different terms, the Deferred
Stock Award agreement may either make no provisions for, or may require or
permit the immediate payment, deferral, or investment of amounts equal to, or
less than, any cash dividends that would have been payable on the Deferred
Stock had such Stock been outstanding, all as determined by the Committee in
its sole discretion.
12. PERFORMANCE UNIT AWARDS.
(a) GENERAl. A Performance Unit Award is an Award
entitling the recipient to acquire cash or shares of Stock, or a combination of
cash and shares of Stock, upon the attainment of specified performance goals.
The Committee in its sole discretion shall determine whether and to whom
Performance Unit Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured and all
other limitations and conditions applicable to a Performance Unit Award.
Performance goals may vary from participant to participant and between groups of
participants and shall be based upon such Company, business unit or individual
performance factors or criteria as the Committee may deem appropriate, including
those factors described in Section 5(iv)(B) above. Performance periods may
overlap and participants may participate simultaneously with respect to
Performance Unit Awards that are subject to different performance periods and
different performance goals. The Committee may adjust the performance goals and
periods applicable to a Performance Unit Award to take into account changes in
law and accounting and tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances in order to
avoid windfalls or hardships. Performance Units may be awarded independent of
or in connection with the grant of any other Award under the Plan.
(b) AWARD AGREEMENT. A participant shall have no rights
with respect to a Performance Unit Award unless within sixty days of the grant
of such Award (or such shorter period as the Committee may specify) the
participant shall have accepted the Award by executing and delivering to the
Company a Performance Unit Award agreement.
(c) RESTRICTIONS ON TRANSFER. Performance Unit Awards
and all rights with respect to such Awards may not be sold, assigned,
transferred, pledged or otherwise encumbered, and if exercisable over a
specified period, shall be exercisable during the participant's lifetime only
by the participant or the participant's legal representative or guardian.
(d) RIGHTS AS A SHAREHOLDER. A participant receiving a
Performance Unit Award will have rights of a shareholder only as to shares of
Stock actually received by the participant under the Plan and not with respect
to shares subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a certificate evidencing the
acquisition of shares of Stock under a Performance Unit Award only upon
satisfaction of all conditions specified in the Performance Unit Award
agreement.
(e) TERMINATION. Unless otherwise provided in the terms
of an Award, except as may otherwise be provided by the Committee at any time
prior to the termination of employment, a participant's rights and all
Performance Unit Awards shall automatically terminate thirty (30) days after
the participant's termination of employment by the Company and its Subsidiaries
for any reason excluding death, in which case the participant's rights shall
automatically terminate one (1) year after such termination.
(f) ACCELERATION; WAIVER. At any time prior to the
participant's termination of employment with the Company and its Subsidiaries,
by death or disability [or retirement], the Committee may in its sole
discretion accelerate, waive, or, subject to Section 18 below, amend any or all
of the goals, restrictions or conditions imposed under any Performance Unit
Award.
(g) EXERCISE. The Committee in its sole discretion shall
establish procedures to be followed in exercising any Performance Unit Award,
which procedures shall be set forth in the Performance Unit Award agreement.
The Committee may at any time provide that payment under a Performance Unit
Award shall be made, upon satisfaction of the applicable performance goals,
without any exercise by the participant. Except as otherwise specified by the
Committee, (i) a Performance Unit granted in tandem with a Stock Option may be
exercised only while the Stock Option is exercisable, and (ii) the exercise of
a Performance Unit granted in tandem with any Award shall reduce the number of
shares of Stock subject to the related Award on such basis as is specified in
the Performance Unit Award agreement.
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13. OTHER STOCK-BASED AWARDS.
(a) GENERAL. The Committee may grant other Awards under
which Stock is or may in the future be acquired ("Other Stock-Based Awards").
Such Awards may include, without limitation, debt securities convertible into or
exchangeable for shares of Stock upon such conditions, including attainment of
performance goals, as the Committee shall determine. Subject to the purchase
price limitations in subsection (b) below, such convertible or exchangeable
securities may have such terms and conditions as the Committee may determine at
the time of grant. However, no convertible or exchangeable debt shall be issued
unless the Committee shall have provided (by the Company's right of repurchase,
right to require conversion or exchange, or other means deemed appropriate by
the Committee) a means of avoiding any right of the holders of such debt to
prevent a Company transaction by reason of covenants in such debt.
(b) PURCHASE PRICE; FORM OF PAYMENT. The Committee may
determine the consideration, if any, payable upon the issuance or exercise of an
Other Stock-Based Award. The Committee may permit payment by certified check,
bank check or other instrument acceptable to the Committee or by surrender of
other shares of Stock (excluding shares then subject to restrictions under the
Plan).
(c) FORFEITURE OF AWARDS; REPURCHASE OF STOCK;
ACCELERATION OR WAIVER OF RESTRICTIONS. The Committee may determine the
conditions under which an Other Stock-Based Award shall be forfeited or, in the
case of an Award involving a payment by the recipient, the conditions under
which the Company may or must repurchase such Award or related Stock. The
Committee may in its sole discretion, at any time prior to a participant's
termination of employment with the Company and its Subsidiaries, by death or
disability [or retirement], accelerate, waive, or, subject to Section 18 below,
amend any or all of the limitations or conditions imposed under any Other
Stock-Based Award.
(d) AWARD AGREEMENTS. Unless otherwise provided in the
terms of an Award, a participant shall have no rights with respect to any Other
Stock-Based Award unless within sixty days after the grant of such Award (or
such shorter period as the Committee may specify) the participant shall have
accepted the Award by executing and delivering to the Company an Other
Stock-Based Award agreement.
(e) RESTRICTIONS ON TRANSFER. Other Stock-Based Awards
may not be sold, assigned, transferred, pledged, or encumbered except as may be
provided in the Other Stock-Based Award agreement. However, in no event shall
any Other Stock-Based Award be transferred other than by will or by the laws of
descent and distribution or be exercisable during the participant's lifetime by
other than the participant or the participant's legal representative or
guardian.
(f) RIGHTS AS A SHAREHOLDER. A recipient of any Other
Stock-Based Award will have rights of a shareholder only at the time and to the
extent, if any, specified by the Committee in the Other Stock-Based Award
agreement.
(g) DEEMED DIVIDEND PAYMENTS; DEFERRALS. Without limiting
the right of the Committee to specify different terms, an Other Stock-Based
Award agreement may require or permit the immediate payment, waiver, deferral,
or investment of dividends or deemed dividends payable or deemed payable on
Stock subject to the Award.
14. SUPPLEMENTAL GRANTS.
(a) LOANS. The Company may in its sole discretion make a
loan to the recipient of an Award hereunder, either on or after the date of
grant of such Award. Such loans may be either in connection with exercise of a
Stock Option, a Stock Appreciation Right or an Other Stock-Based Award, in
connection with the purchase of shares under any Award, or in connection with
the payment of any federal, state and local income taxes in respect of income
recognized under an Award. The Committee shall have full authority to decide
whether to make a loan hereunder and to determine the amount, term, and
provisions of any such loan, including the interest rate (which may be zero)
charged in respect of any such loan, whether the loan is to be secured or
unsecured, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall provide
or reimburse to the borrower the amount used by him for the payment of the par
value of any shares of Stock issued, have a term (including extensions)
exceeding ten years in duration or be in amount exceeding the total exercise or
purchase price paid by the borrower under an Award or for related Stock under
the Plan plus an amount equal to the cash payment permitted in subsection (b)
below.
(b) CASH PAYMENTS. The Committee may, at any time and in
its discretion, authorize a cash payment, in respect of the grant or exercise
of an Award under the Plan or the lapse or waiver of restrictions under an
Award, which shall not exceed the amount that would be required in order to pay
in full the federal, state and local income taxes due as a result of income
recognized by the recipient as a consequence of (i) the receipt of an Award or
the exercise of rights thereunder and (ii) the receipt of such cash payment.
The Committee shall have complete authority to decide whether to make such cash
payments in any case, to make provisions for such payments either
simultaneously with or after the grant of the associated Award, and to
determine the amount of any such payment.
15. WITHHOLDING. Whenever the Company proposes or is required to
issue or transfer shares of Stock under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If a participant
surrenders shares of Stock acquired pursuant to the exercise of an Incentive
Stock Option in payment of the option price of a Stock Option or the purchase
price under another Award, and such surrender constitutes a disqualifying
disposition for purposes of obtaining incentive stock option treatment under the
Code, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan payments are to be made
in cash, such payments shall be net of an amount sufficient to satisfy any
federal, state and local withholding tax requirements. A recipient may elect,
with respect to any Non-Qualified Stock Option, Stock Appreciation Right,
Restricted Stock Award, Unrestricted Stock Award, Deferred Stock Award,
Performance Unit Award or Other Stock-Based Award that is paid in whole or in
part in Stock, to surrender or authorize the Company to withhold shares of Stock
(valued at Fair Market Value on the date of surrender or withholding of the
shares) in satisfaction of all such withholding requirements. The Committee
shall have the discretion to provide (by general rule or a provision in the
specific Award agreement) that, at the election of the recipient,
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"federal, state and local withholding tax requirements" shall be deemed to be
any amount designated by the recipient that does not exceed his estimated
federal, state and local tax obligations associated with the transaction,
including FICA taxes to the extent applicable.
16. MERGER; LIQUIDATION. If the Company shall be the surviving
corporation in any merger, recapitalization or similar reorganization, the
holder of each outstanding Stock Option shall be entitled to purchase, at the
same times and upon the same terms and conditions as are then provided in the
Stock Option, the number and class of shares of Stock or other securities to
which a holder of the number of shares of Stock subject to the Stock Option at
the time of such transaction would have been entitled to receive as a result of
such transaction, and a corresponding adjustment shall be made in connection
with determining the value of any related Stock Appreciation Right. In the
event of any such change in capitalization of the Company, the Committee may
make such additional adjustments in the number and class of shares of stock or
other securities with respect to which outstanding Awards are exercisable and
with respect to which future Awards may be granted as the Committee in its sole
discretion shall deem equitable or appropriate, subject to the provisions of
Section 18 below. In the event of dissolution or liquidation of the Company or
a merger in which the Company is not the surviving corporation, the Committee in
its sole discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number or purchase price (if any) of shares subject to such
Awards as it may determine, or accelerate, amend, or terminate such Awards upon
such terms and conditions as it shall provide, which, in the case of the
termination of the vested portion of any Award, shall require payment or other
consideration that the Committee deems equitable in the circumstances.
17. UNFUNDED STATUS OF PLAN. With respect to the portion of any
Award that has not been exercised and any payments in cash, Stock or other
consideration not received by a participant, a participant shall have no rights
greater than those of a general creditor of the Company unless the Committee
shall otherwise expressly determine in connection with any Award or Awards. In
its sole discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the Company's obligations to deliver Stock or make
payments with respect to Awards, provided that the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
18. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration or discontinuance shall be
made that would impair the rights of an optionee under a Stock Option or a
recipient of another Award theretofore granted without the optionee's or
recipient's consent; provided, however, that any alteration or amendment that
would require shareholder approval in order for the Plan to continue to meet
any applicable legal or regulatory requirements shall be effective only if it
is approved by the shareholders of the Company in the manner required thereby.
Unless otherwise provided in the terms of an Award, the Committee may at any
time decrease or cancel any outstanding Award (or provide substitute Awards at
the same or a reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements that
would apply to the substitute or amended Award if it were then initially
granted under the Plan) for the purpose of satisfying changes in law or for any
other lawful purpose, but no such action shall adversely affect rights under
any outstanding Award without the recipient's consent.
19. GENERAL PROVISIONS.
(a) TRANSFERS. For purposes of the Plan, the transfer to
the employment by the Company from a Subsidiary or from the Company to a
Subsidiary, or from one Subsidiary to another, shall not be deemed a
termination of employment.
(b) LEAVES OF ABSENCE. The Committee may in its
discretion determine whether a leave of absence constitutes a termination of
employment for purposes of the Plan and the impact, if any, of such leave of
absence on Awards previously granted to a holder who takes a leave of absence.
(c) RESTRICTIONS ON DELIVERY AND SALE OF SHARES. Each
Award granted under the Plan is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing, registration or
qualification of the Stock covered by such Award upon any securities exchange or
under any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Award or the purchase or delivery of Stock
thereunder, the delivery of any or all shares pursuant to such Award may be
withheld unless and until such listing, registration or qualification shall have
been effected. If a registration statement is not in effect under the
Securities Act of 1933, as amended, or any applicable state securities laws with
respect to the shares of Stock purchasable or otherwise deliverable under Awards
then outstanding, the Committee may require, as a condition of any delivery of
Stock pursuant to an Award, that the recipient of Stock represent, in writing,
that the shares received pursuant to the Award are being acquired for investment
and not with a view to distribution and agree that the Stock will not be
disposed of except pursuant to an effective registration statement, unless the
Company shall have received an opinion of counsel that such disposition is
exempt from such requirement under the Securities Act of 1933, as amended, and
any applicable state securities laws. The Company may endorse on certificates
representing shares delivered pursuant to an Award such legends referring to the
foregoing representations or restrictions or any applicable restrictions on
resale as the Company, in its discretion, shall deem appropriate.
(d) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT
RIGHTS. Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan does
not confer upon any employee any right to continued employment with the Company
or a Subsidiary, or affect the right of the Company or any Subsidiary to
terminate the employment of any of its employees at any time.
(e) GOVERNING LAW. The Plan and all Awards made and
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Texas.
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20. EFFECTIVE DATE. The Plan shall become effective on November 8,
1996, the date of its adoption by the Board, subject, however, to the approval
of the Plan by the shareholders of the Company at their next Annual Meeting, or
sooner if presented for approval by the shareholders prior to such Annual
Meeting. Subject to approval by the shareholders, and to the requirement that
no Stock may be issued hereunder prior to such approval, Awards may be granted
hereunder on and after adoption of the Plan by the Board. Unless shareholder
approval is obtained by November 7, 1997, this Plan and any Award granted
hereunder shall become void thereafter.
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EXHIBIT E
FORM OF HCAC $7.00 WARRANT
WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
VOID AFTER 5:00 P.M. - ON _________________, 2001
Warrant No. ____________Number of Warrants: ___________
THIS CERTIFIES THAT, for value received __________________, or
registered assigns ("Registered Holder") is the owner of the number of warrants
("Warrants") specified above. Each Warrant initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Certificate and in the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share (subject to adjustment as hereinafter provided) of
the Common Stock, par value $.001 per share ("Common Stock") of Encore Medical
Corporation, a Delaware corporation ("Company"), at any time after the date
hereof and before the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the office of Continental Stock
Transfer & Trust Company, as warrant agent, or its successor ("Warrant Agent")
accompanied by payment of $7.00 ("Purchase Price") per Warrant, subject to
adjustment as hereinafter provided, in lawful money of the United States in
cash, or by good certified or official bank check payable to the order of the
Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms set forth in the
Warrant Agreement ("Warrant Agreement") dated as of _________________________,
by and between the Company and the Warrant Agent, all the terms and provisions
of which the Registered Holder, by acceptance of this Warrant Certificate,
hereby assents. In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment. Reference is made to the Warrant
Agreement for a more complete statement of the rights and limitations of the
rights of the Registered Holder hereof, the rights and duties of the Warrant
Agent and the obligations of the Company thereunder. Copies of the Warrant
Agreement are on file at the corporate trust office of the Warrant Agent.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
____________, 2001. If such date shall in the State of New York be a holiday or
a day on which banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder. The Company shall not be required upon the exercise of the
Warrants represented hereby to issue any fractions of shares, but shall make an
adjustment therefor in cash on the basis of the market value of any such
fractional interest (computed as provided in the Warrant Agreement). In case
this Warrant is exercised with respect to less than all of such shares, a new
Warrant certificate or certificates will be issued on such surrender for the
number of Warrants represented hereby which were not so exercised. Prior to
the exercise of any Warrant represented hereby, the holder shall not be
entitled to any rights of a stockholder of the Company, including without
limitation the right to vote or to receive dividends or other distributions,
and shall not be entitled to receive any notice of any proceedings of the
Company except as provided in said Warrant Agreement. Prior to the due
presentment for registration of transfer of this Warrant Certificate, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notation of ownership or other writing hereon made by anyone other
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than a duly authorized officer of the Company or the Warrant Agent), for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender.
Upon due presentment together with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of any Warrants unless a registration statement under the
Securities Act of 1933 with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement or
a post-effective amendment to its existing registration statement and will use
its best efforts to cause the same to become effective and to keep it current
while any of the Warrants are outstanding and exercisable. The Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for Common Stock or other securities
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for the
securities purchasable upon such exercise until the date of the reopening of
said transfer books.
This Warrant Certificate and each Warrant represented hereby shall be
construed in accordance with and governed by the laws of the State of New York.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted herein.
Dated: __________________________ ENCORE MEDICAL CORPORATION
By: __________________________
Nick Cindrich
Chief Executive Officer
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY WARRANT AGENT
BY: ________________________________
AUTHORIZED OFFICER
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PURCHASE FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANT CERTIFICATE
TO: Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
The undersigned hereby exercises, according to the terms and
conditions thereof, the right to purchase ____________ Shares of Common Stock,
evidenced by the within Warrant Certificate, and herewith makes payment of the
purchase price in full.
NAME: _______________________________ ____________________________________
PAYMENT ENCLOSED
ADDRESS: ____________________________ ____________________________________
_______________________________________ SOCIAL SECURITY NO. of Warrant Holder
TRANSFER FORM
For value received ________________________________________ hereby
sells, assigns and transfers unto ______________________________________________
(___________________________________________) Warrants to purchase Shares of
Common Stock represented by the within Warrant Certificate and does hereby
irrevocably constitute and appoint:____________________________________ Attorney
to transfer such Warrants on the books of the within named Company with full
power of substitution in the premises.
DATED: _________________________
Notice: ________________________________________
The signature to this assignment must correspond with the name
as written upon the face of this Certificate in every particular.
______________________________________
Social Security Number of Assignee
or other identifying number
Signature(s) Guaranteed
__________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
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EXHIBIT F
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
THIS IS AN ESCROW AGREEMENT (this "Agreement") made as of __________
__, 1996, by and among the individuals listed on Exhibit A attached hereto
(each individually referred to herein as a "Shareholder" and collectively as
the "Shareholders"), HEALTHCARE ACQUISITION CORP. ("HCAC"), and JACKSON &
WALKER, L.L.P. (the "Escrow Agent").
BACKGROUND STATEMENT
Contemporaneously with the execution and delivery of this Agreement,
Encore Orthopedics, Inc. ("Encore"), HCAC and Healthcare Acquisition, Inc.
("Acquisition") are closing on the transactions described in that certain
Agreement and Plan of Merger ("Merger Agreement"), dated November __, 1996,
providing for the merger of Acquisition with and into Encore, with Encore as
the surviving corporation and a wholly-owned subsidiary of HCAC. In connection
with such transaction, the Shareholders will receive shares of the Common Stock
of HCAC. The Merger Agreement requires that the parties execute and deliver
this Agreement in connection with the consummation of the transactions
contemplated therein.
Pursuant to the terms of the Merger Agreement, HCAC shall, pursuant to
irrevocable instructions issued at the Closing, deliver to the Escrow Agent and
cause its transfer agent to deliver on behalf of the Shareholders Escrow Stock
and Escrow Property. This Agreement sets forth the basis on which the Escrow
Agent will receive, hold and distribute the Escrow Stock and Escrow Property.
All capitalized terms used in this Agreement but not defined in this Agreement
shall have the meaning given to them in the Merger Agreement.
THE AGREEMENT
For the reasons specified above and in consideration of the mutual
representations, warranties, covenants and agreements contained in the Merger
Agreement and in this Agreement, the issuance of the HCAC Common Stock to the
Shareholders pursuant to the Merger Agreement and other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged,
the parties hereto hereby agree as follows:
ARTICLE 1. EFFECTIVENESS; ESCROW
1.1 Effectiveness. This Agreement shall become effective on the
date hereof (the "Effective Date").
1.2 Appointment; Escrow. The parties hereby appoint the Escrow
Agent to serve as, and the Escrow Agent hereby agrees to act as, escrow agent,
upon the terms and conditions of this Agreement. The Escrow Agent shall
establish escrows as required pursuant to Article 2 of this Agreement.
1.3 Termination and Final Distribution. The Escrow Stock and
Escrow Property shall be distributed by the Escrow Agent in accordance with
Section 2.06 of the Merger Agreement within ten (10) days after the 1996 Sales
are calculated pursuant to Section 2.06 of the Merger Agreement. Upon
distribution of all Escrow Stock and Escrow Property in accordance with Section
2.06 of the Merger Agreement and this Agreement, this Agreement shall terminate.
ARTICLE 2. ESCROW
2.1 Receipt of Escrow; Acceptance. The Escrow Agent hereby agrees
to hold the Escrow Stock and the Escrow Property in escrow pursuant to this
Agreement and Section 2.06 of the Merger Agreement, which is hereby incorporated
by reference and made a part hereof. As soon as reasonably practicable after
the Closing Date and from time to time thereafter, as may be necessary, and as
contemplated by the letter of instructions executed by HCAC and delivered
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to its transfer agent, Continental Stock Transfer & Trust Company (the "Transfer
Agent"), HCAC shall cause to be delivered to the Escrow Agent on behalf of the
Shareholders the Escrow Stock and Escrow Property and stock certificates
evidencing the securities comprising the Escrow Stock or Escrow Property. On
the Effective Date, each of the Shareholders shall deliver to the Escrow Agent,
in form satisfactory to HCAC, a stock transfer power endorsed in blank from each
Shareholder covering such Shareholder's portion of the Escrow Stock and a stock
transfer power endorsed in blank and blank as to the securities and number of
shares to be transferred thereby which will cover such Shareholder's portion of
any securities included in the Escrow Property. The execution and delivery of
this Agreement by the Escrow Agent shall serve as the Escrow Agent's
acknowledgment of receipt of such stock transfer powers. The Escrow Agent shall
acknowledge receipt of the certificates representing the Escrow Stock in writing
to all of the parties to this Agreement when received.
2.2 Voting. Each Shareholder shall be entitled to all voting
rights with respect to such Shareholder's portion of the Escrow Stock then held
by the Escrow Agent.
ARTICLE 3. DISTRIBUTION FROM ESCROW
3.1 Distributions Upon Satisfaction of Conditions. When the Escrow
Agent receives written notice from HCAC directing that the Escrow Stock and
Escrow Property be either released in full to the Shareholders or released in
part to the Shareholders and the remainder forfeited to HCAC pursuant to Section
2.06 of the Merger Agreement, then the Escrow Agent shall deliver to the
Shareholders or HCAC, as appropriate, Escrow Stock and Escrow Property totaling
such amounts in accordance with Section 3.2 of this Agreement.
3.2 Manner of Distribution. All payments by the Escrow Agent on
behalf of HCAC or the Shareholders under Section 2.06 of the Merger Agreement
and Section 3.1 of this Agreement shall be made by the delivery of Escrow Stock
and Escrow Property from the Escrow. In the event that any of the Escrow Stock
and Escrow Property shall be forfeited by the Shareholders pursuant to Section
2.06 of the Merger Agreement, HCAC shall supply to the Escrow Agent the
calculations for the Escrow Stock and Escrow Property and shares to be released
or forfeited. Whenever any calculation required by the Merger Agreement would
result in the distribution of a fractional share from the Escrow, then such
number shall be rounded to the nearest whole share and such whole share shall be
used for purposes hereof.
3.3 Transfer on HCAC Books. When the Escrow Agent makes a
distribution out of the Escrow pursuant to this Agreement, the Escrow Agent
shall deliver the proper share certificate(s) and stock transfer power(s) for
the affected Shareholder or Shareholders, as the case may be, to HCAC. Upon
request by the Escrow Agent and upon submission to HCAC of share certificates
representing Escrow Stock and any HCAC common stock included in the Escrow
Property and appropriate instructions consistent with Section 2.06 of the
Merger Agreement and stock transfer power(s), HCAC shall promptly reissue, or
cause to be reissued, share certificates for such shares, each representing
such number of shares as set forth in such instructions (but in the aggregate
not exceeding the total number of shares represented by the submitted
certificate).
3.4 Tax Matters. Each party hereto shall provide the Escrow Agent
with its taxpayer identification number documented by the appropriate Form W-8,
Form W-9 or certificate of foreign taxpayer exemption, within thirty (30) days
after the date hereof, and each Shareholder shall be responsible for the payment
of any taxes due and the filing of any tax returns required in connection with
the receipt of dividends or distributions payable with respect to the Escrow
Stock and Escrow Property.
ARTICLE 4. ESCROW AGENT
4.1 Duties of the Escrow Agent.
(a) General. Except as expressly contemplated by this
Agreement, Section 2.06 of the Merger Agreement or by joint written instructions
from the parties to this Agreement, the Escrow Agent shall not sell, transfer or
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otherwise dispose of in any manner the Escrow Stock and Escrow Property and
accompanying stock powers except pursuant to an order of a court of competent
jurisdiction. The Escrow Agent shall neither make any representations with
respect to nor be liable for any deficiencies in any deposit made under this
Agreement.
(b) Liabilities. In performing any of its duties under
this Escrow Agreement, or upon the claimed failure to perform its duties
hereunder, the Escrow Agent shall not be liable to anyone for any damages,
losses or expenses that it may incur as a result of its actions as the Escrow
Agent or its failure to so act; provided, however, that the Escrow Agent shall
be liable for damages arising out of its bad faith, gross negligence or willful
misconduct under this Agreement. Accordingly, the Escrow Agent shall not incur
any liability with respect to (i) any action taken or omitted to be taken in
good faith upon advice of its counsel or counsel for any of the parties to this
Agreement, given with respect to any question relating to the duties and
responsibilities of the Escrow Agent hereunder or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for in this Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which the Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the purported proper person or persons and to conform with the provisions of
this Agreement. Written instructions provided to the Escrow Agent hereunder by
any of the parties shall be signed by any one authorized representative as
identified on Exhibit B attached hereto.
(c) Limitations. The Escrow Agent shall be obligated
only by the terms of this Agreement and shall not be obligated by or incur any
liability with respect to the Merger Agreement or any other agreement or
understanding among the parties except as such obligation or liability is
expressly provided herein. The Escrow Agent shall not be charged with notice
or knowledge of any ancillary document, fact or information not specifically
set forth or incorporated herein. The Escrow Agent shall undertake to perform
only such duties as are expressly set forth herein, and no additional or
implied duties or obligations shall be read into this Agreement against the
Escrow Agent.
4.2 Indemnification. HCAC shall indemnify and hold harmless the
Escrow Agent against any and all losses, claims, damages, liabilities and
expenses, including, without limitation, reasonable costs of investigation and
counsel fees and disbursements that may be imposed on the Escrow Agent or
incurred by it in connection with its acceptance of this appointment as Escrow
Agent or the performance of its duties hereunder, including, without limitation,
any litigation arising from this Agreement or involving the subject matter
hereof, except for any and all losses, claims, damages, liabilities and expenses
that may result from the bad faith, willful misconduct or gross negligence of
the Escrow Agent.
4.3 Disputes. In the event of a dispute between any of the parties
hereto as to the proper disposition of the Escrow Stock or Escrow Property, the
Escrow Agent shall continue to hold the same undisbursed until such time as the
disputing parties agree in writing to a proper disposition of such Escrow Stock
or Escrow Property. If such agreement is not forthcoming, the Escrow Agent
shall be entitled to tender into the registry or custody of any court of
competent jurisdiction all Escrow Stock or Escrow Property in its custody under
the terms of this Agreement, and, upon the advice of counsel, and to take such
other legal action as may be appropriate or necessary, whereupon the parties
hereto agree that the Escrow Agent shall be discharged from all further duties
under this Agreement and shall be made whole for any legal fees and costs
incurred as a result of such action. Any such legal action may be brought in
any court of competent jurisdiction. The filing of any such legal proceeding
shall not deprive the Escrow Agent of its compensation earned prior to such
filing.
4.4 Removal.
(a) General. The Escrow Agent may be removed by HCAC at
any time for any reason (or for no reason) by giving a written notice of such
removal to the Escrow Agent or any successor to the Escrow Agent (a "Successor
Escrow Agent"), which shall specify the date (no earlier than twenty (20) days
after the giving of such notice) upon which such removal shall take effect.
The Escrow Agent or any Successor Escrow Agent may resign at any time for any
reason (or for no reason) by giving written notice to HCAC specifying the date
(not earlier than thirty (30) days after the giving of such notice) upon which
it desires that such resignation shall take effect.
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(b) Effective Date. Such removal or resignation shall
take effect on the date specified in the notice of removal or resignation;
provided, however, that, subject to the limitations set forth in Section 4.4(a)
above, such removal or resignation shall not be effective before a Successor
Escrow Agent has been appointed and accepted its obligations under this
Agreement; provided, further, that if HCAC shall have sooner appointed a
Successor Escrow Agent pursuant to subsection (c) below and such Successor
Escrow Agent shall have accepted such appointment, then such removal or
resignation shall take effect upon the acceptance by such Successor Escrow
Agent.
(c) Successor Escrow Agent. In the event of the
resignation or removal of the Escrow Agent or a Successor Escrow Agent, HCAC
shall promptly appoint a Successor Escrow Agent by a written instrument
delivered to the Escrow Agent (or Successor Escrow Agent). Upon the
effectiveness of the resignation or removal of the Escrow Agent (or Successor
Escrow Agent), the Successor Escrow Agent being appointed shall become vested
with all of the rights, powers, duties and obligations of its predecessor
hereunder. If no Successor Escrow Agent shall have been appointed as of the
effective date of the resignation or removal of the Escrow Agent as set forth in
the notice provided for in subsection (a) above, then the Escrow Agent or HCAC
may petition a court of competent jurisdiction for the appointment of a
successor.
4.5 Records and Reports. The Escrow Agent shall keep full records
of the administration of the Escrow, which shall record all transactions of the
Escrow Agent. Such accounts and records shall be open to inspection at any time
during regular business hours by the Shareholders or HCAC. HCAC shall have the
right to make or have made an audit of the Escrow Agent's accounts (including
without limitation verification of the securities therein), and for that purpose
the Escrow Agent shall make all records pertaining thereto available.
ARTICLE 5. MISCELLANEOUS
5.1 Good Faith; Further Assurance; Cooperation. The parties to
this Agreement shall in good faith undertake to perform their obligations in
this Agreement, and to cause the procedures contemplated in this Agreement to
be carried out promptly in accordance with the terms of this Agreement. Upon
the execution of this Agreement and thereafter, each party shall do such things
as may be reasonably requested by any other party to this Agreement in order
more effectively to implement or carry out the intent of this Agreement. The
parties shall cooperate fully with each other and their respective counsel and
accountants or designees in connection with any actions that are necessary or
appropriate as part of their respective obligations or rights under this
Agreement, including without limitation, providing reasonable access to
information in their possession or under their control.
5.2 Severability. In the event that any court of competent
jurisdiction shall determine that any provision of this Agreement is invalid,
such determination shall not affect the validity of any other provision of this
Agreement, which shall remain in full force and effect and which shall be
construed so as to be valid under applicable law.
5.3 Notices. All notices and other communications under this
Agreement shall be in writing and may be given by any of the following methods:
(i) personal delivery; (ii) facsimile transmission; (iii) registered or
certified mail, postage prepaid, return receipt requested; or (iv) overnight
delivery service requiring acknowledgment of receipt. Notices shall be sent to
the appropriate party at its address or facsimile number given below (or at
such other address or facsimile number for such party as shall be specified by
notice given hereunder):
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TO ENCORE AND THE STOCKHOLDERS:
Encore Orthopedics, Inc.
8900 Shoal Creek Boulevard
Building 300
Austin, Texas 78757
Attention: Harry L. Zimmerman,
Vice President-General Counsel
Telecopier: (512) 795-8701
with a copy to:
Jackson & Walker, L.L.P.
111 Congress Avenue, 23rd Floor
Austin, Texas 78701-4043
Attention: Lawrence A. Waks
Telecopier: (512) 494-2444
TO HCAC:
Healthcare Acquisition Corp.
c/o MedVest, Inc.
2365 N.W. 41st Street
Boca Raton, Florida 33431
Attention: President
Telecopier: (407) 994-3531
with a copy to:
Ruden, McClosky, Smith, Schuster & Russell, P.A.
P.O. Box 1900
Fort Lauderdale, Florida 33302
Attention: Scott Margol
Telecopier: (954) 764-4996
TO THE ESCROW AGENT:
Jackson & Walker, L.L.P.
111 Congress Avenue, 23rd Floor
Austin, Texas 78701-4043
Attention: Lawrence A. Waks
Telecopier: (512) 494-2444
All such notices and communications shall be deemed received upon (i) actual
receipt thereof by the addressee, (ii) actual delivery thereof to the
appropriate address as evidenced by an acknowledged receipt, or (iii) in the
case of a facsimile transmission, upon transmission thereof by the sender and
confirmation (telephonic or electronic) of receipt. In the case of notices
sent by facsimile transmission, the sender shall contemporaneously mail a copy
of the notice to the addressee at the address provided for above. However,
such mailing shall in no way alter the time at which the facsimile notice is
deemed received.
5.4 Time of the Essence; Computation of Time. Time is of the
essence of each and every provision of this Agreement. Whenever the last day
for the exercise of any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any public or legal holiday,
whether state or federal, the party having such privilege or duty may exercise
such privilege or discharge such duty on the next succeeding regular business
day.
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5.5 Attachments, Exhibits and Schedules. All attachments,
exhibits and schedules to this Agreement are hereby incorporated into this
Agreement and made a part hereof as if set out in full in the first place that
reference is made thereto. All exhibits, schedules, certificates, information
and lists to be disclosed in writing and delivered pursuant to this Agreement
shall, if not attached to this Agreement, be delivered to the appropriate party
at the address indicated in Section 5.3, shall indicate the section hereunder
pursuant to which it was delivered or mailed, and shall be signed or initialed
by the party or parties or an attorney-in-fact of the party or parties
delivering the same.
5.6 Successors and Assigns. No assignment or transfer by HCAC, in
whole or in part, of its rights and obligations under this Agreement shall be
valid, except with the prior written consent of the Shareholders. This
Agreement shall be binding upon and shall inure to the benefit of the parties to
this Agreement and their respective legal representatives, heirs, descendants,
beneficiaries, successors and assigns, and any reference to a party in this
Agreement shall also be a reference to a permitted successor or assign.
5.7 Number; Gender. Whenever the context so requires, the singular
number shall include the plural and the plural shall include the singular, and
the gender of any pronoun shall include the other gender.
5.8 Captions; Certain Definitions. Titles and captions of or in
this Agreement are inserted only as a matter of convenience and for reference
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision of this Agreement. The parties agree to all
definitions in the statement of the parties to this Agreement and in the
"Background Statement" to this Agreement.
5.9 Controlling Law; Integration; Amendment; Waiver. This
Agreement shall be governed, construed and enforced in accordance with the laws
of the State of Texas, without regard to its conflicts of laws principles.
This Agreement, together with the Merger Agreement (and the schedules and
exhibits thereto) and the agreements contemplated thereby, supersedes all prior
negotiations, agreements and understandings between the parties with respect to
the subject matter hereof and may not be altered or amended except in writing
signed by HCAC or the Shareholders, as applicable, being the party against whom
the alteration or amendment is to be enforced. The failure of any party hereto
at any time or times to require performance of any provision of this Agreement
or the Merger Agreement shall in no manner affect the right to enforce the
same. No waiver by any party hereto of any condition, or of the breach of any
term, provision, warranty, representation, agreement or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
term, provision, warranty, representation, agreement or covenant in this
Agreement.
5.10 Counterparts. This Agreement may be executed by each party
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signatures of all of the
parties. This Agreement shall become effective when one or more counterparts
have been signed by each of the parties and delivered to each of the other
parties. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one of such
counterparts.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
HCAC: ESCROW AGENT:
HEALTHCARE ACQUISITION CORP. JACKSON & WALKER, L.L.P.
By: __________________________ By: _____________________________
Name: _________________________ Name: ___________________________
Title: ________________________ Title:___________________________
THE SHAREHOLDERS:
__________________________________
NICK CINDRICH SANDOR TURANYI
CRAIG L. SMITH HELMUT VOGEL
HARRY L. ZIMMERMAN MVI AG
JAMES ABRAHAM By: ______________________________
Wolfgang Schweizer, Chairman
WOLFGANG SCHWEIZER MEDICA HOLDING AG
_________________________________ By:________________________________
LOIS TURANYI
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EXHIBIT A TO
ESCROW AGREEMENT
STOCKHOLDERS
Nick Cindrich
Craig L. Smith
Harry L. Zimmerman
James Abraham
MVI AG
Medica Holding AG
Wolfgang Schweizer
Helmut Vogel
Lois Turanyi
Sandor Turanyi
EXHIBIT B TO
ESCROW AGREEMENT
Authorized Representatives
HCAC:
Nick Cindrich, Chairman
ENCORE:
Nick Cindrich, Chairman
STOCKHOLDERS:
Harry L. Zimmerman, Esq.
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