SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D**
Under the Securities Exchange Act of 1934
(Amendment No. )*
Integrated Orthopaedics, Inc.
(Name of Issuer)
Common Stock, Par Value $.001 Par Value
(Title of Class of Securities)
45812K108
(Cusip Number)
J. Taylor Crandall
201 Main Street
Fort Worth, Texas 76102
(817) 390-8500
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 12, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [ ].
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
**The total number of shares reported herein is 9,191,666 shares, which
constitutes approximately 63.5% of the 14,466,307 shares of Stock deemed
outstanding pursuant to Rule 13d-3(d)(1)(i) under the Act. Unless
otherwise stated, all ownership percentages set forth herein assume that
there are 5,299,641 shares outstanding.
<PAGE>
<PAGE>
1. Name of Reporting Person:
FW Integrated Orthopaedics Investors, L.P.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: 00-Contributions from Partners
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,583,333 (1)(2)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.4% (3)
14. Type of Reporting Person: PN
- ------------
(1) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible Non-
Redeemable Preferred Stock and 2,500,000 shares of the Stock that may
be acquired upon exercise of warrants that become exercisable on July
1, 2000.
(2) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.
<PAGE>
<PAGE>
1. Name of Reporting Person:
Group 31, Inc.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,583,333(1)(2)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.4%(4)
14. Type of Reporting Person: CO
- ------------
(1) Solely in its capacity as the sole general partner of FW Integrated
Orthopaedics Investors, L.P.
(2) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible Non-
Redeemable Preferred Stock and 2,500,000 shares of the Stock that may
be acquired upon exercise of warrants that become exercisable on July
1, 2000. FW Integrated Orthopaedics Investor, L.P. is the direct
owner of such securities.
(4) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.<PAGE>
<PAGE>
1. Name of Reporting Person:
J. Taylor Crandall
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 25,000 (1)
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: 25,000 (1)
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,608,333 (2)(3)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.6% (4)
14. Type of Reporting Person: IN
- ------------
(1) Solely in his capacity as President and sole shareholder of Group
Special Investments, Inc.
(2) Solely in his capacity as President and sole shareholder of Group 31
Inc., in its capacity as the sole general partner of FW
Integrated Orthopaedics Investors, L.P. with respect to 4,583,333
shares.
(3) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible Non-
Redeemable Preferred Stock and 2,500,000 shares of the Stock that may
be acquired upon exercise of warrants that become exercisable on July
1, 2000. FW Integrated Orthopaedics Investors, L.P. is the direct
owner of such securities.
(4) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.
<PAGE>
<PAGE>
1. Name of Reporting Person:
FW Integrated Orthopaedics Investors II, L.P.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: 00-Contributions from Partners
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,583,333 (1)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain
Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.4% (3)
14. Type of Reporting Person: PN
- ------------
(1) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible
Non-Redeemable Preferred Stock and 2,500,000 shares of the Stock that
may be acquired upon exercise of warrants that become exercisable on July
1, 2000.
(2) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.<PAGE>
<PAGE>
1. Name of Reporting Person:
FW Group Genpar, Inc.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,583,333 (1)(2)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain
Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.4% (4)
14. Type of Reporting Person: CO
- ------------
(1) Solely in its capacity as the sole general partner of FW Integrated
Orthopaedics Investors II, L.P.
(2) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible
Non-Redeemable Preferred Stock and 2,500,000 shares of the Stock
that may be acquired upon exercise of warrants that become exercisable
on July , 2000. FW Integrated Orthopaedics Investors II, L.P. is the
direct owner of such securities.
(3) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.
<PAGE>
<PAGE>
1. Name of Reporting Person:
David G. Brown
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: -0-
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
4,583,333 (1)(2)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain
Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 46.4% (3)
14. Type of Reporting Person: IN
- ------------
(1) Solely in his capacity as President and sole shareholder of FW Group
Genpar, Inc. in its capacity as the sole general partner of FW
Integrated Orthopaedics Investors II, L.P.
(2) Represents 2,083,333 shares of Stock that may be acquired upon the
conversion of 125,000 shares of the Issuer's Series B Convertible
Non-Redeemable Preferred Stock and 2,500,000 shares of the Stock
that may be acquired upon exercise of warrants that become
exercisable on July 1, 2000. FW Integrated Investors II, L.P. is
the direct beneficial owner of such securities.
(3) Assumes, pursuant to Rule 13d-3(d)(1)(i), that there are 9,882,974
shares of the Stock outstanding.
<PAGE>
<PAGE>
1. Name of Reporting Person:
Group Special Investments, Inc.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: WC
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: 25,000 (1)
Number of
Units
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: 25,000 (1)
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
25,000 (1)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain
Units:
/ /
13. Percent of Class Represented by Amount in Row (11): 0.5%
14. Type of Reporting Person: CO
- ------------
(1) Power is exercised through its President and sole shareholder, J.
Taylor Crandall.
<PAGE>
<PAGE>
Item 1. Security and Issuer.
This statement relates to shares of Common Stock, $.001 par value
(the "Stock"), of Integrated Orthopaedics, Inc. (the "Issuer"). The
principal executive offices of the Issuer are located at Three Riverway,
Suite 1430, Houston, Texas 77056.
Item 2. Identity and Background.
(a) Pursuant to Rules 13d-1(f)(1)-(2) of Regulation 13D-G of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Act"), this Schedule 13D Statement is hereby filed by FW
Integrated Orthopaedics Investors, L.P., a Texas limited partnership ("FW
Investors"), Group 31, Inc., a Texas corporation ("Group"), J. Taylor
Crandall ("Crandall"), FW Integrated Orthopaedics Investors II, L.P., a
Texas limited partnership ("FW Investors II"), FW Group Genpar, Inc., a
Texas corporation ("FW Genpar"), David G. Brown ("Brown"), and Group Special
Investments, Inc. , a Texas corporation ("Group Investments"). FW Investors,
Group, Crandall, FW Investors II, FW Genpar, Brown and Group Investments are
sometimes hereinafter collectively referred to as the "Reporting Persons". The
Reporting Persons are making this single, joint filing because they may be
deemed to constitute a "group" within the meaning of Section 13(d)(3) of
the Act, although neither the fact of this filing nor anything contained
herein shall be deemed an admission by the Reporting Persons that a group
exists.
(b)-(c)
FW Investors
FW Investors is a Texas limited partnership, the principal business
of which is the purchase, sale, exchange, acquisition and holding of
investment securities. The principal business address of FW Investors,
which also serves as its principal office is 201 Main Street, Suite 3100,
Fort Worth, Texas 76102. Pursuant to Instruction C to Schedule 13D of the
Act, information with respect to Group, the sole general partner of FW
Investors, is set forth below.
Group
Group is a Texas corporation, the principal business of which is
serving as the general partner of various investment partnerships. The
principal address of Group, which also serves as its principal office, is
201 Main Street, Suite 3100, Fort Worth, Texas 76102. Pursuant to
Instruction C to Schedule 13D of the Act, the name, residence or business
address, and present principal occupation or employment of each director,
executive officer and controlling person of Group is as follows:
RESIDENCE OR PRINCIPAL OCCUPATION
NAME BUSINESS ADDRESS OR EMPLOYMENT
J. Taylor Crandall 201 Main St., Ste. 3100 Vice President-
Fort Worth, Texas 76102 Finance of Keystone,
Inc.("Keystone")
W. Robert Cotham 201 Main St., Ste. 2600 Vice President/
Fort Worth, Texas 76102 Controller of BEPCO
Mark A. Wolfson 201 Main St., Ste. 3100 Vice President of and
Fort Worth, Texas 76102 Consultant to Keystone
David G. Brown 201 Main St., Ste. 3100 Vice President of and
Fort Worth, Texas 76102 Consultant to Keystone
Gary W. Reese 201 Main St., Suite 2600 Treasurer of Bass
Fort Worth, Texas 76102 Enterprises Production
Co. ("BEPCO")
Thomas R. Delatour, 201 Main St., Suite 3100 Vice President of
Jr. Fort Worth, Texas 76102 Group
Scott J. Hancock 201 Main St., Suite 3100 Vice President of
Fort Worth, Texas 76102 Group
Keystone is a Texas corporation, the principal businesses of which are
investment in marketable securities, real estate investment and
development, ownership and operation of oil and gas properties (through
BEPCO), the ownership and operation of gas processing plants and carbon
black plants (through various partnerships) and the ownership of interests
in entities engaged in a wide variety of businesses. The principal address
of Keystone, which also serves as its principal office, is 201 Main Street,
Suite 3100, Fort Worth, Texas 76102.
BEPCO is a Texas corporation, the principal business of which is oil
exploration and drilling for and producing hydrocarbons. The principal
business address of BEPCO, which also serves as its principal office, is
201 Main Street, Suite 27000, Fort Worth, Texas 76102.
FW Investors II
FW Investors II is a Texas limited partnership, the principal business
of which is the purchase, sale, exchange, acquisition and holding of
investment securities. The principal business address of FW Investors II,
which also serves as its principal office is 201 Main Street, Suite 3100,
Fort Worth, Texas 76102. Pursuant to Instruction C to Schedule 13D of the
Act, information with respect to FW Genpar, the sole general partner of FW
Investors II, is set forth below.
FW Genpar
FW Genpar is a Texas corporation, the principal business of which is
serving as the general partner of various investment partnerships. The
principal address of FW Genpar, which also serves as its principal office,
is 201 Main Street, Suite 3100, Fort Worth, Texas 76102. Pursuant to
Instruction C to Schedule 13D of the Act, the name, residence or business
address, and present principal occupation or employment of each director,
executive officer and controlling person of FW Genpar is as follows:
RESIDENCE OR PRINCIPAL OCCUPATION
NAME BUSINESS ADDRESS OR EMPLOYMENT
David G. Brown See above. See above.
W. Robert Cotham See above. See above.
J. Taylor Crandall See above. See above.
Thomas R. Delatour See above. See above.
Gary W. Reese See above. See above.
Mark A. Wolfson See above. See above.
James N. Alexander See above. See above.
Scott J. Hancock See above. See above.
Group Investments
Group Investments is a Texas corporation, the principal business of
which is investing in securities. The principal address of Group
Investments, which also serves as its principal office, is 201 Main Street,
Suite 3100, Fort Worth, Texas 76102. Pursuant to Instruction C to Schedule
13D of the Act, the name, residence or business address, and present
principal occupation or employment of each director, executive officer and
controlling person of Group Investments is as follows:
RESIDENCE OR PRINCIPAL OCCUPATION
NAME BUSINESS ADDRESS OR EMPLOYMENT
J. Taylor Crandall See above. See above.
W. Robert Cotham See above. See above.
David G. Brown See above. See above.
Gary W. Reese See above. See above.
Thomas R. Delatour See above. See above.
(d) None of the entities or persons identified in this Item 2 has,
during the last five years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) None of the entities or persons identified in this Item 2 has,
during the last five years, been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
(f) All of the natural persons identified in this Item 2 are citizens
of the United States of America.
Item 3. Source and Amount of Funds or Other Consideration.
The source and amount of the funds used or to be used by the Reporting
Persons to purchase shares of the Stock are as follows:
REPORTING PERSON SOURCE OF FUNDS AMOUNT OF FUNDS
FW Investors Other-Contributions $12,500,000.00(2)
from Partners
Group Not Applicable Not Applicable
Crandall Not Applicable Not Applicable
FW Investors II Other-Contributions $12,500,000.00(2)
from Partners
FW Genpar Not Applicable Not Applicable
Brown Not Applicable Not Applicable
Group Investments Working Capital(1) $ 150,000.00
(1) As used herein, the term "Working Capital" includes income
from the business operations of the entity plus sums borrowed from banks
and brokerage firm margin accounts to operate such business in general.
None of the funds reported herein as "Working Capital" were borrowed or
otherwise obtained for the specific purpose of acquiring, handling, trading
or voting the Stock.
(2) This figure represents the total amount expended in purchasing
the Issuer's Series B Convertible Non-Redeemable Preferred Stock and
warrants to purchase shares of the Stock as described in Item 5(c).
Item 4. Purpose of Transaction.
The Reporting Persons intend to review continuously their equity
position in the Issuer. Depending upon future evaluations of the business
prospects of the Issuer and upon other developments, including, but not
limited to, general economic and business conditions and money market and
stock market conditions, each of the Reporting Persons may determine to
increase or decrease its equity interest in the Issuer by acquiring
additional shares of the Stock (or other securities convertible or
exercisable into shares of the Stock) or by disposing of all or a portion
of its holdings, subject to any applicable legal and contractual
restrictions on its ability to do so.
J. Taylor Crandall, Mark A. Wolfson and Scott J. Hancock have been
elected to the Issuer's Board of Directors as representatives of the
Reporting Persons.
Except as set forth in this Item 4, the Reporting Persons have no
present plans or proposals that relate to or that would result in any of
the actions specified in clauses (a) - (j) of Item 4 of Schedule 13D of the
Act.
Item 5. Interest in Securities of the Issuer.
(a)
FW Investors
The aggregate number of shares of the Stock that FW Investors owns
beneficially, pursuant to Rule 13d-3 of the Act, is 4,583,333 which
constitutes approximately 46.4% of the 9,882,974 shares of the Stock deemed
outstanding pursuant to Rule 13d-3(d)(1)(i).
Group
Because of its position as the sole general partner of FW
Investors, Group may, pursuant to Rule 13d-3 of the Act, be deemed to be
the beneficial owner of 4,583,333 shares of the Stock, which constitutes
approximately 46.4% of the 9,882,974 shares of the Stock deemed outstanding
pursuant to Rule 13d-3(d)(1)(i).
Crandall
Because of his position as the President and sole shareholder of
Group, which is the sole general partner of FW Investors, and because of
his position as President and sole shareholder of Group Investments,
Crandall may, pursuant to Rule 13d-3 of the Act, be deemed to be the
beneficial owner of 4,608,333 shares of the Stock, which constitutes
approximately 46.6% of the 9,882,974 shares of the Stock deemed outstanding
pursuant to Rule 13d-3(d)(1)(i).
FW Investors II
The aggregate number of shares of the Stock that FW Investors II
owns beneficially, pursuant to Rule 13d-3 of the Act, is 4,583,333 which
constitutes approximately 46.4% of the 9,882,974 shares of the Stock deemed
outstanding pursuant to Rule 13d-3(d)(1)(i).
FW Genpar
Because of its position as the sole general partner of FW Investors
II, FW Genpar may, pursuant to Rule 13d-3 of the Act, be deemed to be the
beneficial owner of 4,583,333 shares of the Stock, which constitutes
approximately 46.4% of the 9,882,974 shares of the Stock deemed outstanding
pursuant to Rule 13d-3(d)(1)(i).
Brown
Because of his position as the President and sole shareholder of FW
Genpar, which is the sole general partner of FW Investors II, Brown may,
pursuant to Rule 13d-3 of the Act, be deemed to be the beneficial owner of
4,583,333 shares of the Stock, which constitutes approximately 46.4% of the
9,882,974 shares of the Stock deemed outstanding pursuant to Rule 13d-
3(d)(1)(i).
Group Investments
The aggregate number of shares of the Stock that Group Investments
owns beneficially, pursuant to Rule 13d-3 of the Act, is 25,000, which
constitutes approximately 0.5% of the outstanding shares of the Stock.
(b)
Neither FW Investors, Group, FW Investors II, FW Genpar nor Brown
have voting or dispositive power over any shares of the Stock.
Crandall
In his capacity as the President and sole shareholder of Group
Investments, Crandall has the sole power to vote or to direct the vote and
to dispose or to direct the disposition of 25,000 shares of the Stock.
Group Investments
Group Investments has the sole power to vote or to direct the vote
and to dispose or to direct the disposition of 25,000 shares of the Stock.
(c) On December 12, 1997, FW Investors and FW Investors II each
purchased directly from the Issuer (i) 125,000 shares of the Issuer's
Series B Convertible Non-Redeemable Preferred Stock (the "Series B Stock")
and (ii) warrants covering 2,500,000 shares of the Stock. Each of FW
Investors and FW Investors II paid $12,500,000 for such securities, or
$25,000,000 in the aggregate. The Series B Stock is currently convertible
into shares of the Stock at a ratio of 16.66 shares of the Stock for each
share of the Series B Stock. The warrants, which have an initial
exercise price of $8.00 per share, are not exercisable before July 1, 2000.
Also on December 12, 1997, Group Investments purchased 25,000
shares of the Stock in a private transaction at a price of $6.00 per share.
Except as set forth above, none of the Reporting Persons have
effected any transactions in shares of the Stock during the past 60 days.
(d) Each of the Reporting Persons affirms that no person other
than such Reporting Person has the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of, the shares
of the Stock owned by such Reporting Person.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer.
FW Investors and FW Investors II are parties to the Securities
Purchase Agreement dated December 12, 1997 by and among the Issuer, FW
Investors, FW Investors II and certain other persons and entities (the
"Purchase Agreement"). In connection with the Purchase Agreement, FW
Investors and FW Investors II also entered into a warrant agreement
("Warrant Agreement"), a form of which is attached as Exhibit B to the
Purchase Agreement, and a registration rights agreement (the "Registration
Rights Agreement"), which is attached as Exhibit E to the Purchase
Agreement. The description contained herein of the Purchase Agreement, the
Warrant Agreement, the Registration Rights Agreement and certain other
exhibits to the Purchase Agreement is not, and does not purport to be,
complete and is qualified in its entirety by reference to the Purchase
Agreement which, together with its exhibits, is attached hereto as Exhibit
99.2.
Purchase Agreement
As described under Item 5(c) above, the Reporting Persons purchased
securities of the Issuer on December 12, 1997 pursuant to the Purchase
Agreement. The Series B Stock purchased by the Reporting Persons is
currently convertible into shares of the Stock at a rate of 16.66 shares of
the Stock for each share of the Series B Stock, based on a liquidation
preference of $100 per share and a conversion price of $6.00 per share,
which is subject to adjustment as set forth in the Certificate of
Designation of Rights and Preferences relating to the Series B Stock (the
"Certificate of Designation"), a copy of which is attached as Exhibit A to
the Purchase Agreement. The warrants purchased by the Reporting Persons
pursuant to the Purchase Agreement (the "Warrants") will become exercisable
on July 1, 2000 at a price of $8.00 per share, subject to adjustment as set
forth in the Warrant Agreement and Warrant relating thereto, forms of
which are attached as Exhibit B to the Purchase Agreement. As set forth in
Section 6.8 of the Purchase Agreement, the Issuer has agreed to prepare and
file with the Securities and Exchange Commission a proxy statement with
respect to the solicitation of votes for the approval of certain
shareholder proposals, including the adjustment of the conversion price of
the Series B Stock and the exercise price of the Warrants, which
adjustments would provide, generally, that the exercise or conversion
price, as applicable, of such securities would be the lesser of the current
exercise or conversion price thereof or the average closing prices of the
Stock during specified periods, as set forth in the Warrant Agreement and
the Certificate of Designation. As set forth in Section 9.11 of the
Purchase Agreement, certain shareholders of the Issuer have agreed to vote
all of their shares of the Stock in favor of the foregoing proposals and
have granted an irrevocable proxy to each of Scott J. Hancock and Mark A.
Wolfson for the purpose of approving such proposals.
Pursuant to Section 6.6 of the Purchase Agreement, holders of the
Series B Stock are granted the option, until the fifth anniversary of the
Purchase Agreement, to purchase additional shares of the Stock or other
equity securities of the Issuer if the Issuer proposes to issue any such
securities other than (i) pursuant to an underwritten public offering or
(ii) on terms no less favorable to the Issuer than could be obtained from a
non-affiliated third party.
Registration Rights Agreement
The Registration Rights Agreement entitles the Reporting Persons to
certain rights with respect to the registration of shares of the Stock
under the Securities Act of 1933 (the "Securities Act"). FW Investors and
FW Investors II may at any time make a written request of the Issuer for
registration under the Securities Act of all or any part of their holdings
of the Series B Stock, the Warrants or shares of the Stock. FW Investors
and FW Investors II may request that any registration of their securities
be effected as a shelf registration on Form S-3 at any time the Issuer is
eligible to use that form. If the Issuer proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other securityholders, FW Integrated and FW Integrated II are
entitled to notice of such registration and are entitled to include, at the
Issuer's expense, shares of the Stock owned by them therein, provided,
among other conditions, that the underwriters have the right to limit the
number of shares included in such registration.
Certificate of Designation
The Certificate of Designation provides the holders of the Series B
Stock one vote for each share of Series B Stock held by such holders for
the election, as a class, of three directors to the Board of Directors of
the Issuer (or a majority of the directors in the event of a breach by the
Issuer of any of the financial covenants set forth in the Certificate of
Designation). Such rights to designate board members shall survive the
conversion of the Series B Stock and shall inure to the benefit of FW
Investors and FW Investors II until such time as they and their affiliates
own less than 50% of the shares of the Stock initially issuable upon
conversion of the Series B Stock. For so long as shares of the Series B
Stock are issued and outstanding and FW Investors, FW Investors II or their
affiliates own more than 50% of the shares of the Stock initially issuable
upon conversion of the Series B Stock, the Issuer shall not increase the
size of its Board of Directors to more than eight.
Except as set forth herein or in the exhibits filed herewith, there
are no contracts, arrangements, understandings or relationships with
respect to the shares of the Stock of the Issuer owned by the Reporting
Persons.
Item 7. Material to be Filed as Exhibits.
Exhibit 99.1 -- Agreement pursuant to Rule 13d-1(f)(1)(iii).
Exhibit 99.2 -- Securities Purchase Agreement dated as of
December 12, 1997 between Integrated Orthopaedics, Inc. and FW
Integrated Orthopaedics Investors, L.P. and Integrated
Orthopaedics, Inc. and FW Integrated Orthopaedics Investors II,
L.P. and other parties named herein.
Exhibit 99.3 -- Limited Partnership Agreement of FW Integrated
Investors, L.P.
Exhibit 99.4 -- Limited Partnership Agreement of FW Integrated
Investors II, L.P.
<PAGE>
<PAGE>
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
DATED: December 22, 1997
FW INTEGRATED ORTHOPAEDICS
INVESTORS, L.P.
By: Group 31, Inc., general partner
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
GROUP 31, INC.
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
/s/ J. Taylor Crandall
J. Taylor Crandall
FW INTEGRATED ORTHOPAEDICS
INVESTORS II, L.P.
By: FW Group Genpar, Inc.,
general partner
By: /s/ David G. Brown
David G. Brown
President
FW GROUP GENPAR, INC.
By: /s/ David G. Brown
David G. Brown
President
/s/ David G. Brown
David G. Brown
GROUP SPECIAL INVESTMENTS, INC.
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
Exhibit 99.1
Pursuant to Rule 13d-1(f)(1)(iii) of Regulation 13D-G of the
General Rules and Regulations of the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the undersigned
agrees that the statement to which this Exhibit is attached is filed on
behalf of each of them in the capacities set forth below.
FW INTEGRATED ORTHOPAEDICS
INVESTORS, L.P.
By: Group 31, Inc., general partner
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
GROUP 31, INC.
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
/s/ J. Taylor Crandall
J. Taylor Crandall
FW INTEGRATED ORTHOPAEDICS
INVESTORS II, L.P.
By: FW Group Genpar, Inc.,
general partner
By: /s/ David G. Brown
David G. Brown
President
FW GROUP GENPAR, INC.
By: /s/ David G. Brown
David G. Brown
President
/s/ David G. Brown
David G. Brown
GROUP SPECIAL INVESTMENTS, INC.
By: /s/ J. Taylor Crandall
J. Taylor Crandall
President
Exhibit 99.2
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 12, 1997, by and among FW Integrated
Orthopaedics Investors, L.P., a Texas limited partnership, FW Integrated
Orthopaedics Investors II, L.P., a Texas limited partnership (each a
"Purchaser" and collectively, the "Purchasers"), Integrated Orthopaedics,
Inc., a Texas corporation (the "Company"), for purposes of Sections 6.6 and
9.11 only, Chartwell Capital Investors, L.P., and for purposes of Section
9.11 only, Jose E. Kauachi, Ronald E. Pierce, Jefferson R. Casey, Clifford
Hinkle, William F. Donovan, M.D. and Sharon Ann Donovan.
RECITALS:
a. The Company presently conducts the business of managing
and administering physician practice groups specializing in
orthopaedics (the "Business");
b. The Company requires additional capital in order to
expand the Business; and
C. The Purchasers desire to provide additional capital to the
Company for such purpose in accordance with the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. ISSUANCE OF SECURITIES
1.1. Authorization. The Company has duly authorized the issuance
and sale of (a) 250,000 shares of its Series B Convertible, Non-Redeemable
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"),
having an aggregate initial liquidation preference of $25,000,000 plus
accrued and unpaid dividends thereon, and other rights as specified in the
Certificate of Designation of Rights and Preferences in the form of Exhibit
A attached hereto (the "Certificate of Designation") and (b) Contingent
Warrants (the "Warrants" and, together with the Series B Preferred Stock,
the "Securities") to purchase 5,000,000 shares of Common Stock, par value
$.001 per share, of the Company ("Common Stock"). The form of Warrant
Agreement ("Warrant Agreement") and form of related Warrant are attached
hereto as Exhibit B.
1.2. Purchase and Sale of the Securities; the Closing. Subject
to the terms and conditions hereof, the Company hereby agrees to sell to
the Purchasers, and the Purchasers hereby agree to purchase from the
Company, the Securities in the amounts set forth on Schedule I hereto, for
an aggregate purchase price of $25,000,000. The closing of such sale and
purchase shall be held at 10:00 A.M., Houston time, on December 12, 1997,
or on such other day as may be agreed by the Company and the Purchasers
(the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 700
Louisiana, Suite 1600, Houston, Texas 77002.
On the Closing Date, the Company will deliver to the
Purchasers (a) one or more certificates representing the shares of Series B
Preferred Stock, registered in the names of the Purchasers or in the names
of one or more nominees of the Purchasers and in any denomination as the
Purchasers may specify by timely notice to the Company (or, in the absence
of such notice, one certificate registered in the name of each Purchaser in
the amounts designated on Schedule I attached hereto) and (b) one or more
executed Warrant Agreements for each of the Purchasers or one or more of
their nominees, and one or more Warrants registered in the names of the
Purchasers or in the names of one or more such nominees of the Purchasers
and in any denomination as the Purchasers may specify by timely notice to
the Company (or, in the absence of such notice, one Warrant registered in
the name of each Purchaser in the amounts designated on Schedule I attached
hereto), in each case against delivery to the Company of immediately
available funds in the amount of the purchase price of such Securities,
such delivery to be made by wire transfer to the Company's Account No.
4159-718-626 at Wells Fargo Bank, N.A., 1000 Louisiana, Houston, Texas
77002 (ABA No. 121000248).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company. The Company
makes the following representations and warranties to the Purchasers, each
of which is true and correct as of the date hereof and shall be true and
correct as of the Closing Date and shall be unaffected by any investigation
heretofore or hereafter made by the Purchasers.
2.1.1. Organization and Good Standing. The Company and each
of the Subsidiaries (as hereinafter defined) is a corporation duly
organized, validly existing and in good standing under the laws of the
state of its incorporation. The Company and each of the Subsidiaries has
the requisite corporate power and authority to own, lease or otherwise hold
the assets owned, leased or otherwise held by it and to carry on the
Business as presently conducted by it. The Company and each of the
Subsidiaries is in good standing and duly qualified to conduct business as
a foreign corporation in every state of the United States in which its
ownership or lease of property or conduct of business makes such
qualification necessary. Such of the foregoing states are listed on
Schedule 2.1.1.
2.1.2. Authorization of Agreement; Binding Obligation. The
Company has the requisite corporate power to execute and to deliver this
Agreement and the other Transaction Documents (as hereinafter defined) and
to perform the transactions contemplated hereby and thereby to be performed
by it. The execution and delivery by the Company of this Agreement and the
other Transaction Documents and the performance by it of the transactions
contemplated hereby and thereby to be performed by it have been duly
authorized by all necessary corporate action on the part of the Company.
This Agreement and the other Transaction Documents have been duly executed
and delivered by duly authorized officers of the Company and constitute
valid and binding obligations of the Company enforceable against it in
accordance with terms hereof or thereof, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
2.1.3. Subsidiaries and Equity Investments. (a) Schedule
2.1.3 sets forth (i) the name of each corporation of which the Company
directly or indirectly owns shares of capital stock having in the aggregate
50% or more of the total combined voting power of the issued and
outstanding shares of capital stock entitled to vote generally in the
election of directors of such corporation (individually, a "Subsidiary" and
collectively, the "Subsidiaries"); (ii) the name of each corporation,
partnership, limited liability company, joint venture or other entity
(other than the Subsidiaries) in which the Company or any Subsidiary has,
or pursuant to any agreement has the right to acquire at any time by any
means, an equity interest or investment; (iii) in the case of each of the
Subsidiaries and such other corporations described in the foregoing clause
(ii), (A) the jurisdiction of incorporation and (B) the capitalization
thereof and the percentage of each class of voting stock owned by the
Company or by any of the Subsidiaries; and (iv) in the case of each of such
unincorporated entities, the equivalent of the information provided
pursuant to the preceding clause (iii) with regard to corporate entities.
(b) All of the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable, have not been issued in violation of any
preemptive rights, and are owned of record and beneficially by the Company,
free and clear of any Liens (as hereinafter defined).
(c) There are no options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating any
Subsidiary to issue any additional shares of capital stock or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock.
2.1.4. No Restrictions Against Issuance of Securities;
Required Consents. Except as disclosed on Schedule 2.1.4, the execution
and delivery of this Agreement and the other Transaction Documents by the
Company does not, and the performance by the Company of the transactions
contemplated hereby or thereby to be performed by it will not, (a) conflict
with the articles of incorporation or by-laws of the Company or any
Subsidiary, (b) conflict with, or result in any violation of, or constitute
a default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a benefit under, any contract, permit, order,
judgment or decree to which the Company or any Subsidiary is a party or by
which any of their properties are bound, (c) constitute a violation of any
law or regulation applicable to the Company or any Subsidiary, or
(d) result in the creation of any Lien upon any of the Company's or the
Subsidiaries' assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any nation or government, any
state or other political subdivision thereof or an entity exercising
executive, legislative, judicial, regulatory or administrative function of
or pertaining to government (each a "Governmental Entity") is required to
be obtained or made by or with respect to the Company in connection with
the execution and delivery of this Agreement or any of the other
Transaction Documents by the Company or the performance by the Company of
the transactions contemplated hereby or thereby to be performed by it.
Assuming the accuracy of the Purchasers' representations and warranties
contained in Section 2.2.3 hereof, the issuance and sale of the Securities
are exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act").
2.1.5. Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 10,000,000 shares
of preferred stock, par value $.01 per share. As of the date hereof, the
Company has, in the aggregate, 5,510,374 shares of Common Stock (including
13,833 shares held in treasury) and 25,226 shares of Series A Preferred
Stock, par value $.01 per share ("Series A Preferred Stock"), issued and
outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights.
At the Closing, the Series B Preferred Stock shall be validly issued, fully
paid and non-assessable and shall have not been issued in violation of any
preemptive rights. As of the Closing Date, 6,550,000 shares of Common
Stock will have been reserved for issuance upon conversion of the Series B
Preferred Stock and 5,000,000 shares of Common Stock will have been
reserved for issuance upon exercise of the Warrants, and when so issued,
all such shares of Common Stock will be validly issued, fully paid and non-
assessable and none of such shares of Common Stock will be issued in
violation of any preemptive rights. Except as disclosed on Schedule 2.1.5,
there are no options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating the Company to issue any
capital stock of the Company or any other securities convertible into, or
exchangeable, exercisable or evidencing the right to subscribe for, capital
stock of the Company.
2.1.6. Financial Statements. The Company has delivered to
the Purchasers true and complete copies of (a) the audited consolidated
balance sheets of the Company at December 31, 1996 and 1995 and the related
statements of income, cash flow and changes in shareholders' equity for the
fiscal years then ended, accompanied by certified opinions of the Company's
auditing firm; and (b) unaudited consolidated balance sheets of the Company
at September 30, 1997 and 1996 and related statements of income, cash flow
and changes in shareholders' equity for the periods then ended, all of
which have been prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP") throughout the periods involved,
all of which is subject to the disclosure set forth in Section 2.1.6. Such
consolidated balance sheets, including the related notes, fairly present
the financial position, assets and liabilities (whether accrued, absolute,
contingent or otherwise) of the Company and the Subsidiaries at the dates
indicated and such statements of income, cash flow and changes in
shareholders' equity fairly present the results of operations, cash flow
and changes in shareholders' equity of the Company and the Subsidiaries for
the periods indicated. The unaudited consolidated financial statements as
at and for the periods ending September 30, 1997 and 1996 contain all
adjustments, which are solely of a normal recurring nature, necessary to
present fairly the financial position and results of operations of the
Company and the Subsidiaries for the periods then ended. References in
this Agreement to the "Interim Balance Sheet" shall mean the consolidated
balance sheet of the Company as of September 30, 1997 referred to above;
and references in this Agreement to the "Interim Balance Sheet Date" shall
be deemed to refer to September 30, 1997.
2.1.7. Accounts Receivable. The accounts receivable of the
Company and the Subsidiaries as set forth on the Interim Balance Sheet or
arising since the date thereof are valid and genuine; have arisen solely
out of bona fide sales and deliveries of goods, performance of services and
other business transactions in the ordinary course of business consistent
with past practice; are not subject to valid defenses, set-offs or
counterclaims; and, except as described on Schedule 2.1.7, are collectible
within 90 days after billing at the full recorded amount thereof less, in
the case of accounts receivable appearing on the Interim Balance Sheet, the
recorded allowance for collection losses on the Interim Balance Sheet. The
allowance for collection losses on the Interim Balance Sheet has been
determined in accordance with GAAP consistent with past practice.
2.1.8. Business, Properties and Other Information. The
Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and has delivered to the
Purchasers true and complete copies of the following reports and proxy
statements filed with the Securities and Exchange Commission (the
"Commission"):
A. its Annual Report on Form 10-KSB for its fiscal year
ended December 31, 1996, filed pursuant to Section 13(a) of the
Exchange Act;
B. its Quarterly Reports on Form 10-QSB for its fiscal
quarters ended March 31, June 30, and September 30, 1997, each
filed pursuant to Section 13(a) of the Exchange Act;
C. its Current Reports on Form 8-K dated November 26, 1997,
October 15, 1997 and January 14, 1997 (as amended by its Current
Report on Form 8-K/A dated April 3, 1997);
D. the Proxy Statement for a Special Meeting of
Stockholders, dated February 18, 1997, filed pursuant to Section 14
of the Exchange Act; and
E. the Proxy Statement for its 1997 Annual Meeting of
Stockholders, dated April 11, 1997, filed pursuant to Section 14 of
the Exchange Act.
Said reports and proxy statements comprise all materials required to be
filed by the Company with the Commission since December 31, 1996 and are
collectively called the "SEC Reports", which term shall also include on the
Closing Date all further filings which the Company may heretofore have
furnished to the Purchasers pursuant to Section 3.1.
Neither the SEC Reports listed above, this Agreement, nor any
other document, slide presentation, certificate, written statement or
projection of future economic performance furnished to the Purchasers or
their representatives by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained therein, in the light of the circumstances under
which they were made, not misleading; provided that to the extent any such
information therein was based upon or constitutes an estimate or
projection, the Company represents only that in preparing such estimate or
projection it acted in good faith and on a basis which the Company
reasonably believed to be reasonable based on the assumptions set forth in
the presentation materials and on a basis consistent with the financial
statements delivered pursuant to Section 2.1.6 hereof. The Company knows
of no facts not disclosed in the SEC Reports listed above or such other
documents referred to above as having been delivered to the Purchasers
which facts individually or in the aggregate have a material adverse effect
on the business, operations, assets, properties, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries taken as a
whole or, so far as the Company can now foresee, could have a material
adverse effect on the business, operations, assets, properties, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries
taken as a whole.
2.1.9. Absence of Undisclosed Liabilities. Neither the
Company nor any of the Subsidiaries has liabilities or obligations, either
direct or indirect, matured or unmatured or absolute, contingent or
otherwise, except:
(a) those liabilities or obligations set forth on the Interim
Balance Sheet and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of business
under any agreement, contract, commitment, lease or plan specifically
disclosed on the schedules hereto or not required to be disclosed because
of the term or amount involved;
(c) those liabilities and obligations described on Schedule
2.1.9; and
(d) those liabilities or obligations incurred, consistently
with past business practice, in or as a result of the normal and ordinary
course of business since the Interim Balance Sheet Date.
For purposes of this Agreement, the term "liabilities" shall
include, without limitation, any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, whether fixed or contingent, known or unknown, asserted or
unasserted, choate or inchoate, liquidated or unliquidated, secured or
unsecured.
2.1.10. Books of Account. The books, records and accounts of
the Company accurately and fairly reflect, in reasonable detail, the
transactions and the assets and liabilities of the Company and the
Subsidiaries and do not contain any material inaccurate information or omit
any material information necessary in order to make such books, records and
accounts, in light of the circumstances under which they were prepared, not
misleading. Neither the Company nor any of the Subsidiaries has engaged in
any transaction, maintained any bank account or used any of the funds of
the Company or the Subsidiaries except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained books
and records of the Company.
2.1.11. Contracts and Commitments. (a) Except as described
on Schedule 2.1.11(a), neither the Company nor any Subsidiary is a party to
any written or oral:
(i) agreement, contract or commitment for the future
purchase of, or payment for, supplies or products, or for the performance
of services by a third party involving in any one case $50,000 or more;
(ii) agreement, contract or commitment to sell or supply
products or to perform services involving in any one case $50,000 or more;
(iii) agreement, contract or commitment continuing over a
period of more than six months from the date hereof or exceeding $50,000 in
value;
(iv) employment, consulting, representative or sales
agency agreement, contract or commitment;
(v) lease under which the Company or any Subsidiary is
either lessor or lessee;
(vi) note, debenture, bond, equipment trust agreement,
letter of credit agreement, loan agreement or other contract or commitment
for the borrowing or lending of money or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the indebtedness of
any other person;
(vii) agreement, contract or commitment for any charitable
or political contribution;
(viii) commitment or agreement for any capital expenditure
or leasehold improvement in excess of $50,000;
(ix) agreement, contract or commitment limiting or
restraining the Company or any Subsidiary from engaging or competing in any
manner or in any business;
(x) agreement or arrangement with respect to the
registration of shares of Common Stock or any other securities of the
Company or any Subsidiary;
(xi) license, franchise, distributorship or other
agreement which relates in whole or in part to any software, patent,
trademark, trade name, service mark or copyright or to any ideas, technical
assistance or other know-how of or used by the Company or any Subsidiary;
or
(xii) material agreement, contract or commitment not made
in the ordinary course of business.
(b) Except as described on Schedule 2.1.11(b), each of the
agreements, contracts, commitments, leases, plans and other instruments,
documents and undertakings listed or required to be listed on
Schedule 2.1.11(a), or not required to be listed therein because of the
amount or term thereof, is valid and enforceable in accordance with its
terms; the Company and the Subsidiaries are (to the extent they are a party
thereto), and to the Company's knowledge all other parties thereto are, in
compliance with the provisions thereof; the Company and the Subsidiaries
are not, and to the Company's knowledge no other party thereto is, in
default in the performance, observance or fulfillment of any obligation,
covenant or condition contained therein; and no event has occurred which
with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder. Furthermore, no such agreement, contract,
commitment, lease, plan or other instrument, document or undertaking, in
the reasonable opinion of the Company, contains any contractual requirement
with which there is a reasonable likelihood the Company, any Subsidiary or
any other party thereto will be unable to comply.
2.1.12. Liens and Encumbrances; Condition of Assets. (a)
Except as listed or described on Schedule 2.1.12(a), the Company and each
of the Subsidiaries has good, valid and marketable title to its assets free
and clear of all title defects or objections, mortgages, liens, claims,
charges, pledges, or other encumbrances of any nature whatsoever, including
without limitation licenses, leases, chattel or other mortgages, collateral
security arrangements, pledges, title imperfections, defect or objection
liens, security interests, conditional and installment sales agreements,
charges, easements, encroachments or restrictions, of any kind and other
title or interest retention arrangements, reservations or limitations of
any nature (collectively, "Liens"), other than (i) those reflected or
reserved against in the Interim Balance Sheet and (ii) Liens for Taxes,
assessments and other governmental charges that are not due and payable or
that may thereafter be paid without penalty. (The items referred to in the
exception to the immediately preceding sentence are hereinafter referred to
as "Permitted Liens".)
(b) All of the assets of the Company and the Subsidiaries are
in good operating condition and repair, subject to normal wear and
maintenance, are usable in the regular and ordinary course of business and
conform to all applicable laws, ordinances, codes, rules and regulations,
and Permits relating to their construction, use and operation.
2.1.13. Regulatory Compliance. The Company, each of the
Subsidiaries and each physician practice group that is managed or was
previously managed by the Company or a Subsidiary (the "Physician Practice
Groups") (but only with respect to such periods in which a management
relationship existed between the Company or a Subsidiary and such Physician
Practice Group) has timely filed all reports required to be filed in
connection with federal Medicare and applicable state Medicaid programs,
and all such required reports are true and complete in all material
respects; there are no claims, actions or appeals pending (and the Company,
the Subsidiaries and the Physician Practice Groups have not filed any
document, report or other instrument that would result in any claims,
actions or appeals) before any commission, board or agency with respect to
any state or federal Medicare or Medicaid cost reports or claims filed by
the Company, the Subsidiaries or the Physician Practice Groups, or with
respect to any disallowances by any intermediary, carrier, other insurer,
commission, board or agency in connection with any audit of any cost
reports that, if adversely determined, would have a material adverse effect
on the Company and the Subsidiaries taken as a whole; no validation review
or program integrity review related to the Company, any Subsidiary or any
Physician Practice Group has been conducted by any commission, board or
agency in connection with federal Medicare or state Medicaid programs, and
no such reviews are scheduled, pending or, to the Company's knowledge,
threatened against or affecting the Company, the Subsidiaries or the
Physician Practice Groups; the Company, each of the Subsidiaries and each
of the Physician Practice Groups has timely filed all material reports,
data and other information required by any other regulatory agency with
authority to regulate the Company, any of the Subsidiaries, any of the
Physician Practice Groups or the Business in any manner; the Company, each
of the Subsidiaries and each of the Physician Practice Groups is in
compliance in all material respects with all rules, regulations and
requirements of all regulatory agencies; and the conduct of the Business by
the Company, the Subsidiaries and the Physician Management Groups does not
violate 42 U.S.C. 1320a-7b (commonly known as the "Anti-Kickback Statute")
or 42 U.S.C. 1395nn (commonly known as the "Stark Amendments"), including
all amendments thereto.
2.1.14. Insurance. The Company and each of the Subsidiaries
has insurance policies in full force and effect for such amounts as are
sufficient for material compliance with all requirements of law and of all
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound. Except as set forth in Schedule 2.1.14, no
event relating to the Company or the Subsidiaries has occurred that can
reasonably be expected to result in a retroactive upward adjustment in
premiums under any such insurance policies or that is likely to result in a
prospective upward adjustment in such premiums. Excluding insurance
policies that have expired and been replaced in the ordinary course of
business, no insurance policy has been cancelled within the last two years
and, to the Company's knowledge, no threat has been made to cancel any
insurance policy of the Company or any Subsidiary during such period. No
event has occurred, including, without limitation, the failure by the
Company or any Subsidiary to give any notice or information or the Company
or any Subsidiary giving any inaccurate or erroneous notice or information,
which limits or impairs the rights of the Company or any Subsidiary under
any such insurance policies. The Company has provided the Purchasers with
true and complete copies of all regularly prepared loss run reports as of
the date hereof.
2.1.15. Conduct of the Business Since the Interim Balance
Sheet Date. Except as described on Schedule 2.1.15, since the Interim
Balance Sheet Date, neither the Company nor any of the Subsidiaries has:
(a) incurred any liabilities, other than liabilities incurred
in the ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any liabilities,
other than in the ordinary course of business consistent with past
practice, or failed to pay or discharge when due any liabilities of which
the failure to pay or discharge has caused or will cause any material
damage or risk of material loss to it or any of its assets or properties;
(b) sold, encumbered, assigned or transferred any material
assets or properties;
(c) created, incurred, assumed or guaranteed any indebtedness
for money borrowed, or mortgaged, pledged or subjected any of its assets to
any mortgage, lien, pledge, security interest, conditional sales contract
or other encumbrance of any nature whatsoever, except for Permitted Liens;
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is a
party or by which it is bound, or cancelled, modified or waived any
substantial debts or claims held by it or waived any rights of substantial
value, whether or not in the ordinary course of business;
(e) declared, set aside or paid any dividend or made or
agreed to make any other distribution or payment in respect of its capital
shares or redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or acquire any of its capital shares;
(f) suffered any damage, destruction or loss, whether or not
covered by insurance, (i) materially and adversely affecting its business,
operations, assets, properties or prospects or (ii) of any item or items
carried on its books of account individually or in the aggregate at more
than $50,000;
(g) made commitments or agreements for capital expenditures
or capital additions or betterments exceeding in the aggregate $100,000
except such as may be involved in ordinary repair, maintenance or
replacement of its assets;
(h) increased the salaries or other compensation of, or made
any advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its employees or made any increase in, or any
addition to, other benefits to which any of its employees may be entitled;
(i) changed any of the accounting principles followed by it
or the methods of applying such principles;
(j) entered into any transaction other than in the ordinary
course of business consistent with past practice; or
(k) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or
otherwise).
2.1.16. Employee Benefit Plans. (a) All "employee benefit
plans," as defined by Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all other employee benefit
arrangements or payroll practices, including, without limitation, bonus
plans, consulting or other compensation agreements, incentive, equity or
equity-based compensation, deferred compensation arrangements, stock
purchase, severance pay, and change in control agreements, programs,
policies or arrangements maintained by the Company or any Subsidiary or to
which the Company or any Subsidiary contributes or contributed on behalf of
its respective employees or has any liability, contingent or otherwise (the
"Employee Plans"), are listed on Schedule 2.1.16(a). Any Employee Plans
which constitute "employee pension benefit plans" as defined in Section
3(2) of ERISA (the "Pension Plans") are so designated on
Schedule 2.1.16(a). No Pension Plan is subject to Title IV of ERISA or
Section 412 of the Code.
(b) Except as set forth on Schedule 2.1.16(b), (i) each
Pension Plan is qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), and any trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code; and
(ii) the Company and each of the Subsidiaries has complied with respect to
each Employee Plan in all material respects with the reporting and
disclosure requirements of ERISA and no "party in interest" or
"disqualified person" has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code.
(c) The Employee Plans have been established, maintained and
operated in all material respects in accordance with their terms and with
all provisions of ERISA, the Code and other applicable federal and state
laws and regulations.
(d) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in
any payment becoming due to any employee or consultant (current, former or
retired) of the Company or any of the Subsidiaries, (ii) increase any
benefits otherwise payable under any Employee Plan or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
2.1.17. Litigation; Decrees. There are no judicial or
administrative actions, proceedings or investigations pending or, to the
Company's knowledge, threatened that question the validity of this
Agreement or any action taken or to be taken by the Company in connection
with this Agreement. Except as listed or described on Schedule 2.1.17,
there are no (i) lawsuits, claims, administrative or other proceedings or
investigations relating to the conduct of the Business pending or, to the
Company's knowledge, threatened by, against or affecting the Company or any
affiliate thereof or (ii) judgments, orders or decrees of any Governmental
Entity binding on the Company or any Subsidiary.
2.1.18. Compliance With Law; Permits. The Company and each
of the Subsidiaries has complied with each law, judgment, order and decree
of any Governmental Entity to which the Company or the Subsidiaries or
their business, operations, assets or properties is subject and is not
currently in violation of any of the foregoing. The Company and each of
the Subsidiaries owns, holds, possesses or lawfully uses in the operation
of its business all licenses, permits, authorizations and approvals
(collectively, "Permits") which are in any manner necessary to conduct the
Business as now or previously conducted or for the ownership and use of its
assets, free and clear of all Liens and in compliance with all laws. All
such Permits are listed and described on Schedule 2.1.18. Neither the
Company nor any Subsidiary is in default, nor has the Company or any
Subsidiary received any notice of any claim of default, with respect to any
such Permits. All such Permits are renewable by their terms or in the
ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing
fees. None of such Permits will be adversely affected by consummation of
the transactions contemplated hereby. No shareholder, director, officer,
employee or former employee of the Company or any affiliates of the
Company, or any other person, firm or corporation owns or has any
proprietary, financial or other interest (direct or indirect) in any
Permits which the Company or any Subsidiary owns, possesses or uses in the
operation of the Business as now or previously conducted.
2.1.19. Taxes. (a) All Tax Returns (as defined in paragraph
(e) below) that are required to be filed on or before the Closing Date by
the Company or any of the Subsidiaries have been duly filed on a timely
basis under the statutes, rules or regulations of each applicable
jurisdiction. All such Tax Returns were complete and accurate in all
material respects. All Taxes owed by the Company or the Subsidiaries have
been paid, whether or not such Taxes are disputed. Neither the Company nor
any of the Subsidiaries has executed or filed with the Internal Revenue
Service or any other taxing authority any agreement extending the period
for filing any Tax Return.
(b) No claim for assessment or collection of Taxes has been
asserted against the Company or any of the Subsidiaries. Neither the
Company nor any of the Subsidiaries is a party to any pending action,
proceeding or investigation by any Governmental Entity for the assessment
or collection of Taxes nor does the Company have knowledge of any such
threatened action, proceeding or investigation.
(c) No waivers of statutes of limitation in respect of any
Tax Returns have been given or requested by the Company or any of the
Subsidiaries nor has the Company or any Subsidiary agreed to any extension
of time with respect to a Tax assessment or deficiency. No claim has ever
been made by a Governmental Entity in a jurisdiction where the Company or
any Subsidiary does not currently file Tax Returns that it is or may be
subject to taxation by that jurisdiction nor is the Company aware that any
such assertion of jurisdiction is threatened. No security interests have
been imposed upon or asserted against any of the assets of the Company or
any of the Subsidiaries as a result of or in connection with any failure,
or alleged failure, to pay any Tax.
(d) The Company and each of the Subsidiaries has withheld and
paid all Taxes required to be withheld in connection with any amounts paid
or owing to any employee, creditor, consultant, independent contractor or
other third party.
(e) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean all federal, state, local, or foreign income, payroll,
employee withholding, unemployment insurance, social security, sales, use,
service, service use, leasing, leasing use, excise, franchise, gross
receipts, value added, alternative or add-on minimum, estimated,
occupation, real and personal property, stamp, transfer, workers'
compensation, severance, windfall profits, environmental (including taxes
under Section 59A of the Code), or other tax of the same or of a similar
nature, including any interest, penalty, or addition thereto, whether
disputed or not. The term "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to
Taxes or any amendment thereto, and including any schedule or attachment
thereto.
2.1.20. Real Property. Neither the Company nor any of the
Subsidiaries owns any real property. Except as set forth in Schedule
2.1.20, the Company and each of the Subsidiaries has good and valid
leaseholds in all real estate leased by it, in each case, under enforceable
leases. Except as disclosed in Schedule 2.1.20, none of such real
properties is subject to any easements, rights of way, licenses, grants,
building or use restrictions, exceptions, reservations, limitations or
other impediments which materially and adversely affect the value thereof
or which interfere with or impair the present and continued use in the
usual and normal conduct of the business of the Company and the
Subsidiaries.
2.1.21. Commissions or Finders Fees. Neither the Company nor
any person or entity acting on the behalf of the Company has agreed to pay
a commission, finder's fee or similar payment in connection with this
Agreement or any matter related hereto to any other person or entity.
2.1.22. Certain Business Practices and Regulations; Affiliate
Transactions. (a) None of the Company, the Subsidiaries or any directors,
officers, agents or employees of the Company or the Subsidiaries has (i)
used any corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns from corporate
funds or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
(b) Except as described on Schedule 2.1.22(b), none of the
stockholders holding 5% or more of the Common Stock or any officers or
directors of the Company or any of the Subsidiaries or any entity
controlled by any of the foregoing (i) owns, directly or indirectly, any
significant interest in, or is a director, officer, employee, consultant or
agent of, any person that is a competitor, lessor, lessee or customer of,
or supplier of goods or services to, the Business, (ii) owns, directly or
indirectly, in whole or in part, any real property, leasehold interests or
other property the use of which is necessary for the Business, (iii) has
any cause of action or other suit, action or claim whatsoever against, or
owes any amount to the Company or any of the Subsidiaries other than claims
in the ordinary course of business, (iv) has sold to, or purchased from,
the Company or any of the Subsidiaries any assets or property for aggregate
consideration in excess of $25,000 since January 1, 1997, or (v) is a party
to any contract or participates in any arrangement, written or oral,
pursuant to which the Business provides services of any nature to any such
individual or entity, except to such individual in his capacity as an
employee of the Company or any of the Subsidiaries.
2.1.23. Compliance with American Stock Exchange Rules and
Regulations. The Company has complied in all material respects with all
rules and regulations of the American Stock Exchange since the date the
Common Stock was originally approved for trading thereon. The execution
and delivery of this Agreement and the other Transaction Documents by the
Company does not, and the performance by the Company of the transactions
contemplated hereby or thereby to be performed by it will not, conflict
with, result in any violation of, or constitute a default under any such
rules and regulations. No event has occurred or, to the knowledge of the
Company, is reasonably likely to occur which could result in the Common
Stock being delisted from such exchange or the Company being subject to any
material fine or sanction imposed by such exchange.
2.1.24. Shareholder Proposals. (a) The record date to vote
on the Shareholder Proposals (as hereinafter defined) has been duly fixed
to be December 17, 1997 (the "Record Date") by all necessary action of the
Board of Directors. As of the date hereof, the shareholders of the Company
listed on Schedule 2.1.24 are the record holders of the number of shares of
Common Stock or Series A Preferred Stock, as the case may be, set forth
opposite their names on such schedule. Such shareholders are entitled to
vote all such shares in connection with the Shareholder Proposals. Such
shares represent more than 50% of the issued and outstanding Common Stock
and other securities of the Company having voting rights as of the date
hereof (and will represent more than 50% of the issued and outstanding
Common Stock and other securities of the Company having voting rights as of
the Record Date) and are sufficient in number to approve the Shareholder
Proposals even if all other shares of Common Stock and other securities
having voting rights issued and outstanding as of the date hereof vote
against the Shareholder Proposals.
(b) The Board of Directors of the Company, at a meeting duly
called and held, has by the vote of those directors present (who
constituted 100% of the directors then in office) (i) determined that the
Shareholder Proposals are fair to and in the best interests of the
shareholders of the Company and has approved the same and (ii) resolved to
recommend that the holders of the shares of Common Stock and Series A
Preferred Stock approve the Shareholder Proposals.
2.1.25. Disclosure. No representation or warranty by the
Company contained in this Agreement or any of the other Transaction
Documents, and no statement contained in any document, list, schedule,
certificate or other instrument furnished or to be furnished by or on
behalf of the Company or any affiliate thereof to the Purchasers or any of
its representatives in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact,
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order fully and
fairly to provide the information required to be provided in any such
document, list, schedule, certificate or other instrument. The Company has
not failed to disclose to the Purchasers in any of the schedules required
to be furnished hereunder or otherwise any fact which could reasonably be
determined to have a material adverse effect on the business, operations,
assets, properties, prospects or condition (financial or otherwise) of the
Company and the Subsidiaries taken as a whole, or which is otherwise
material to the Company and the Subsidiaries taken as a whole.
2.2. Representations and Warranties of the Purchasers. Each
Purchaser, severally and not jointly, as to itself, makes the following
representations and warranties to the Company, each of which is true and
correct as of the date hereof and shall be true and correct as of the
Closing Date and shall be unaffected by any investigation heretofore or
hereafter made by the Company.
2.2.1. Corporate Organization. Such Purchaser is a limited
partnership duly formed and validly existing under the laws of the State of
Texas and has the requisite partnership power and authority to own, lease
or otherwise hold its properties and assets and to carry on its business as
presently conducted.
2.2.2. Authorization and Effect of Agreement. Such Purchaser
has the requisite partnership power to execute and deliver this Agreement
and to consummate the transactions contemplated hereby to be consummated by
it. The execution and delivery by such Purchaser of this Agreement and the
consummation by it of the transactions contemplated hereby to be
consummated by it have been duly authorized by all necessary partnership
action on the part of such Purchaser. This Agreement has been duly
executed and delivered by such Purchaser and constitutes a valid and
binding obligation of such Purchaser, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
2.2.3. Purchase of Securities. Such Purchaser is acquiring
the Securities set forth opposite its name on Schedule I attached hereto on
the Closing Date without a present view to the distribution thereof. Such
Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D promulgated by the Commission under the Securities Act.
ARTICLE III. PRE-CLOSING COVENANTS
3.1. Access to Information; Communications. (a) Prior to the
Closing, upon reasonable notice from the Purchasers to the Company, the
Company will afford to the officers, attorneys, accountants or other
authorized representatives of the Purchasers reasonable access during
normal business hours to the employees, assets, facilities and books and
records of the Company and the Subsidiaries so as to afford the Purchasers
full opportunity to make such review, examination and investigation of the
Company and the Subsidiaries as the Purchasers may desire to make. The
Purchasers will be permitted to make extracts from or to make copies of
such books and records as may be reasonably necessary in connection
therewith. Prior to the Closing, the Company will promptly furnish or
cause to be furnished to the Purchasers such financial and operating data
and other information as the Purchasers may reasonably request.
(b) Prior to the Closing, the Company shall promptly provide
the Purchasers with copies of all financial statements sent or made
available by the Company or the Subsidiaries to their equity or other
security holders, all regular and periodic reports and proxy statements,
and all registration statements and prospectuses, if any, filed by the
Company or the Subsidiaries with any securities exchange or with the
Commission.
(c) Prior to the Closing, the Company shall promptly provide
the Purchasers with copies of all press releases and other statements made
available generally by the Company or any of the Subsidiaries to the public
relating to financial matters or to other material developments in the
business of the Company and the Subsidiaries.
(d) Prior to the Closing, promptly after receipt thereof, the
Company shall provide the Purchasers with copies of each management letter
submitted to the Company or the Subsidiaries by independent public
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or the Subsidiaries.
3.2. Conduct of Business. Except as set forth on Schedule 3.2, as
contemplated herein or as otherwise consented to by the Purchasers in
writing, during the period from the date of this Agreement and continuing
until the Closing Date, the Company will, and will cause its affiliates to:
(a) use their respective best efforts to (i) carry on the
Business in the usual, regular and ordinary course as presently
conducted and consistent with past practice, (ii) keep the Business
intact, (iii) keep available the services of the present employees
of the Business, and (iv) use best efforts to maintain the goodwill
associated with the Business, including but not limited to
preserving the relationships of customers, suppliers and others
having business dealings with the Business;
(b) not sell, lease or dispose of, or make any contract for
the sale, lease or disposition of, or subject to Lien, any material
assets of the Company or the Subsidiaries;
(c) not intentionally incur any liability or obligation
(absolute, accrued, contingent or otherwise) or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other person, other than in the ordinary course
of business;
(d) not split, combine or reclassify any shares of capital
stock of the Company or any Subsidiary, declare, pay or set aside
for payment any dividend or other distribution in respect of
capital stock of the Company or any Subsidiary, or directly or
indirectly redeem, purchase or otherwise acquire any shares of
capital stock or other securities of the Company or any Subsidiary;
(e) not issue, sell, pledge, dispose of, encumber or deliver
(whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any
stock of any class of the Company or any Subsidiary or any
securities convertible into or exercisable or exchangeable for
shares of stock of any class of the Company or any Subsidiary
(other than issuance of Certificates in replacement of lost
Certificates);
(f) not amend or modify the Certificate or Articles of
Incorporation or By-laws of the Company or the Subsidiaries;
(g) not amend or terminate any contract or other agreement,
other than in the ordinary course of business consistent with past
practices;
(h) not make any change in financial or tax accounting
methods, principles or practices unless required by GAAP or
applicable law;
(i) not extend credit in the sale of services, collection of
receivables or otherwise, other than in the ordinary course of
business consistent with past practices;
(j) not fail to maintain its books, accounts and records in
the usual, regular and ordinary manner on a basis consistent with
prior years;
(k) not grant to any employee any increase in compensation or
in severance or termination pay, grant any severance or termination
pay, or enter into any employment agreement with any employee,
except as may be required under employment or termination
agreements in effect on the date of this Agreement;
(l) not enter into any agreement which includes an aggregate
payment or commitment on the part of either party of more than
$50,000;
(m) not adopt or amend any Employee Plan or collective
bargaining agreements, except as required by law;
(n) maintain in full force and effect all insurance described
in Schedule 2.1.14; and
(o) not take or omit to take any action as a result of which
any representation or warranty of the Company in Article II would
be rendered untrue or incorrect if such representation or warranty
were made immediately following the taking or failure to take such
action.
3.3. Supplemental Financial Statements. Within thirty (30) days
of the end of each month, the Company shall deliver to the Purchasers
unaudited consolidated statements of income and cash flow and a
consolidated balance sheet of the Company for the month then ended
(collectively, the "Supplemental Financial Statements"). The Supplemental
Financial Statements shall be certified by the Chief Financial Officer of
the Company. Such certification shall state that: (a) the Supplemental
Financial Statements were prepared in accordance with GAAP and practices
consistent with those followed in the preparation of the financial
statements delivered pursuant to Section 2.1.6 hereof; and (b) no material
adjustments of such Supplemental Financial Statements are required for a
fair presentation of the financial condition and results of operations of
the Company and its Subsidiaries for the period covered by such statements.
3.4. Notification. (a) The Company shall notify the Purchasers,
and the Purchasers shall notify the Company, of any litigation, arbitration
or administrative proceeding pending or, to its or their knowledge,
threatened against the Company or the Purchasers, as the case may be, which
challenges the transactions contemplated hereby.
(b) The Company will provide prompt written notice to the
Purchasers of any change in any of the information contained in its
representations and warranties made in Article II hereof or any Schedules
referred to herein or attached hereto and shall promptly furnish any
information which the Purchasers may reasonably request in relation to such
change; provided, however, that such notice shall not operate to cure any
breach of the representations and warranties made in Article II hereof or
any Schedules referred to herein or attached hereto.
3.5. Cooperation. The Purchasers and the Company shall cooperate
fully with each other in taking any actions, including actions to obtain
the required consent of any Governmental Entity or any third party,
necessary or helpful to accomplish the transactions contemplated by this
Agreement; provided, however, that no party shall be required to take any
action which would have a material adverse effect upon it or any affiliate.
3.6. No Inconsistent Action. Neither the Purchasers nor the
Company shall take any action which is materially inconsistent with its
obligations under this Agreement.
3.7. Satisfaction of Conditions. Without limiting the generality
or effect of any provision of Article IV, prior to the Closing, each of the
parties will use reasonable efforts with due diligence and in good faith to
satisfy promptly all conditions required hereby to be satisfied by such
party in order to expedite the consummation of the transactions
contemplated hereby.
3.8. Confidentiality. The Purchasers and the Company shall each
keep confidential all information obtained by it with respect to the others
in connection with this Agreement and the negotiations preceding this
Agreement, and will use such information solely in connection with the
transactions contemplated by this Agreement, and if the transactions
contemplated hereby are not consummated, each shall return to the others,
without retaining a copy thereof, any schedules, documents or other written
information obtained from the others in connection with this Agreement and
the transactions contemplated hereby; provided, however, that if the
transactions contemplated hereby are consummated, the Purchasers shall be
entitled to use such information concerning the Company in any lawful
manner. Notwithstanding the foregoing, neither the Purchasers nor the
Company shall be required to keep confidential or return any information
which (a) is known or available through other lawful sources not bound by a
confidentiality agreement with the disclosing party, (b) is or becomes
publicly known through no fault of the receiving party or its agents, (c)
is required to be disclosed pursuant to an order or request of a judicial
authority or Governmental Entity (provided the disclosing party is given
reasonable prior notice), (d) is developed by the receiving party
independently of the disclosure by the disclosing party or (e) is required
to be disclosed in connection with any dispute or legal proceeding arising
under or in connection with this Agreement or any of the other Transaction
Documents.
3.9. Publicity. Prior to the Closing, none of the parties will
issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions
contemplated hereby without the prior consent of the other parties, which
consent will not be unreasonably withheld; provided, however, that nothing
herein will prohibit any party from issuing or causing publication of any
such press release or public announcement to the extent that such party
determines such action to be required by law or the rules of any national
stock exchange applicable to it or its affiliates, in which event the party
making such determination will, if practicable in the circumstances, use
reasonable efforts to allow the other parties reasonable time to comment on
such release or announcement in advance of its issuance.
3.10. Acquisition Proposals. From and after the date of this
Agreement until the Closing Date, the Company shall not, and shall not
authorize or permit any officer, director or employee of, or any investment
banker, attorney, accountant or other representative retained by, the
Company or any of the Subsidiaries to, solicit, initiate or encourage
submission of any proposal or offer (including by way of furnishing
information) from any person which constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. As used in this Agreement,
"Acquisition Proposal" shall mean any proposal for a merger or other
business combination involving the Company or any of the Subsidiaries or
any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company or any
of the Subsidiaries.
ARTICLE IV. CONDITIONS TO CLOSING
4.1. Conditions Precedent to Obligations of the Purchasers. The
obligations of the Purchasers under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to Closing, of all of the following conditions, any one or more of
which may be waived at the option of the Purchasers:
4.1.1. Representations, Warranties and Covenants.
(a) All representations and warranties of the Company made in
this Agreement or in any Exhibit, Schedule or document delivered
pursuant hereto that are qualified with respect to materiality
shall be true and complete in all respects as of the date hereof
and on and as of the Closing Date and such representations and
warranties that are not so qualified shall be true and complete on
the date hereof and, in all material respects, on and as of the
Closing Date, without regard to any schedule updates furnished by
the Company after the date hereof.
(b) All of the terms, covenants and conditions to be complied
with and performed by the Company on or prior to the Closing Date
shall have been complied with or performed.
(c) The Purchasers shall have received a certificate, dated
as of the Closing Date, executed by the Chief Executive Officer and
the Chief Financial Officer of the Company, certifying in such
detail as the Purchasers may reasonably request that the conditions
specified in Sections 4.1.1(a) and (b) hereof have been fulfilled.
4.1.2. Certificate of Controlling Stockholders. The
Purchasers shall have received a certificate of William F. Donovan, M.D.
and Jose E. Kauachi certifying that, to the best knowledge of such persons,
none of the SEC Reports contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they were
made, not misleading.
4.1.3. Closing Documents. The Company shall have delivered
to the Purchasers the documents identified in Section 5.1.
4.1.4. Governmental Consents or Approvals. Each of the
governmental and other approvals, consents or waivers listed or required to
be listed on Schedule 2.1.4 shall have been obtained.
4.1.5. No Adverse Proceedings. No suit, action, claim or
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of
the Closing Date, to effect the transactions contemplated by this Agreement
in accordance with its terms.
4.1.6. Opinions. The Purchasers shall have received a
written opinion of Willkie Farr & Gallagher, special counsel to the Company
in connection with the transactions contemplated hereby, and a written
opinion of Hutcheson & Grundy, L.L.P., special Texas counsel to the
Company, in substantially the forms attached hereto as Exhibits C and D,
respectively.
4.1.7. Registration Rights Agreements. A Registration Rights
Agreement, substantially in the form of Exhibit E attached hereto (the
"Registration Rights Agreement"), shall have been duly executed and
delivered, shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived.
4.1.8. Warrant Agreements and Warrants. The Warrant
Agreements and Warrants shall have been duly executed and delivered by the
Company in accordance with Section 1.2.
4.1.9. Stock Certificates. Stock certificates representing
the shares of Series B Preferred Stock shall have been duly executed and
delivered in accordance with Section 1.2.
4.1.10. Certificate of Designation. The Certificate of
Designation shall have been duly filed with, and accepted by, the Secretary
of State of the State of Texas.
4.1.11. Acquisition Committee Designees. Two designees of
the Purchasers shall have been appointed to the Acquisition Committee of
the Board of Directors of the Company (the "Acquisition Committee"),
effective as of the Closing Date.
4.1.12. Chartwell Matters. The First Amendment to
Investment Agreement and the Termination Agreement, substantially in the
forms attached hereto as Exhibit F and G, respectively, shall have been
duly executed and delivered, shall be in full force and effect and no term
or condition thereof shall have been amended, modified or waived; and the
Amendment and Restatement of Certificate of Designation and Determination
of Rights and Preferences of Cumulative Convertible Preferred Stock, Series
A, of the Company in the form attached hereto as Exhibit H shall have been
duly filed with, and accepted by, the Secretary of State of the State of
Texas.
4.1.13. Private Placement Numbers. The Series B Preferred
Stock and the Warrants shall have been assigned private placement numbers
by Standard & Poor's Corporation.
4.1.14. Reserved Shares. The Company shall have reserved an
adequate number of shares of Common Stock for issuance upon conversion of
the Series B Preferred Stock and the exercise of the Warrants.
4.1.15. Payment of Fees. The Company shall have paid the
fees and disbursements of special counsel to the Purchasers as contemplated
in Section 9.3.
4.1.16. Amendment to By-laws. The By-laws of the Company
shall have been amended and restated in the form attached hereto as Exhibit
I.
4.1.17. Additional Listing Application. The Company shall
have filed an Additional Listing Application, including all applicable
fees, with the American Stock Exchange with respect to all of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock and
exercise of the Warrants.
4.1.18. Termination of Agreements. The Company shall have
terminated each of the agreements set forth on Schedule 4.1.18 on terms
reasonably acceptable to the Purchasers.
4.1.19. Directors. The number of directors constituting the
Board of Directors of the Company shall have been increased to eight and
the director listed on Schedule 4.1.19 shall have resigned from the Board
of Directors of the Company effective as of the Closing Date.
4.2. Conditions Precedent to Obligations of the Company. The
obligations of the Company under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to the Closing, of all of the following conditions, any one or more
of which may be waived at the option of the Company:
4.2.1. No Material Misrepresentation or Breach.
(a) All representations and warranties of the Purchasers made
in this Agreement or in any Exhibit, Schedule or document delivered
pursuant hereto, shall be true and complete in all material
respects as of the date hereof and on and as of the Closing Date.
(b) All of the terms, covenants and conditions to be complied
with and performed by the Purchasers on or prior to the Closing
Date shall have been complied with or performed.
4.2.2. Closing Documents. The Purchasers shall have
delivered to the Company the documents identified in Section 5.2.
4.2.3. Governmental Consents or Approvals. Each of the
governmental and other approvals, consents or waivers listed on Schedule
2.1.4 shall have been obtained.
4.2.4. No Adverse Proceedings. No suit, action, claim or
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or other Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of
the Closing Date, to effect the transactions contemplated by this Agreement
in accordance with its terms.
ARTICLE V. DOCUMENTS TO BE DELIVERED AT THE CLOSING
5.1. Documents to be Delivered by the Company. At the Closing,
the Company will deliver to the Purchasers the following:
5.1.1. Certified Resolutions. Certified resolutions of the
Board of Directors of the Company (a) approving the execution and delivery
of this Agreement and each of the other documents delivered by the Company
pursuant hereto and authorizing the consummation of the transactions
contemplated hereby and thereby and (b) authorizing the establishment of
the Acquisition Committee.
5.1.2. Officer's Certificate. A certificate, dated the
Closing Date, executed on behalf of the Company in the form described in
Section 4.1.1.
5.1.3. Good Standing Certificates. Governmental certificates
showing that the Company and the Subsidiaries are duly incorporated and in
good standing in the state of its incorporation and in good standing in
each state listed on Schedule 2.1.1 certified as of a date not more than
five (5) days before the Closing Date.
5.1.4. Other Documents. Such additional information and
materials as the Purchasers shall reasonably request.
5.2. Documents to be Delivered by the Purchasers. At the Closing,
the Purchasers will deliver to the Company:
5.2.1. Purchase Price. Evidence of wire transfers in the
aggregate amount of $25,000,000.
5.2.2. Other Documents. Such additional information and
materials as the Company shall reasonably request.
ARTICLE VI. POST-CLOSING COVENANTS
6.1. Acquisition Committee Designees. At all times in which
shares of Series B Preferred Stock shall be issued and outstanding, the
holders of a majority of such issued and outstanding shares shall be
entitled to designate two members to the Acquisition Committee and the
total number of persons constituting such Committee shall be three
(including the two designees of the holders of the Series B Preferred
Stock). Such rights to designate Acquisition Committee members shall
survive the conversion of the Series B Preferred Stock and shall inure to
the benefit of the Purchasers until such time that the Purchasers and their
affiliates own less than 50% of the Common Stock initially issuable upon
conversion of the Series B Preferred Stock. For so long as shares of
Series B Preferred Stock are issued and outstanding or the Purchasers or
their affiliates own more than 50% of the shares of Common Stock initially
issuable upon conversion of the Series B Preferred Stock, the Company shall
not dissolve the Acquisition Committee or increase the size of the
Acquisition Committee to more than three.
6.2. Board Designees. In accordance with the Certificate of
Designation, the holders of the Series B Preferred Stock shall be entitled
to one vote for each share of Series B Preferred Stock held by such holders
on a record date set to hold a meeting at which the holders of Series B
Preferred Stock shall be entitled to elect, as a class, three directors to
the Board of Directors of the Company (or a majority of the directors in
the event of a breach by the Company of any of the financial covenants set
forth in the Certificate of Designation). Such rights to designate board
members shall survive the conversion of the Series B Preferred Stock and
shall inure to the benefit of the Purchasers until such time that the
Purchasers and their affiliates own less than 50% of the Common Stock
initially issuable upon conversion of the Series B Preferred Stock. For so
long as shares of Series B Preferred Stock are issued and outstanding or
the Purchasers or their affiliates own more than 50% of the shares of
Common Stock initially issuable upon conversion of the Series B Preferred
Stock, the Company shall not increase the size of the Board of Directors to
more than eight.
6.3. Post-Closing Notifications. The Purchasers and the Company
will, and each will cause their respective affiliates to, comply with any
post-Closing notification or other requirements, to the extent then
applicable to such party, of any antitrust, trade competition, investment
or control, export or other law of any Governmental Entity having
jurisdiction over the Purchasers or the Company.
6.4. Certain Tax Matters. All sales, use, transfer, stamp,
conveyance, value added or other similar taxes, duties, excises or
governmental charges imposed by any taxing jurisdiction, domestic or
foreign, and all recording or filing fees, notarial fees and other similar
costs of Closing with respect to the issuance of the Securities or
otherwise on account of this Agreement or the transactions contemplated
hereby will be borne by the Company. The Company will indemnify the
Purchasers against any liability, direct or indirect, for any Taxes imposed
on the Purchasers with respect to the issuance of the Securities.
6.5. Financial Statements and Information. The Company will
promptly furnish to the Purchasers and any other subsequent holders of the
Securities, for so long as the Purchasers or such other subsequent holders
shall hold any of the Securities, in duplicate:
(a) copies of all financial statements sent or made available
by the Company or its subsidiaries to its equity or other security holders,
all regular and periodic reports and proxy statements, and all registration
statements and prospectuses, if any, filed by the Company or its
subsidiaries with any securities exchange or with the Commission;
(b) copies of all press releases and other statements made
available generally by the Company or its subsidiaries to the public
relating to financial matters or to other material developments in the
business of the Company and its subsidiaries; and
(c) copies of each management letter submitted to the Company
or its subsidiaries by independent public accountants in connection with
any annual, interim or special audit made by them of the books of the
Company or its subsidiaries.
6.6. Right of First Refusal. (a) If, at any time after the date
hereof until the fifth anniversary hereof, the Company proposes to issue
(an "Offer") shares of Common Stock or other equity securities of the
Company, other than (i) pursuant to a proposed underwritten public offering
of Common Stock by the Company or (ii) on terms no less favorable to the
Company than could be obtained from a non-affiliated third party, the
Company shall, not less than 45 days prior to the anticipated closing of
such sale or transfer, give written notice (the "Sale Notice") to the
holders of the Series B Preferred Stock and the holders of the Series A
Preferred Stock (together, the "Option Holders") of such proposed sale or
transfer. The Sale Notice shall (i) specify the proposed purchaser
thereof, the number of shares to be issued, the amount and type of
consideration to be received therefor, and the other material terms on
which the Company proposes to issue the Common Stock or other equity
securities, (ii) contain an offer by the Company to sell to the Option
Holders all of such shares of Common Stock or other equity securities on
the same terms as the Offer (the "First Refusal Offer"), and (iii) indicate
the appraised value of any non-cash consideration proposed to be paid in
the Offer; provided, that, if any non-cash consideration is to be received
by the Company pursuant to the Offer, the Option Holders shall have the
right to pay in cash the appraised value of such non-cash consideration.
Any appraisal or valuation required pursuant to this Section shall be
prepared by a nationally-recognized independent appraiser mutually
acceptable to the Company and the Option Holders and shall be submitted in
writing and addressed to the Company and the Option Holders.
(b) The Option Holders must notify the Company in writing
within 15 days following receipt of the Sale Notice if they desire to
accept the First Refusal Offer. The Option Holders who desire to accept
the First Refusal Offer may purchase all or a portion of the shares of
Common Stock or other equity securities of the Company in such proportions
as they may mutually agree or, in the absence of such an agreement, in
proportion to the number of shares of fully diluted Common Stock owned by
each such Option Holder who wishes to participate in the purchase of such
shares pursuant to the First Refusal Offer.
(c) Unless all the shares of Common Stock or other equity
securities of the Company proposed to be issued in the Sale Notice are to
be acquired by the Option Holders, the Company may transfer all such shares
covered by the Sale Notice or the portion not acquired by the Option
Holders, as the case may be, to the proposed third party transferee in
accordance with the terms of the Offer set forth in the Sale Notice;
provided that such sale and issuance must occur no later than 120 days
after the date of the Sale Notice. If the First Refusal Offers are
accepted in a manner such that all or a portion of shares of Common Stock
or other equity securities of the Company covered by the Sale Notice are to
be purchased by the Option Holders, the Company shall issue all or such
portion of such shares of Common Stock or other equity securities, as the
case may be, free of all Liens, to the respective purchasers thereof
against delivery by the accepting Option Holders of immediately available
funds payable to the Company within 20 days after the date such offer is
accepted; provided, that if the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, is applicable to the exercise of any First Refusal
Offer, such date shall be extended to the date which is three days after
the date the applicable waiting period expires or is terminated.
6.7. Reservation of Shares of Common Stock. At all times in which
shares of Series B Preferred Stock or Warrants remain outstanding, the
Company shall cause an adequate number of shares of Common Stock to be
reserved for issuance upon conversion of the outstanding shares of Series B
Preferred Stock and exercise of the outstanding Warrants.
6.8. Preparation of Proxy Statement; Shareholders Meeting.
(a) As soon as practicable following the Closing Date, but in
no event more than 20 days after the Closing Date, the Company shall
prepare and file with the Commission a proxy statement (or information
statement if permitted by law and the rules and regulations of the American
Stock Exchange) with respect to the solicitation of votes for the
Shareholder Proposals (the "Proxy Statement"). The Company shall promptly
respond to all Commission comments with respect to the Proxy Statement and
cause the Proxy Statement to be mailed to the Company's shareholders at the
earliest practicable date. The Proxy Statement shall contain, among other
things, a recommendation by the Board of Directors of the Company in favor
of the Shareholder Proposals.
(b) The Company shall, as soon as practicable after the
Closing Date, duly call, give notice of, convene and hold a special meeting
of the shareholders of the Company for the purpose of approving the
Shareholder Proposals. At such meeting of shareholders, the Company shall
use its best efforts to obtain the favorable vote of its shareholders.
(c) The Company shall not, and shall immediately instruct its
Transfer Agent in writing not to, authorize any issuance of Common Stock or
other securities of the Company having voting rights until the day
immediately following the Record Date.
ARTICLE VII. SURVIVAL AND INDEMNIFICATION
7.1. Survival of Representations, Warranties and Covenants. (a)
The representations and warranties of the Company and of the Purchasers
contained in this Agreement shall survive the Closing for a period of three
years thereafter, except for the representations and warranties contained
in Sections 2.1.5, 2.1.13, 2.1.16, 2.1.19 and 2.1.24 (the "Excluded
Representations and Warranties"), which shall survive indefinitely, and
shall in no way be affected (i) by any investigation of the subject matter
thereof made by or on behalf of the Company or the Purchasers, as the case
may be, or (ii) by any notice delivered pursuant to Section 3.4. Any claim
for an Indemnifiable Loss (as hereafter defined) asserted within such
period of survival as herein provided will be timely made for purposes
hereof.
(b) Unless a specified period is set forth in this Agreement
(in which event such specified period will control), the covenants in this
Agreement shall survive the Closing and remain in effect indefinitely.
7.2. Certain Definitions. For purposes of this Agreement,
(i) "Indemnity Payment" means any amount of Indemnifiable Losses required
to be paid pursuant to this Agreement, (ii) "Indemnitee" means any person
or entity entitled to indemnification under this Agreement,
(iii) "Indemnifying Party" means any person or entity required to provide
indemnification under this Agreement, (iv) "Indemnifiable Losses" means any
and all damages, losses, liabilities, obligations, costs and expenses, and
any and all claims, demands or suits (by any person or entity, including
without limitation any Governmental Entity), including without limitation
the costs and expenses of any and all actions, suits, proceedings, demands,
assessments, judgments, settlements and compromises relating thereto and
including reasonable attorneys' fees and expenses in connection therewith,
and (v) "Third Party Claim" means any claim, action or proceeding made or
brought by any person or entity who or which is not a party to this
Agreement or an affiliate of a party to this Agreement.
7.3. Indemnification. (a) The Company agrees to indemnify, defend
and hold harmless the Purchasers and their affiliates and their respective
directors, officers, partners, employees, agents and representatives from
and against any and all Indemnifiable Losses, subject to the limitations
and equitable adjustments set forth Section 7.5 hereof, to the extent
relating to, resulting from or arising out of:
(i) any breach of representation or warranty of the Company
under the terms of this Agreement and any certificate or other
document delivered pursuant hereto; and
(ii) the Company's business relationship with Physicare,
L.L.P., Northshore Orthopedics Assoc., Occupational Medicine
Associates of Houston, P.A. and William F. Donovan, M.D. and the
termination of such relationships; and
(iii) any breach or nonfulfillment of any agreement or covenant
of the Company under the terms of this Agreement.
(b) The Purchasers, severally and not jointly, agree to
indemnify, defend and hold harmless the Company and its affiliates and
their respective directors, officers, partners, employees, agents, and
representatives from and against any and all Indemnifiable Losses, subject
to the limitations set forth Section 7.5 hereof, to the extent relating to,
resulting from and arising out of:
(i) any breach of representation or warranty by such
Purchaser under the terms of this Agreement and any certificate or
other document delivered pursuant hereto; and
(ii) any breach or nonfulfillment of any agreement or covenant
of such Purchaser under the terms of this Agreement.
7.4. Defense of Claims. (a) If any Indemnitee receives notice of
assertion or commencement of any Third Party Claim against such Indemnitee
with respect to which an Indemnifying Party is obligated to provide
indemnification under this Agreement, the Indemnitee will give such
Indemnifying Party reasonably prompt written notice thereof, but in any
event not later than 30 calendar days after receipt of such notice of such
Third Party Claim. Such notice will describe the Third Party Claim in
reasonable detail, will include copies of all material written evidence
thereof and will indicate the estimated amount, if reasonably practicable,
of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in,
or, by giving written notice to the Indemnitee, to assume, the defense of
any Third Party Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel (reasonably satisfactory to the
Indemnitee), and the Indemnitee will cooperate in good faith in such
defense.
(b) If, within ten calendar days after giving notice of a
Third Party Claim to an Indemnifying Party pursuant to Section 7.4(a), an
Indemnitee receives written notice from the Indemnifying Party that the
Indemnifying Party has elected to assume the defense of such Third Party
Claim as provided in the last sentence of Section 7.4(a), the Indemnifying
Party will not be liable for any legal expenses subsequently incurred by
the Indemnitee in connection with the defense thereof; provided, however,
that if the Indemnifying Party fails to take reasonable steps necessary to
defend diligently such Third Party Claim within ten calendar days after
receiving written notice from the Indemnitee that the Indemnitee believes
the Indemnifying Party has failed to take such steps or if the Indemnifying
Party has not undertaken fully to indemnify the Indemnitee in respect of
all Indemnifiable Losses relating to the matter, the Indemnitee may assume
its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith.
Without the prior written consent of the Indemnitee, the Indemnifying Party
will not enter into any settlement of any Third Party Claim which would
lead to liability or create any financial or other obligation on the part
of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party will give written
notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten calendar days after its receipt of
such notice, the Indemnitee may continue to contest or defend such Third
Party Claim and, in such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will not exceed the amount of such
settlement offer, plus costs and expenses paid or incurred by the
Indemnitee through the end of such ten calendar day period.
(c) A failure to give timely notice or to include any
specified information in any notice as provided in Sections 7.4(a) or
7.4(b) will not affect the rights or obligations of any party hereunder
except and only to the extent that, as a result of such failure, any party
which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was
otherwise damaged as a result of such failure.
(d) The Indemnifying Party will have a period of 30 calendar
days within which to respond in writing to any claim by an Indemnitee on
account of an Indemnifiable Loss which does not result from a Third Party
Claim (a "Direct Claim"). If the Indemnifying Party does not so respond
within such 30 calendar day period, the Indemnifying Party will be deemed
to have rejected such claim, in which event the Indemnitee will be free to
pursue such remedies as may be available to the Indemnitee on the terms and
subject to the provisions of this Article VII.
7.5. Limitation of Liability; Equitable Adjustment. (a)
Notwithstanding any other provision hereof, no Indemnitee will be entitled
to make a claim against an Indemnifying Party in respect of any breach of a
representation or warranty under Section 7.3(a)(i) or 7.3(b)(i) unless and
until the aggregate amount of claims in respect of breaches of
representations and warranties asserted for Indemnifiable Losses under
Section 7.3(a)(i) or 7.3(b)(i), as applicable, exceeds $250,000, in which
event the Indemnitee will be entitled to make a claim against the
Indemnifying Party for only those Indemnifiable Losses in excess of
$250,000; provided, however, that in the event a single breach or series of
related breaches results in Indemnifiable Losses in excess of $250,000 then
the Indemnitee will be entitled to make a claim against the Indemnifying
Party to the extent of the full amount of the Indemnifiable Losses.
(b) Notwithstanding any other provision hereof, the aggregate
amount of any Indemnifiable Losses recoverable under this Agreement in
respect of any breach of a representation or warranty under Section
7.3(a)(i) or 7.3(b)(i), excluding the Excluded Representations and
Warranties, shall be limited to an amount equal to the sum of (i)
$25,000,000, (ii) an amount equal to an internal rate of return of 20% on
$25,000,000 for the period beginning on the date hereof and ending on the
date of the payment of the Indemnifiable Losses triggering the provisions
of this Section 7.5(b) and (iii) any reasonable legal fees and expenses
incurred by such Indemnitee.
(c) Notwithstanding any other provision hereof, any
Indemnifiable Losses incurred by the Purchasers or their affiliates shall
be equitably adjusted so that the payment of any damages or the taking of
any other actions by the Company to satisfy such Indemnifiable Losses shall
not adversely affect the Purchasers or their affiliates, through their
ownership of the Securities or the Common Stock issuable upon conversion or
exercise thereof or otherwise.
ARTICLE VIII. TERMINATION
8.1. Termination. Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated at any time
prior to the Closing, (a) by the mutual written consent of the Purchasers
and the Company, or (b) if the party seeking to terminate is not then in
material default or breach of this Agreement:
(i) by either the Purchasers or the Company if the Closing
shall not have occurred on or before December 31, 1997;
(ii) by either the Purchasers or the Company if there shall
have been entered a final, nonappealable order or injunction of any
Governmental Entity restraining or prohibiting the consummation of
the transactions contemplated hereby or any material part thereof;
or
(iii) by either the Purchasers or the Company if the other
party is in material breach of any representation, warranty,
covenant or agreement herein contained and such breach shall not be
cured within twenty (20) days of the date of notice of default
served by the party claiming such material default.
In no event shall termination of this Agreement relieve any party of any
liability for breaches of this Agreement prior to the date of termination.
ARTICLE IX. MISCELLANEOUS PROVISIONS
9.1. Specific Performance. The parties recognize that if the
Company refuses to perform under the provisions of this Agreement, monetary
damages alone will not be adequate to compensate the Purchasers for their
injury. The Purchasers shall therefore be entitled, in addition to any
other remedies that may be available, to obtain specific performance of the
terms of this Agreement. If any action is brought by the Purchasers to
enforce this Agreement, the Company shall waive the defense that there is
an adequate remedy at law. In the event of a default by the Company which
results in the filing of a lawsuit for damages, specific performances, or
other remedies, the Purchasers shall be entitled to reimbursement by the
Company of reasonable legal fees and expenses incurred by the Purchasers.
9.2. Notices. All notices and other communications required or
permitted hereunder will be in writing and (i) delivered personally, (ii)
sent by telefacsimile, (iii) delivered by a nationally recognized overnight
courier service, or (iv) sent by registered or certified mail, postage
prepaid, as follows:
(a) If to the Company, to:
Integrated Orthopaedics, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Facsimile No.: (713) 339-2858
Attention: Chief Executive Officer
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile No.: (212) 821-8111
Attention: Bruce R. Kraus
(b) If to the Purchasers, to:
FW Integrated Orthopaedics Investors, L.P.
FW Integrated Orthopaedics Investors II, L.P.
201 Main Street
Fort Worth, Texas 76102
Facsimile No.: (817) 338-2064
Attention: Ray Pinson
Robert Cotham
with a copy to each of:
Oak Hill Partners
65 E. 55th Street
32nd Floor
New York, NY 10022
Facsimile No.: (212) 754-5685
Attention: John R. Monsky
Arbor Investors
2460 Sand Hill Road
Suite 300
Menlo Park, California 94025
Facsimile No.: (650) 234-0525
Attention: Scott J. Hancock
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Facsimile No.: (214) 746-7777
Attention: David A. Spuria
Craig W. Adas
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 9.2 will (x) if
delivered personally or by overnight courier service, be deemed given upon
delivery; (y) if delivered by telefacsimile or similar facsimile
transmission, be deemed given when electronically confirmed; and (z) if
sent by registered or certified mail, be deemed given when received. Any
party from time to time may change its address for the purpose of notices
to that party by giving a similar notice specifying a new address, but no
such notice will be deemed to have been given until it is actually received
by the party sought to be charged with the contents thereof.
9.3. Expenses. At the Closing, the Company agrees to pay all
reasonable expenses incident to the transactions contemplated hereby
(including all document production costs and other expenses, the fees and
disbursements of Weil, Gotshal & Manges LLP, McDermott, Will & Emery and
Purchasers' accounting advisors for their services with relation to such
transactions, the expenses of obtaining private placement numbers for the
Securities and all out-of-pocket expenses in connection with the shipping
to and from the Purchasers' office or the office of Purchasers' nominees of
the Securities and upon any exchange or substitution pursuant to the
provisions of this Agreement or the other Transaction Documents), and to
reimburse the Purchasers for any reasonable out-of-pocket expenses in
connection therewith. The Company also agrees to pay all reasonable
expenses incurred by the Purchasers (including reasonable counsel and
financial adviser fees) in connection with the enforcement of this
Agreement or the other Transaction Documents, responding to any subpoena or
other legal process or information investigative demand issued in
connection with this Agreement or the transactions contemplated hereby or
by reason of any holder's having acquired any of the Securities, including
without limitation costs and expenses incurred in any bankruptcy case, and
in connection with any amendment or requested amendment of, or waiver or
consent or requested waiver or consent under or with respect to, this
Agreement or any of the other Transaction Documents, whether or not the
same shall become effective (it being understood and agreed that only one
such special counsel for all holders of the Securities and one local
counsel for such holders in each applicable jurisdiction shall be entitled
to reimbursement hereunder). The obligations of the Company under this
Section shall survive the payment of or other performance under any of the
Transaction Documents.
In furtherance of the foregoing, on the Closing Date the
Company will pay or cause to be paid the fees and disbursements of special
counsel to the Purchasers, which shall be reflected in the statement of
such special counsel to be submitted to the Company on or prior to the
Closing Date. The Company will also pay, promptly upon receipt of
supplemental statements therefor, additional fees, if any, and
disbursements of such special counsel in connection with the transactions
hereby contemplated (including disbursements unposted as of the Closing
Date).
9.4. Successors and Assigns. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but will not be assignable or delegable
by the Company. Nothing in this Agreement is intended to limit the ability
of the Purchasers to sell or to transfer any or all of the Securities (and
the rights relating thereto) following the Closing Date.
9.5. Waiver. The Purchasers and the Company by written notice to
the others may (a) extend the time for performance of any of the
obligations of the others under this Agreement, (b) waive any inaccuracies
in the representations or warranties of the others contained in this
Agreement or in any document delivered in connection herewith, (c) waive
compliance with any of the conditions or covenants of the others contained
in this Agreement, or (d) waive or modify performance of any of the
obligations of the others under this Agreement; provided, however, that no
such party may, without the prior written consent of the other parties,
make or grant such extension of time, waiver of inaccuracies or compliance
or waiver or modification of performance with respect to its (or any of its
affiliates) representations, warranties, conditions or covenants hereunder.
Except as provided in the immediately preceding sentence, no action taken
pursuant to this Agreement will be deemed to constitute a waiver of
compliance with any representations, warranties, conditions or covenants
contained in this Agreement and will not operate or be construed as a
waiver of any subsequent breach, whether of a similar or dissimilar nature.
9.6. Entire Agreement. This Agreement (including the Schedules
and Exhibits hereto) supersedes any other agreement, whether written or
oral, that may have been made or entered into by any party or any of their
respective affiliates (or by any director, officer or representative
thereof) relating to the matters contemplated hereby. This Agreement
(together with the Exhibits and Schedules hereto) constitutes the entire
agreement by and among the parties hereto and there are no agreements or
commitments by or among such parties or their affiliates except as
expressly set forth herein.
9.7. Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements signed by the
parties hereto.
9.8. Rights of the Parties. Except as provided in Articles I and
VII or in Sections 9.3 and 9.4, nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any
person or entity other than the parties hereto and their respective
affiliates any rights or remedies under or by reason of this Agreement or
any transaction contemplated hereby.
9.9. Brokers. The Purchasers hereby agree to indemnify and hold
harmless the Company, and the Company hereby agrees to indemnify and hold
harmless the Purchasers, against any liability, claim, loss, damage or
expense incurred by the Purchasers or by the Company, as the case may be,
relating to any fees or commissions owed to any broker, finder, or
financial advisor as a result of actions taken by the other in connection
with this Agreement or the transactions contemplated hereby. Any
indemnification payment by the Company required by this Section shall be
equitably adjusted so that the payment of such amount shall not adversely
affect the Purchasers, through their ownership of the Securities or the
Common Stock issuable upon conversion or exercise thereof or otherwise.
9.10. Further Assurances. From time to time, as and when
requested by any party, the other parties will execute and deliver, or
cause to be executed and delivered, all such documents and instruments as
may be reasonably necessary to consummate the transactions contemplated by
this Agreement.
9.11. Irrevocable Proxy. Each of Chartwell Capital Investors,
L.P., Jose E. Kauachi, Ronald E. Pierce, Jefferson R. Casey, Clifford
Hinkle, William F. Donovan, M.D. and Sharon Ann Donovan (the "Grantors")
agrees to vote all of its, his or her capital stock of the Company and to
take all other necessary actions within such Grantor's control (including,
without limitation, (i) attending all meetings in person or by proxy for
purposes of obtaining a quorum and for purposes of voting and (ii)
executing all written consents in lieu of any meeting) to approve the
adjustment to the Conversion Price (as defined in the Certificate of
Designation) of the Series B Preferred Stock set forth in Section 10.3 of
the Certificate of Designation and the adjustment to the Exercise Price (as
defined in the Warrants) of the Warrants set forth in the first paragraph
of the Warrants and to approve any other matter which may be necessary to
provide the Purchasers with the benefits to which they are entitled under
this Agreement or the other Transaction Documents (the "Shareholder
Proposals"). In order to secure the Grantor's obligation to vote as
shareholders for the approval of the Shareholder Proposals, each Grantor
hereby appoints Scott J. Hancock and Mark A. Wolfson as his, her or its
true and lawful proxy and attorney-in-fact, with full power of
substitution, to vote all of the Grantor's capital stock of the Company for
the purpose of approving the Shareholder Proposals and to take all such
other actions as are necessary to enforce the rights of the Purchasers
under this Section 9.11. The irrevocable proxy granted hereunder may be
exercised at any time any Grantor fails to comply with the provisions of
this Section 9.11. The proxies and powers granted by each Grantor pursuant
to this Section 9.11 are coupled with an interest and are given to secure
the performance of the Grantors' obligations to the Purchasers under this
Section 9.11. Such proxies and powers shall be effective until the date
which is 365 days after the date hereof; provided, however, that such
proxies and powers shall terminate earlier if both (A) the Shareholder
Proposals are approved by a majority of the shareholders of the Company
entitled to vote thereon and (B) the Additional Listing Application with
the American Stock Exchange with respect to all of the shares of Common
Stock issuable upon conversion of the Series B Preferred Stock and exercise
of the Warrants has been approved by the American Stock Exchange. At any
time in which the irrevocable proxy granted pursuant to this Section 9.11
shall be in effect, (x) the Grantors shall not sell, pledge, dispose of or
otherwise encumber any shares of capital stock of the Company owned,
beneficially or of record, by such Grantors (except that the Grantors may
transfer or sell shares of capital stock of the Company if the transferee
unconditionally agrees with the Company in writing to be bound by the terms
of this Section 9.11 prior to effecting such transfer or sale) and (y) such
proxy shall survive the death, incompetency and disability of each Grantor.
9.12. Governing Law. This Agreement, including without
limitation, the interpretation, construction and validity hereof, shall be
governed by the laws of the State of Texas, without regard to conflict of
law principles thereof.
9.13. Severability. The parties agree that if one or more
provisions contained in this Agreement shall be deemed or held to be
invalid, illegal or unenforceable in any respect under any applicable law,
this Agreement shall be construed with the invalid, illegal or
unenforceable provision deleted, and the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected or impaired thereby.
9.14. Execution in Counterparts. This Agreement may be executed
in two or more counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same agreement.
9.15. Titles and Headings. Titles and headings to sections herein
are inserted for convenience of reference only, and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
9.16. Certain Interpretive Matters and Definitions. (a) Unless
the context otherwise requires, (i) "Transaction Documents" mean,
collectively, this Agreement, the Warrant Agreements, the Warrants, the
Certificate of Designation and the Registration Rights Agreement, (ii) all
references to Sections, Articles or Schedules are to Sections, Articles or
Schedules of or to this Agreement, (iii) each term defined in this
Agreement has the meaning assigned to it, (iv) each accounting term not
otherwise defined in this Agreement has the meaning assigned to it in
accordance with GAAP, (v) "or" is disjunctive but not necessarily
exclusive, (vi) words in the singular include the plural and vice versa,
and (vii) the terms "affiliate" and "subsidiary" have the meanings given to
them in Rule 12b-2 of Regulation 12B under the Exchange Act. All
references to "$" or dollar amounts will be to lawful currency of the
United States of America.
(b) No provision of this Agreement will be interpreted in
favor of, or against, either of the parties hereto by reason of the extent
to which either such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
FW INTEGRATED ORTHOPAEDICS INVESTORS, L.P.
By: GROUP 31, INC.,
its General Partner
By:
Name:
Title:
FW INTEGRATED ORTHOPAEDICS INVESTORS II,
L.P.
By: FW GROUP GENPAR, INC.,
its General Partner
By:
Name:
Title:
<PAGE>
ACCEPTED AND AGREED FOR PURPOSES
OF SECTIONS 6.6 and 9.11 HEREOF
CHARTWELL CAPITAL INVESTORS, L.P.
By: CHARTWELL CAPITAL PARTNERS, L.P.,
its General Partner
By: CHARTWELL PARTNERS, L.P.,
its General Partner
By: CHARTWELL, INC.,
its General Partner
By:
Name:
Title:
ACCEPTED AND AGREED FOR PURPOSES
OF SECTION 9.11 HEREOF
Jose E. Kauachi
Ronald E. Pierce
Jefferson R. Casey
Clifford Hinkle
William F. Donovan, M.D.
Sharon Ann Donovan <PAGE>
Table of Contents
Page
ARTICLE I. ISSUANCE OF SECURITIES. . . . . . . . . . . . . . . . . .1
1.1. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2. Purchase and Sale of the Securities; the Closing . . . . . . . .1
ARTICLE II. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . .2
2.1. Representations and Warranties of the Company. . . . . . . . . .2
2.1.1. Organization and Good Standing. . . . . . . . . . . . . .2
2.1.2. Authorization of Agreement; Binding Obligation. . . . . .2
2.1.3. Subsidiaries and Equity Investments . . . . . . . . . . .3
2.1.4. No Restrictions Against Issuance of Securities; Required
Consents. . . . . . . . . . . . . . . . . . . . . . . . .3
2.1.5. Capitalization. . . . . . . . . . . . . . . . . . . . . .4
2.1.6. Financial Statements. . . . . . . . . . . . . . . . . . .5
2.1.7. Accounts Receivable . . . . . . . . . . . . . . . . . . .5
2.1.8. Business, Properties and Other Information. . . . . . . .5
2.1.9. Absence of Undisclosed Liabilities. . . . . . . . . . . .7
2.1.10. Books of Account . . . . . . . . . . . . . . . . . . .7
2.1.11. Contracts and Commitments. . . . . . . . . . . . . . .7
2.1.12. Liens and Encumbrances; Condition of Assets. . . . . .9
2.1.13. Regulatory Compliance. . . . . . . . . . . . . . . . .9
2.1.14. Insurance. . . . . . . . . . . . . . . . . . . . . . 10
2.1.15. Conduct of the Business Since the Interim Balance Sheet
Date . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1.16. Employee Benefit Plans . . . . . . . . . . . . . . . 12
2.1.17. Litigation; Decrees. . . . . . . . . . . . . . . . . 13
2.1.18. Compliance With Law; Permits . . . . . . . . . . . . 13
2.1.19. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.20. Real Property. . . . . . . . . . . . . . . . . . . . 14
2.1.21. Commissions or Finders Fees. . . . . . . . . . . . . 15
2.1.22. Certain Business Practices and Regulations; Affiliate
Transactions . . . . . . . . . . . . . . . . . . . . 15
2.1.23. Compliance with American Stock Exchange Rules and
Regulations. . . . . . . . . . . . . . . . . . . . . 15
2.1.24. Shareholder Proposals. . . . . . . . . . . . . . . . 16
2.1.25. Disclosure . . . . . . . . . . . . . . . . . . . . . 16
2.2. Representations and Warranties of the Purchasers . . . . . . . 17
2.2.1. Corporate Organization. . . . . . . . . . . . . . . . . 17
2.2.2. Authorization and Effect of Agreement . . . . . . . . . 17
2.2.3. Purchase of Securities. . . . . . . . . . . . . . . . . 17
ARTICLE III. PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . 17
3.1. Access to Information; Communications. . . . . . . . . . . . . 17
3.2. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . 18
3.3. Supplemental Financial Statements. . . . . . . . . . . . . . . 20
3.4. Notification . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.5. Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6. No Inconsistent Action . . . . . . . . . . . . . . . . . . . . 21
3.7. Satisfaction of Conditions . . . . . . . . . . . . . . . . . . 21
3.8. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 21
3.9. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.10. Acquisition Proposals . . . . . . . . . . . . . . . . . 22
ARTICLE IV. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . 22
4.1. Conditions Precedent to Obligations of the Purchasers. . . . . 22
4.1.1. Representations, Warranties and Covenants . . . . . . . 22
4.1.2. Certificate of Controlling Stockholders . . . . . . . . 22
4.1.3. Closing Documents . . . . . . . . . . . . . . . . . . . 23
4.1.4. Governmental Consents or Approvals. . . . . . . . . . . 23
4.1.5. No Adverse Proceedings. . . . . . . . . . . . . . . . . 23
4.1.6. Opinions. . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.7. Registration Rights Agreements. . . . . . . . . . . . . 23
4.1.8. Warrant Agreements and Warrants . . . . . . . . . . . . 23
4.1.9. Stock Certificates. . . . . . . . . . . . . . . . . . . 23
4.1.10. Certificate of Designation . . . . . . . . . . . . . 23
4.1.11. Acquisition Committee Designees. . . . . . . . . . . 24
4.1.12. Chartwell Matters. . . . . . . . . . . . . . . . . . 24
4.1.13. Private Placement Numbers. . . . . . . . . . . . . . 24
4.1.14. Reserved Shares. . . . . . . . . . . . . . . . . . . 24
4.1.15. Payment of Fees. . . . . . . . . . . . . . . . . . . 24
4.1.16. Amendment to By-laws . . . . . . . . . . . . . . . . 24
4.1.17. Additional Listing Application . . . . . . . . . . . 24
4.1.18. Termination of Agreements. . . . . . . . . . . . . . 24
4.1.19. Directors. . . . . . . . . . . . . . . . . . . . . . 24
4.2. Conditions Precedent to Obligations of the Company . . . . . . 25
4.2.1. No Material Misrepresentation or Breach . . . . . . . . 25
4.2.2. Closing Documents . . . . . . . . . . . . . . . . . . . 25
4.2.3. Governmental Consents or Approvals. . . . . . . . . . . 25
4.2.4. No Adverse Proceedings. . . . . . . . . . . . . . . . . 25
ARTICLE V. DOCUMENTS TO BE DELIVERED AT THE CLOSING. . . . . . . . 25
5.1. Documents to be Delivered by the Company . . . . . . . . . . . 25
5.1.1. Certified Resolutions . . . . . . . . . . . . . . . . . 25
5.1.2. Officer's Certificate . . . . . . . . . . . . . . . . . 26
5.1.3. Good Standing Certificates. . . . . . . . . . . . . . . 26
5.1.4. Other Documents . . . . . . . . . . . . . . . . . . . . 26
5.2. Documents to be Delivered by the Purchasers. . . . . . . . . . 26
5.2.1. Purchase Price. . . . . . . . . . . . . . . . . . . . . 26
5.2.2. Other Documents . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI. POST-CLOSING COVENANTS. . . . . . . . . . . . . . . . . 26
6.1. Acquisition Committee Designees. . . . . . . . . . . . . . . . 26
6.2. Board Designees. . . . . . . . . . . . . . . . . . . . . . . . 26
6.3. Post-Closing Notifications . . . . . . . . . . . . . . . . . . 27
6.4. Certain Tax Matters. . . . . . . . . . . . . . . . . . . . . . 27
6.5. Financial Statements and Information . . . . . . . . . . . . . 27
6.6. Right of First Refusal . . . . . . . . . . . . . . . . . . . . 28
6.7. Reservation of Shares of Common Stock. . . . . . . . . . . . . 29
6.8. Preparation of Proxy Statement; Shareholders Meeting . . . . . 29
ARTICLE VII. SURVIVAL AND INDEMNIFICATION. . . . . . . . . . . . . . 29
7.1. Survival of Representations, Warranties and Covenants. . . . . 29
7.2. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 30
7.3. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 30
7.4. Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . 31
7.5. Limitation of Liability; Equitable Adjustment. . . . . . . . . 32
ARTICLE VIII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . 33
8.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . 34
9.1. Specific Performance . . . . . . . . . . . . . . . . . . . . . 34
9.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 36
9.5. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 37
9.7. Amendments and Supplements . . . . . . . . . . . . . . . . . . 37
9.8. Rights of the Parties. . . . . . . . . . . . . . . . . . . . . 37
9.9. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10. Further Assurances. . . . . . . . . . . . . . . . . . . 38
9.11. Irrevocable Proxy . . . . . . . . . . . . . . . . . . . 38
9.12. Governing Law . . . . . . . . . . . . . . . . . . . . . 39
9.13. Severability. . . . . . . . . . . . . . . . . . . . . . 39
9.14. Execution in Counterparts . . . . . . . . . . . . . . . 39
9.15. Titles and Headings . . . . . . . . . . . . . . . . . . 39
9.16. Certain Interpretive Matters and Definitions. . . . . . 39
<PAGE>
Defined Terms
Acquisition Committee. . . . . . . . . . . . . . . . . . . . Section 4.1.11
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . Section 3.10
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Certificate of Designation . . . . . . . . . . . . . . . . . . Section 1.1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.16(b)
Commission . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.8
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Direct Claim . . . . . . . . . . . . . . . . . . . . . . . . Section 7.4(d)
Employee Plans . . . . . . . . . . . . . . . . . . . . . Section 2.1.16(a)
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.16(a)
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.8
Excluded Representations and Warranties. . . . . . . . . . . . .Section 7.1
First Refusal Offer. . . . . . . . . . . . . . . . . . . . . Section 6.6(a)
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.6
Governmental Entity. . . . . . . . . . . . . . . . . . . . . Section 2.1.4
Indemnifiable Losses . . . . . . . . . . . . . . . . . . . . . Section 7.2
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . Section 7.2
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.2
Indemnity Payment. . . . . . . . . . . . . . . . . . . . . . . Section 7.2
Interim Balance Sheet Date . . . . . . . . . . . . . . . . . Section 2.1.6
Interim Balance Sheet. . . . . . . . . . . . . . . . . . . . Section 2.1.6
liabilities. . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.9
Liens. . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.12(a)
Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.6(a)
Option Holders . . . . . . . . . . . . . . . . . . . . . . . Section 6.6(a)
Pension Plans. . . . . . . . . . . . . . . . . . . . . . Section 2.1.16(a)
Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.18
Permitted Liens. . . . . . . . . . . . . . . . . . . . . Section 2.1.12(a)
Physician Practice Groups. . . . . . . . . . . . . . . . . . Section 2.1.13
Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . Section 6.8(a)
Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.24
Registration Rights Agreement. . . . . . . . . . . . . . . . Section 4.1.7
Sale Notice. . . . . . . . . . . . . . . . . . . . . . . . . Section 6.6(a)
SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.8
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.4
Series A Preferred Stock . . . . . . . . . . . . . . . . . . Section 2.1.5
Series B Preferred Stock . . . . . . . . . . . . . . . . . . . Section 1.1
Shareholder Proposals. . . . . . . . . . . . . . . . . . . . . Section 9.11
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.3
Supplemental Financial Statements. . . . . . . . . . . . . . . Section 3.3
Tax Return . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.19(e)
Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.19(e)
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1.19(e)
Third Party Claim. . . . . . . . . . . . . . . . . . . . . . . Section 7.2
Transaction Documents. . . . . . . . . . . . . . . . . . . Section 9.15(a)
Warrant Agreement. . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
<PAGE>
Exhibits
Exhibit A Form of Certificate of Designation
Exhibit B Form of Warrant Agreement and Warrant
Exhibit C Form of Opinion of Willkie Farr & Gallagher
Exhibit D Form of Opinion of Hutcheson & Grundy, L.L.P.
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of First Amendment to Investment Agreement
Exhibit G Form of Termination Agreement
Exhibit H Form of Amended and Restated Certificate of Designation Regarding
the Series A Preferred Stock
Exhibit I Form of Amended and Restated By-laws
Schedules
Schedule I Purchasers and Securities
Schedule 2.1.1 Organization and Good Standing
Schedule 2.1.3 Subsidiaries and Equity Investments
Schedule 2.1.4 No Restrictions Against Issuance of Securities; Required
Consents
Schedule 2.1.5 Capitalization
Schedule 2.1.6 Financial Statements
Schedule 2.1.7 Accounts Receivable
Schedule 2.1.9 Absence of Undisclosed Liabilities
Schedule 2.1.11(a) Contracts and Commitments
Schedule 2.1.11(b) Exceptions to Contracts and Commitments
Schedule 2.1.12(a) Liens and Encumbrances; Condition of Assets
Schedule 2.1.14 Insurance
Schedule 2.1.15 Conduct of the Business Since the Interim Balance Sheet
Date
Schedule 2.1.16(a) Employee Benefit Plans
Schedule 2.1.16(b) Pension Plans
Schedule 2.1.17 Litigation; Decrees
Schedule 2.1.18 Compliance With Law; Permits
Schedule 2.1.20 Real Property
Schedule 2.1.22(b) Certain Business Practices and Regulations; Affiliated
Transactions
Schedule 2.1.24 Stock Ownership Listing
Schedule 3.2 Conduct of Business
Schedule 4.1.18 Terminated Agreements
Schedule 4.1.19 Resigning Directors<PAGE>
Schedule I
Purchaser Securities to be Purchased
FW Integrated Orthopaedics Investors, L.P. 125,000 shares of
Series B Preferred Stock;
Warrant to Purchase
2,500,000 Stock Units
FW Integrated Orthopaedics Investors II, L.P. 125,000 shares of Series
B Preferred Stock;
Warrant to Purchase
2,500,000 Stock Units
<PAGE>
NOTICE OF INDEMNIFICATION: THIS AGREEMENT CONTAINS INDEMNIFICATION
PROVISIONS IN ARTICLE VII, NOTICE OF WHICH IS HEREBY GIVEN.
SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 12, 1997
BY AND AMONG
INTEGRATED ORTHOPAEDICS INVESTORS, L.P.,
INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.,
INTEGRATED ORTHOPAEDICS, INC.,
FOR PURPOSES OF SECTION 6.6 AND 9.11 ONLY,
CHARTWELL CAPITAL INVESTORS, L.P.,
AND
FOR PURPOSES OF SECTION 9.11 ONLY,
JOSE E. KAUACHI, RONALD E. PIERCE,
JEFFERSON R. CASEY, CLIFFORD HINKLE,
WILLIAM F. DONOVAN, M.D., AND SHARON ANN DONOVAN
<PAGE>
EXHIBIT A
Certificate of Designations, Rights and Preferences of
Series B Convertible, Non-Redeemable Preferred Stock
of Integrated Orthopaedics, Inc.
Integrated Orthopaedics, Inc., a Texas corporation (the
"Company"), acting pursuant to Article 2.13 of the Texas Business
Corporation Act, does hereby submit the following Certificate of
Designations, Rights and Preferences of its Series B Convertible, Non-
Redeemable Preferred Stock.
FIRST: The name of the Company is Integrated Orthopaedics, Inc.
SECOND: By unanimous vote of the Board of Directors of the
Company (the "Board of Directors") at a meeting duly called and held, the
following resolutions were duly adopted:
RESOLVED, that pursuant to the authority conferred upon the Board
of Directors by the Articles of Incorporation, as amended through the date
hereof, of the Company (the "Articles of Incorporation"), a series of the
class of authorized Preferred Stock, with a par value of $0.01 per share,
of the Company be hereby created, and that the designation of amount
thereof and the voting powers, preferences and relative, optional and other
special rights of the shares of such series, and the qualifications,
limitations and restrictions of such series, be as set forth below:
1. Designation. The designation of the Series of Preferred
Stock authorized hereby shall be "Series B Convertible, Non-Redeemable
Preferred Stock" (the "Series B Preferred Stock") with a par value of $0.01
per share, and 400,000 shares are hereby authorized for issuance.
2. Ranking. The Series B Preferred Stock shall rank as to
dividends (i) senior to the Common Stock, par value $0.001 per share, of
the Company (the "Common Stock") and any other class or series of capital
stock that by its express terms provides that it ranks junior to the Series
B Preferred Stock as to dividends or that does not expressly provide for
any ranking as to dividends (except for the Series A Preferred Stock)
("Junior Securities"), (ii) on a parity with the Series A Preferred Stock,
par value $0.01 per share, of the Company (the "Series A Preferred Stock")
and any other class or series of capital stock that by its express terms
provides that it ranks on a parity with the Series B Preferred Stock as to
payment of dividends ("Parity Securities") and (iii) junior to any class or
series of capital stock that by its express terms provides that it ranks
senior to the Series B Preferred Stock ("Senior Securities").
3. Dividends. The holders of Series B Preferred Stock shall
be entitled to receive cumulative cash dividends at a rate per annum (the
"Dividend Rate") of $9.00 per share. Such dividends shall be payable, as
and when declared by the Board of Directors out of funds legally available
therefor, on the last day of March, June, September and December of each
year, commencing December 31, 1997 (each a "Dividend Payment Date") (unless
such day is not a business day, in which event on the next succeeding
business day), to holders of record as they appear on the register for the
Series B Preferred Stock (the "Preferred Stock Register") on the March 15,
June 15, September 15, and December 15, as appropriate, immediately
preceding such Dividend Payment Date.
At the option of the Company and except as provided below with
respect to the payment of cash in respect of fractional shares, dividends
on the Series B Preferred Stock may be paid, instead of in cash, in whole
or in part, on declaration of the Board of Directors, in additional shares
of the Series B Preferred Stock (the "Dividend Shares"); provided, however,
that if no such declaration is made on or before a Dividend Payment Date,
the quarterly dividend shall automatically accrue in Dividend Shares on the
Dividend Payment Date. To the extent dividends are payable in whole or in
part in Dividend Shares, such Dividend Shares shall be valued at $100 per
share with a liquidation value of $100 per share and shall have all rights
and preferences of the Series B Preferred Stock hereunder, including
dividends payable at the rate specified in the preceding paragraph, subject
to the option of the Company to pay such dividends in Dividend Shares of
the Series B Preferred Stock in lieu of cash. Notwithstanding any other
provisions hereof, certificates representing Dividend Shares shall not be
issued to the holder entitled thereto until requested by such holder.
Dividends shall accrue from the date of original issue of the
Series B Preferred Stock, except that dividends on Dividend Shares of the
Series B Preferred Stock shall accrue from the date such Dividend Shares
are issued. To the extent that all or any part of dividends in Dividend
Shares of the Series B Preferred Stock would result in the issuance of a
fractional Dividend Share of such series, then such amount shall be paid in
cash.
Notwithstanding any other provision hereof, prior to the second
anniversary of the date of filing of this Certificate of Designation with
the Secretary of State of the State of Texas (the "Original Issue Date"),
the Company shall elect, by written notice to the holders of the Series B
Preferred Stock, to have one of the following options govern the Dividend
Rate (provided, that if no election is made by the Company, Option 2 shall
govern; and provided further that the volume and price information set
forth in the following options shall be equitably adjusted in the event of
any stock split, stock dividend, recapitalization or reclassification with
respect to or otherwise affecting the Common Stock at any time after the
date hereof):
OPTION 1
If both of the following minimum price and volume requirements are met
for a designated quarterly period during 2001 or 2002, the Dividend
Rate payable on the Series B Preferred Stock will be reduced from and
after the date of the next succeeding quarterly period following such
designated quarterly period (but not retroactively) as follows:
Dividend Rate during 2001 = $6.00 per share
Dividend Rate during 2002 = $4.00 per share
Minimum Share Price: The minimum share price, determined by the
average closing sales price of the Common Stock for the twenty trading
days immediately following the public release of actual earnings by
the Company for the quarter in question or, in the case of the fourth
quarter, the public release of actual annual earnings, for calendar
quarters during 2001 and 2002 shall be as follows:
Year
Q1
Q2
Q3
Q4
2001
$20.08
$21.48
$22.88
$24.28
2002
$24.88
$25.49
$26.10
$26.70
Minimum Average Daily Trading Volume: The minimum average daily
trading volume shall be 125,000 shares, calculated in a manner
consistent with that of the American Stock Exchange. The trading
period shall be the twenty trading days immediately preceding the most
recent public release of quarterly or annual earnings by the Company,
provided that the Company shall not have issued any press releases
during such twenty trading day period. If the Company shall have
issued a press release during such twenty trading day period, the
trading period shall be the 60 consecutive trading days beginning on
the 40th trading day immediately preceding the most recent public
release of quarterly or annual earnings. For purposes of such
calculation, (i) daily trading volume will be capped at 375,000 shares
and (ii) share repurchases by the Company and block trades (single
trades in excess of 10,000 shares) will be excluded.
OPTION 2
If both of the following minimum price and volume requirements are met
for a designated quarterly period during 2000, 2001 or 2002, the
Dividend Rate payable on the Series B Preferred Stock will be reduced
from and after the first day of the next succeeding quarterly period
(but not retroactively) as follows:
Dividend Rate during 2000 = $7.00 per share
Dividend Rate during 2001 = $6.00 per share
Dividend Rate during 2002 = $4.00 per share
Minimum Share Price: The minimum share price, determined by the
average closing sales price of the Common Stock for the twenty trading
days immediately following the public release of actual earnings by
the Company for the quarter in question or, in the case of the fourth
quarter, the public release of actual annual earnings, for calendar
quarters during 2000, 2001 and 2002 shall be as follows:
Year
Q1
Q2
Q3
Q4
2000
$15.44
$16.52
$17.60
$18.67
2001
$20.08
$21.48
$22.88
$24.28
2002
$24.88
$25.49
$26.10
$26.70
Minimum Average Daily Trading Volume: The minimum average daily
trading volume shall be 160,000 shares, calculated in a manner
consistent with that of the American Stock Exchange. The trading
period shall be the twenty trading days immediately preceding the most
recent public release of quarterly or annual earnings by the Company,
provided that the Company shall not have issued any press releases
during such twenty trading day period. If the Company shall have
issued a press release during such twenty trading day period, the
trading period shall be the 60 consecutive trading days beginning on
the 40th trading day immediately preceding the most recent public
release of quarterly or annual earnings. For purposes of such
calculation, (i) daily trading volume will be capped at 480,000 shares
and (ii) share repurchases by the Company and block trades (single
trades in excess of 10,000 shares) will be excluded.
No dividend or distribution in cash, shares of capital stock or
other property shall be paid or declared and set apart for payment on any
date on or in respect of any Junior Securities, and the Company shall not
redeem, purchase or otherwise acquire for value any Junior Securities while
shares of Series B Preferred Stock remain outstanding.
No dividend may be paid or declared and set apart for payment on
any share of Series B Preferred Stock unless at the same time a ratable
dividend in cash or Dividend Shares, as the case may be, is paid or set
apart for payment on all shares of Series B Preferred Stock then
outstanding.
4. Preference on Liquidation, etc. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus), or proceeds thereof, shall be made to or set
apart for the holders of shares of any Junior Securities, the holders of
shares of Series B Preferred Stock shall be entitled to receive payment of
$100 per share held by them, plus an amount equal to all accrued and unpaid
dividends thereon, whether or not declared to the date of such payment.
If, upon any liquidation, dissolution or winding-up of the Company, the
assets of the Company, or proceeds thereof, distributed among the holders
of shares of Series B Preferred Stock shall be insufficient to pay in full
the respective preferential amounts on shares of Series B Preferred Stock
and all Parity Securities, then such assets, or the proceeds thereof, shall
be distributed among the holders of Series B Preferred Stock and the
holders of Parity Securities ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon
were paid in full. After payment of the full amount of the liquidation
preference to which the holders of Series B Preferred Stock are entitled,
such holders will not be entitled to any further participation in any
distribution of assets of the Company. For the purpose of this Section 4,
none of the merger or the consolidation of the Company into or with another
corporation or the merger or consolidation of any other corporation into or
with the Company or the sale, transfer, or other disposition of all or
substantially all of the assets of the Company, shall be deemed to be a
voluntary or involuntary liquidation, dissolution, or winding-up of the
Company.
5. Retirement of Shares. Shares of Series B Preferred Stock
that have been issued and have been redeemed, repurchased or reacquired in
any manner by the Company shall be retired and not reissued and shall
resume the status of authorized but unissued and non-designated shares of
preferred stock of the Company.
6. Voting. Each holder of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Series B Preferred Stock could be
converted pursuant to the provisions of Section 10 hereof at the record
date for the determination of the shareholders entitled to vote on such
matters or, if no such record date is established, the date such vote is
taken or any written consent of shareholders is solicited. Each holder of
Series B Preferred Stock shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any shareholders' meeting in accordance with the
bylaws of the Company (as in effect at the time in question) and applicable
law, and shall be entitled to vote, together with the holders of Common
Stock, with respect to any question upon which holders of Common Stock have
the right to vote, except for the election of directors and as may be
otherwise provided by applicable law. Except as otherwise expressly
provided herein or as required by law, and except for the vote of the
Series B Preferred Stock provided for in Section 7 hereof, the holders of
Series B Preferred Stock and the holders of Common Stock shall vote
together and not as separate classes.
7. Special Voting Rights.
(a) Election of Directors. The holders of Series B Preferred
Stock shall be entitled to one vote for each share of Series B Preferred
Stock held by such holders on a record date set to hold a meeting at which
the holders of Series B Preferred Stock shall be entitled to elect, as a
class, three directors. The Company agrees to call a meeting of holders of
shares of Series B Preferred Stock in order that the Series B Preferred
Stock may be represented on the Board of Directors in accordance with the
preceding sentence. In the event of any breach by the Company of any of
the financial covenants set forth in Section 13 hereof, the holders of the
majority of the issued and outstanding Series B Preferred Stock shall be
entitled to elect a majority of the Board of Directors.
(b) Affiliate Transactions. The holders of Series B Preferred
Stock shall be entitled to a special class vote in connection with any
proposed Affiliate Transaction (as hereinafter defined). The Company
agrees to call a special meeting of holders of shares of Series B Preferred
Stock in order that the holders of Series B Preferred Stock may consider
and vote upon any proposed Affiliate Transaction. As used herein, the term
"Affiliate Transaction" means any proposed transaction or series of related
transactions between the Company or its subsidiaries and any officer,
director, 5% or greater shareholder or any immediate family member of any
of the foregoing involving commitments or expenditures on the part of the
Company or its subsidiaries in excess of $60,000.
(c) Approval Rights. Until such time that FW Integrated
Orthopaedics Investors, L.P. and FW Integrated Orthopaedics Investors II,
L.P. or their affiliates own less than a majority of the Series B Preferred
Stock (or the shares of Common Stock issuable upon conversion thereof):
(i) neither the Company nor its subsidiaries shall make or commit to any
capital expenditures (A) exceeding $1 million for purposes other than the
purchase of Physician Practice Groups (as defined) (directly or indirectly,
including through practice management arrangements or other affiliations)
and (B) exceeding $10 million total purchase consideration for the purchase
of Physician Practice Groups (directly or indirectly, including through
practice management arrangements or other affiliations), and (ii) no
capital structure changes (including debt financings) may be effected by
the Company or its subsidiaries without the prior written consent of the
holders of a majority of the Series B Preferred Stock or the majority of
the Common Stock issuable upon conversion thereof. "Physician Practice
Groups" shall mean (x) physicians and groups of physicians engaged in, and
professional medical corporations and other entities employing or engaging
physicians for, the provision of medical services and (y) physician
practice management companies.
(d) Action By Written Consent. Any vote of Series B Preferred
Stock permitted hereby may be taken without a meeting, without prior
notice, and without a vote if a consent or consents in writing setting
forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting duly held.
8. Other Rights and Amendments. Except as otherwise provided
by law, without the written consent of a majority of the outstanding shares
of Series B Preferred Stock or the vote of holders of a majority of the
outstanding shares of Series B Preferred Stock (voting as a class) at a
meeting of the holders of Series B Preferred Stock called for such purpose,
the Company will not (i) create, authorize or issue any Parity Securities
or Senior Securities, (ii) increase the authorized number of shares of
Series B Preferred Stock, other increases necessary to permit the issuance
of Dividend Shares, or (iii) amend, alter, repeal or waive any provision of
the bylaws, the Articles of Incorporation or this Certificate of
Designation so as to adversely affect the preferences, rights, powers or
other terms of the Series B Preferred Stock.
9. Issuance. The Company will not issue more than 400,000
shares of Series B Preferred Stock (which includes 250,000 original
issuance shares and up to 150,000 shares which may be issued as Dividend
Shares in lieu of cash dividends in accordance with Section 3 hereof).
10. Conversion. The outstanding shares of Series B Preferred
Stock shall be convertible into Common Stock as follows:
10.1 Optional Conversion.
(a) At the option of the holder thereof, each share of
Series B Preferred Stock shall be convertible, at any time or from time to
time, into fully paid and nonassessable shares of Common Stock as provided
herein.
(b) Each holder of Series B Preferred Stock who elects
to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or any transfer agent for the Series B Preferred Stock or Common
Stock, and shall give written notice to the Company at such office that
such holder elects to convert the same and shall state therein the number
of shares of Series B Preferred Stock being converted. Thereupon the
Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled upon such conversion. Such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate or certificates representing
the shares of Series B Preferred Stock to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock on such date.
10.2 Mandatory Conversion.
(a) Mandatory Conversion Event. Upon 30 days written
notice from the Company to each holder of Series B Preferred Stock, each
share of Series B Preferred Stock may be converted into fully paid and
nonassessable shares of Common Stock at the option of the Company after the
fifth anniversary of the Original Issue Date.
(b) Effect of Mandatory Conversion. Upon the
occurrence of the event specified in Section 10.2(a) hereof, the
outstanding shares of Series B Preferred Stock shall be converted into
Common Stock automatically without the need for any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Company or its transfer agent; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificates evidencing such shares of Series B Preferred Stock are
either delivered to the Company or its transfer agent as provided below, or
the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by it in connection with such certificates. Upon the occurrence of such
mandatory conversion of the Series B Preferred Stock, the holders of Series
B Preferred Stock shall surrender the certificates representing such shares
at the office of the Company or any transfer agent for the Series B
Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown
on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares
of Series B Preferred Stock surrendered were convertible on the date on
which such mandatory conversion occurred.
10.3 Conversion Price. Each share of Series B Preferred Stock
shall be convertible in accordance with Section 10.1 or 10.2 hereof into
the number of shares of Common Stock that results from dividing the
liquidation value for Series B Preferred Stock (including the stated
liquidation preference and accrued but unpaid dividends) by the conversion
price for Series B Preferred Stock that is in effect at the time of
conversion (the "Conversion Price"). The initial Conversion Price for the
Series B Preferred Stock shall be $6.00 per share; provided, however, that
upon receipt of the requisite vote of the holders of Common Stock approving
the following adjustment, the Conversion Price shall be the lesser of
(a) $6.00 per share, (b) the average closing sales price of the Common
Stock for the twenty trading days immediately following the Original Issue
Date, and (c) the average closing sales price of the Common Stock for the
twenty trading days immediately preceding the conversion of the Series B
Preferred Stock. The Conversion Price of the Series B Preferred Stock
shall be subject to adjustment from time to time as provided below.
10.4 Adjustment Upon Common Stock Event. Upon the happening of
a Common Stock Event (as hereinafter defined), the Conversion Price of the
Series B Preferred Stock shall, simultaneously with the happening of such
Common Stock Event, be adjusted by multiplying the Conversion Price of
Series B Preferred Stock in effect immediately prior to such Common Stock
Event by a fraction, (a) the numerator of which shall be the number of
shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (b) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for Series B Preferred Stock. The Conversion Price for Series B
Preferred Stock shall be readjusted in the same manner upon the happening
of each subsequent Common Stock Event. As used herein, the term "Common
Stock Event" means (i) the issue by the Company of additional shares of
Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock or (iii) a combination of the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock.
10.5 Adjustment for Other Dividends and Distributions. If at
any time or from time to time after the Original Issue Date the Company
pays a dividend or makes any other distribution to the holders of the
Common Stock payable in securities of the Company other than shares of
Common Stock, then in each such event provision shall be made so that the
holders of the Series B Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
upon conversion thereof, the amount of securities of the Company that they
would have received had their Series B Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable)
and had they thereafter, during the period from the date of such event (or
such record date, as applicable) to and including the conversion date,
retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period
under this Section 10 with respect to the rights of the holders of the
Series B Preferred Stock or with respect to such other securities by their
terms.
10.6 Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue
Date the Common Stock issuable upon the conversion of the Series B
Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than by a Common Stock Event or a
stock dividend, reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 10), then in any such event each
holder of Series B Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or
other change by holders of the number of shares of Common Stock into which
such shares of Series B Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such
other securities or property by the terms thereof. The Company shall give
each holder of Series B Preferred Stock at least 30 days prior written
notice of any event requiring adjustment pursuant to this Section 10.6.
10.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time
to time after the Original Issue Date the Company issues or sells, or is
deemed by the provisions of this Section 10.7 to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), otherwise than
in connection with a Common Stock Event as provided in Section 10.4 hereof,
a dividend or distribution as provided in Section 10.5 hereof or a
recapitalization, reclassification or other change as provided in Section
10.6 hereof, for an Effective Price (as hereinafter defined) that is less
than the Conversion Price for Series B Preferred Stock in effect
immediately prior to such issue or sale, then, and in each such case, the
Conversion Price for Series B Preferred Stock shall be reduced, as of the
close of business on the date of such issue or sale, to the price obtained
by multiplying such Conversion Price by a fraction:
(1) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter
defined) immediately prior to such issue or sale of Additional Shares
of Common Stock plus (B) the quotient obtained by dividing the
Aggregate Consideration Received (as hereinafter defined) by the
Company for the total number of Additional Shares of Common Stock so
issued or sold (or deemed so issued and sold pursuant to the
provisions of Section 10.7(c) hereof) by the Conversion Price for
Series B Preferred Stock in effect immediately prior to such issue or
sale; and
(2) The denominator of which shall be the sum of (A)
the number of Common Stock Equivalents Outstanding immediately prior
to such issue or sale plus (B) the number of Additional Shares of
Common Stock so issued or sold (or deemed so issued and sold pursuant
to the provisions of Section 10.7(c) hereof).
(b) Certain Definitions. For the purpose of making
any adjustment required under this Section 10.7:
(1) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company, whether or not
subsequently reacquired or retired by the Company and whether or not
restricted at the time of issuance or sale (or deemed issuance or
sale), other than (A) shares of Common Stock issued or issuable upon
conversion of Series B Preferred Stock and (B) Excluded Securities.
(2) The "Aggregate Consideration Received" by the
Company for any issue or sale (or deemed issue or sale) of securities
shall (A) to the extent it consists of cash, be computed at the gross
amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid
or allowed by the Company in connection with such issue or sale and
any expenses payable by the Company; (B) to the extent it consists of
property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors; and
(C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock
or Convertible Securities are issued or sold together with other stock
or securities or other assets of the Company for a consideration that
covers both, be computed as the portion of the consideration so
received that may be reasonably determined in good faith by the Board
of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities or Rights or Options.
(3) "Common Stock Equivalents Outstanding" shall mean
the number of shares of Common Stock that is equal to the sum of (A)
all shares of Common Stock of the Company that are outstanding at the
time in question, plus (B) all shares of Common Stock of the Company
issuable upon conversion of all shares of Series B Preferred Stock or
other Convertible Securities that are outstanding at the time in
question, plus (C) all shares of Common Stock of the Company that are
issuable upon the exercise of vested Rights or Options that are
outstanding at the time in question assuming the full conversion or
exchange into Common Stock of all such vested Rights or Options that
are vested Rights or Options to purchase or acquire Convertible
Securities into or for Common Stock.
(4) "Convertible Securities" shall mean stock or other
securities convertible into or exchangeable for shares of Common
Stock, other than Excluded Securities.
(5) The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold, by the Company under this Section 10.7,
into the Aggregate Consideration Received, or deemed to have been
received, by the Company under this Section 10.7, for the issue of
such Additional Shares of Common Stock.
(6) "Excluded Securities" shall mean, collectively,
(i) the shares of Common Stock issued or issuable upon conversion of
the Series A Preferred Stock (including additional shares of Series A
Preferred Stock that have been heretofore issued or may be issued
after the date hereof as a stock dividend on the Series A Preferred
Stock), (ii) the shares of Common Stock issued or issuable by the
Company in connection with the acquisition of Merritt Orthopedic
Associates, P.C., Westside Orthopaedic Clinic, P.C., Lancaster
Orthopedic Group, Inc., Longmont Orthopedic & Sports Medicine Clinic,
P.C., and Crossroads Orthopaedics, P.C., (iii) up to 1,682,582 shares
of Common Stock issuable by the Company upon exercise of stock options
to acquire shares of Common Stock that have been granted by the
Company prior to the Original Issue Date, and (iv) up to 800,000
additional shares of Common Stock that may be issuable upon exercise
of stock options that may be granted pursuant to the Company's 1997
Long Term Incentive Plan within the two year period after the Original
Issue Date. For purposes of clause (iv) above, the first 800,000
stock option awards granted within such two year period shall be the
shares included.
(7) "Rights or Options" shall mean warrants, options
or other rights to purchase or acquire shares of Common Stock or
Convertible Securities, other than Excluded Securities.
(c) Deemed Issuances. For the purpose of making any
adjustment to the Conversion Price of the Series B Preferred Stock required
under this Section 10.7, if the Company issues or sells any Rights or
Options or Convertible Securities and if the Effective Price of the shares
of Common Stock issuable upon exercise of such Rights or Options and/or the
conversion or exchange of Convertible Securities (computed without
reference to any additional or similar protective or antidilution clauses)
is less than the Conversion Price, then the Company shall be deemed to have
issued, at the time of the issuance of such Rights, Options or Convertible
Securities, that number of Additional Shares of Common Stock that is equal
to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their
issuance and to have received, as the Aggregate Consideration Received for
the issuance of such shares, an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such
Rights or Options or Convertible Securities, plus, in the case of such
Rights or Options, the minimum amounts of consideration, if any, payable to
the Company upon the exercise in full of such Rights or Options, plus, in
the case of Convertible Securities, the minimum amounts of consideration,
if any, payable to the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof; provided that:
(a) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar
protective clauses, then the Company shall be deemed to have received
the minimum amounts of consideration without reference to such
clauses;
(b) if the minimum amount of consideration payable to
the Company upon the exercise of Rights or Options or the conversion
or exchange of Convertible Securities is reduced over time or upon the
occurrence or non-occurrence of specified events other than by reason
of antidilution or similar protective adjustments, then the Effective
Price shall be recalculated using the figure to which such minimum
amount of consideration is reduced; and
(c) if the minimum amount of consideration payable to
the Company upon the exercise of such Rights or Options or the
conversion or exchange of Convertible Securities is subsequently
increased, then the Effective Price shall again be recalculated using
the increased minimum amount of consideration payable to the Company
upon the exercise of such Rights or Options or the conversion or
exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance
of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of
any such Rights or Options or the conversion or exchange of any such
Convertible Securities. If any such Rights or Options or the conversion
rights represented by any such Convertible Securities shall expire without
having been fully exercised, then the Conversion Price as adjusted upon the
issuance of such Rights or Options or Convertible Securities shall be
readjusted to the Conversion Price that would have been in effect had an
adjustment been made on the basis that the only shares of Common Stock so
issued were the shares of Common Stock, if any, that were actually issued
or sold on the exercise of such Rights or Options or rights of conversion
or exchange of such Convertible Securities, and such shares of Common
Stock, if any, were issued or sold for the consideration actually received
by the Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of any such Rights or Options,
whether or not exercised, plus the consideration received for issuing or
selling all such Convertible Securities actually converted or exchanged,
plus the consideration, if any, actually received by the Company (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such Convertible
Securities, provided that such readjustment shall not apply to prior
conversions of Series B Preferred Stock.
10.8 Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price for Series B Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of the Series B Preferred Stock at the holder's address
as shown in the Company's books.
10.9 Fractional Shares. No fractional shares of Common Stock
shall be issued upon any conversion of Series B Preferred Stock. In lieu
of any fractional share to which the holder would otherwise be entitled,
the Company shall pay the holder cash equal to the product of such fraction
multiplied by the Common Stock's fair market value as determined in good
faith by the Board of Directors as of the date of conversion.
10.10 Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of the Series B Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
10.11 Notices. Any notice required by the provisions of this
Section 10 to be given to the holders of shares of the Series B Preferred
Stock shall be deemed given upon the earlier of actual receipt or deposit
in the United States mail, by certified or registered mail, return receipt
requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
10.12 No Impairment. The Company shall not avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
11. Merger, Consolidation and Sale of Assets. The Company may not
merge or consolidate with or into or transfer all or substantially all of
its assets (as an entirety in one transaction or a series of related
transactions), to any person without the consent of the holders of a
majority of the issued and outstanding shares of Series B Preferred Stock,
voting separately as a class.
12. Acquisition and Budget Committee Designees. At all times in
which shares of Series B Preferred Stock shall be issued and outstanding,
the holders of a majority of such issued and outstanding shares shall be
entitled to designate two members to the Company's Acquisition and Budget
Committee and the total number of persons constituting such Committee shall
be three (including the two designees of the holders of the Series B
Preferred Stock). The Company shall not, without the prior written consent
of the Acquisition and Budget Committee, enter into any agreement to
acquire, or consummate the purchase of, (a) any equity or ownership
interest or investment in any Physician Practice Group or other Person (as
defined below) or (b) any material assets of any Physician Practice Group
or other Person.
13. Financial Covenants. At all times in which shares of Series B
Preferred Stock shall be issued and outstanding:
(a) The ratio of total Indebtedness to EBITDA (as such terms are
defined below) of the Company shall not exceed the following:
Calendar Year
Ratio
1998
7.0
1999
4.0
2000
3.0
2001
3.0
2002
3.0
(b) Retained earnings of the Company shall not be less than
the amounts set forth below, exclusive of the effect of the preferred
dividend adjustment that will result from the issuance of the Series B
Preferred Stock (as computed in accordance with EITF Topic D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt
Securities with a Nondetachable Conversion Feature") and the related
warrants, including any costs of issuance allocable to retained
earnings resulting from the issuance of such securities:
Calendar Year
Amount (in
millions)
1998
$ 4.2
1999
$12.0
2000
$27.3
2001
$31.4
2002
$36.1
(c) Total Indebtedness of the Company shall be no greater than:
Calendar Year
Amount (in
millions)
1998
$ 71.0
1999
$110.0
2000
$133.0
2001
$152.0
2002
$175.0
(d) For purposes of this Section, "Indebtedness" shall mean
all obligations which in accordance with generally accepted accounting
principles consistently applied are classified as liabilities upon a
balance sheet of the Company and in any event shall include, without
duplication: (i) all obligations of the Company and its subsidiaries
for borrowed money or for the deferred purchase price of property
acquired by the Company or its subsidiaries, (ii) all obligations of
the Company or its subsidiaries created or arising under any
conditional sale or other title retention agreement with respect to
any property acquired by the Company or its subsidiaries (other than
in each case accounts payable and accrued liabilities that arose in
the ordinary course of business and not overdue), (iii) all
capitalized lease obligations of the Company and its subsidiaries, and
(iv) all obligations of others secured by a Lien on any asset of the
Company or its subsidiaries, whether or not such obligations are
expressly assumed by the Company or its subsidiaries. For purposes of
this Section, "EBITDA" shall mean consolidated earnings before
interest, income taxes, depreciation and amortization determined in
accordance with generally accepted accounting principles consistently
applied.
14. Repurchase by Company.
(a) The Company will not, and will not permit any subsidiary
to, purchase or acquire any shares of Series B Preferred Stock otherwise
than pursuant to a pro rata offer made on substantially equivalent terms to
all holders of Series A Preferred Stock at the time outstanding.
(b) The provisions of this Section 14 may not be amended
without the affirmative vote of the holders of a majority of the Series A
Preferred Stock outstanding.
15. General Provisions.
(a) The term "Person" as used herein means any corporation,
partnership, trust, organization, association, or other entity or
individual.
(b) The term "outstanding", when used with reference to shares
of stock, shall mean issued shares, excluding shares held by the Company or
a subsidiary.
(c) The headings of the paragraphs, subparagraphs, clauses and
subclauses of this Certificate of Designation are for convenience of
reference only and shall not define, limit or affect any of the provisions
hereof.
THIRD: The foregoing resolutions were duly adopted as of
December 1, 1997, by all necessary action on the part of the Company.
Dated: December 12, 1997 INTEGRATED ORTHOPAEDICS, INC.
By:
Jeff R. Casey,
Senior Vice President
<PAGE>
EXHIBIT B
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made and entered into as of December 12,
1997, by and among Integrated Orthopaedics, Inc., a corporation duly
organized and validly existing under the laws of the State of Texas (the
"Issuer"), FW Integrated Orthopaedics Investors, L.P., a Texas limited
partnership, and FW Integrated Orthopaedics Investors II, L.P., a Texas
limited partnership (each a "Purchaser" and together, the "Purchasers").
WHEREAS, the Issuer and Purchasers and, for certain limited purposes,
certain other parties have entered into a Securities Purchase Agreement,
dated as of December 12, 1997 (the "Securities Purchase Agreement").
WHEREAS, pursuant to the Securities Purchase Agreement, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Issuer has agreed to issue Warrants (as hereinafter
defined) to the Purchasers providing for the purchase of shares of Stock
Units (as hereinafter defined) of the Issuer, in the manner hereinafter
provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; Accounting Terms and Determinations.
1.01 Definitions. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1 or in other
provisions of this Agreement in the singular to have the same meanings when
used in the plural and vice versa):
"Affiliate" shall mean, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Board" shall mean the Board of Directors of Issuer.
"Business Day" shall mean any day that is not a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or
required by law to remain closed.
"Closing Date" shall mean the date of the original issuance of the
Warrants hereunder.
"Commission" shall mean the Securities and Exchange Commission or any
other similar or successor agency of the Federal government administering
the Securities Act and/or the Exchange Act.
"Common Stock" shall mean the Common Stock of the Issuer, par value
$0.001 per share, or any other common stock or other securities receivable
thereon, or into which the Common Stock is convertible or exchangeable, as
a result of any recapitalization, reclassification, merger or consolidation
of, or disposition of assets by, the Issuer.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract
or otherwise. "Controls" and "Controlled" shall have meanings correlative
thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Excluded Securities" shall mean, collectively, (i) the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, par
value $.01 per share, of the Issuer (including additional shares of Series
A Preferred Stock that have been heretofore issued or may be issued after
the date hereof as a stock dividend on the Series A Preferred Stock), (ii)
the shares of Common Stock issued or issuable by the Issuer in connection
with the acquisition of Merritt Orthopedic Associates, P.C., Westside
Orthopaedic Clinic, P.C., Lancaster Orthopedic Group, Inc., Longmont
Orthopedic Sports Medicine Clinic, P.C., and Crossroads Orthopaedics, P.C.,
(iii) up to 1,682,582 shares of Common Stock issuable by the Company upon
exercise of stock options to acquire shares of Common Stock that have been
granted by the Company prior to the Original Issue Date, and (iv) up to
800,000 additional shares of Common Stock that may be issuable upon
exercise of stock options that may be granted pursuant to the Company's
1997 Long Term Incentive Plan within the two year period after the Original
Issue Date. For purposes of clause (iv) above, the first 800,000 stock
option awards granted within such two year period shall be the shares
included.
"Exercise Price" shall have the meaning assigned to such term in the
form of Warrant attached as Annex 1 hereto.
"Expiration Date" shall have the meaning assigned to such terms in the
form of the Warrant attached as Annex 1 hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period.
"Governmental Authority" shall mean the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory, monetary or administrative
powers or functions of or pertaining to government.
"Holder" shall mean any Person who acquires Warrants or Warrant Stock
pursuant to the provisions of this Agreement, including any transferees of
Warrants or Warrant Stock; provided, however, that a holder of Warrant
Stock purchased pursuant to an effective registration statement or pursuant
to Rule 144 shall not be deemed a Holder.
"include" and "including" shall be construed as if followed by the
phrase "without being limited to".
"Issuer" shall have the meaning assigned to such term in the preamble
of this Agreement.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset. For purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any asset that it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Option Plans" shall mean any employee stock option plan of the
Issuer.
"Other Equity Documents" shall mean the articles of incorporation of
the Issuer, the by-laws of the Issuer and any Option Plan.
"Person" shall mean any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Restricted Certificate" shall mean a certificate for Warrant Stock or
Warrants required to bear the restrictive legend set forth in Section 4.03.
"Restricted Securities" shall mean Restricted Warrant Stock and
Restricted Warrants.
"Restricted Warrant Stock" shall mean Warrant Stock evidenced by a
Restricted Certificate.
"Restricted Warrants" shall mean Warrants evidenced by a Restricted
Certificate.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"Rule 144A" shall mean Rule 144A promulgated by the Commission under
the Securities Act (or any successor or similar rule then in force).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Shareholder" shall mean any Person who directly or indirectly owns
any shares of Common Stock (including Warrant Stock).
"Stock Unit" shall mean one share of Common Stock, as such Common
Stock is constituted on the date hereof, and thereafter shall mean such
number of shares (including any fractional shares) of Common Stock and
other securities, cash or other property as shall result from the
adjustments specified in Section 6.
"Subsidiary" of a Person means (a) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at
the time be owned or controlled, directly or indirectly, by such Person or
by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (b) any company, partnership, association, joint venture
or similar business organization more than 50% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to
a "Subsidiary" shall mean a direct or indirect Subsidiary of the Issuer.
"Warrant Stock" shall mean all shares of Common Stock issuable from
time to time upon exercise of the Warrant.
"Warrant" and "Warrants" shall mean the Warrant issued by the Issuer
pursuant to this Agreement, evidencing rights to purchase Stock Units, and
all Warrants issued upon transfer, division or combination of, or in
substitution for, any thereof.
1.02 Accounting Terms and Determinations. Except as otherwise may be
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as
to financial matters required to be delivered to the Holder hereunder shall
be prepared, in accordance with GAAP. All calculations made for the
purposes of determining compliance with the terms of this Agreement shall
(except as otherwise may be expressly provided herein) be made by
application of GAAP.
SECTION 2. Purchase and Sale of Warrant.
2.01 Authorization and Issuance of Warrant Stock and Warrants. The
Issuer has authorized (a) the issuance of the Warrants evidenced by the
warrant certificates in the form of Annex 1 hereto; and (b) the issuance of
such number of shares of Warrant Stock as shall be necessary to permit the
Issuer to comply with its obligations to issue shares of Warrant Stock
pursuant to the Warrants.
2.02 Issuance of the Warrant. In consideration of the execution and
delivery of the Securities Purchase Agreement by Purchasers and for other
good and valuable consideration:
(a) the Issuer shall issue to the Purchasers the Warrants; and
(b) the Issuer shall deliver to each of the Purchasers a
single certificate for the Warrants, registered in the name of the
respective Purchaser, except that if the Purchasers shall notify the
Issuer in writing prior to such issuance that they desire certificates
for Warrants to be issued in other denominations or registered in the
name or names of any Affiliate, nominee or nominees of the Purchasers
for its or their benefit, then the certificates for Warrants shall be
issued to the Purchasers in the denominations and registered in the
name or names specified in such notice.
2.03 Securities Act Compliance. The Purchasers understand that the
Issuer has not registered the Warrants or the Warrant Stock under the
Securities Act or applicable state securities laws, and the Purchasers
agree that neither the Warrants nor the Warrant Stock shall be sold or
transferred or offered for sale or transfer without registration or
qualification under the Securities Act or applicable state securities laws
or the availability of an exemption therefrom, all as more fully provided
in Section 4.
SECTION 3. Representations and Warranties. The Issuer confirms that
each of the representations and warranties contained in the Securities
Purchase Agreement are true and correct as of the date hereof.
SECTION 4. Restrictions on Transferability.
4.01 Transfers Generally. Except as otherwise provided in Section 5,
the Restricted Securities shall be transferable only upon the conditions
specified in this Section 4, which conditions are intended to ensure
compliance with the provisions of the Securities Act and applicable state
securities laws in respect of the transfer of any Restricted Securities.
4.02 Transfers of Restricted Securities Pursuant to Registration
Statements, Rule 144 and Rule 144A. The Restricted Securities may be
offered or sold by the Holder thereof pursuant to (a) an effective
registration statement under the Securities Act, (b) to the extent
applicable, Rule 144 or Rule 144A or (c) any other legally available means
of transfer.
4.03 Restrictive Legends. Unless and until otherwise permitted by
this Section 4, the certificates for the Warrants issued under this
Agreement, each certificate for any Warrants issued to any subsequent
transferee of any such certificate, each certificate for any Warrant Stock
issued upon exercise of any Warrant and each certificate for any Warrant
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THAT CERTAIN WARRANT AGREEMENT
DATED AS OF DECEMBER 12, 1997 (THE "WARRANT AGREEMENT"), AMONG
INTEGRATED ORTHOPAEDICS, INC., A TEXAS CORPORATION (THE "ISSUER"), FW
INTEGRATED ORTHOPAEDICS INVESTORS, L.P., AND FW INTEGRATED
ORTHOPAEDICS INVESTORS II, L.P., AS THE WARRANT AGREEMENT MAY BE
MODIFIED AND SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME, AND NO
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A COPY
OF THE FORM OF THE WARRANT AGREEMENT IS ON FILE AND MAY BE INSPECTED
AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER. THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY
THE PROVISIONS OF THE WARRANT AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
4.04 Termination of Restrictions. All of the restrictions imposed by
this Section 4 upon the transferability of the Restricted Securities shall
cease and terminate as to any particular Restricted Security when such
Restricted Security shall have been effectively registered under the
Securities Act and applicable state securities laws and sold by the Holder
thereof in accordance with such registration or sold under and pursuant to
Rule 144 or is eligible to be sold under and pursuant to paragraph (k) of
Rule 144. Whenever the restriction imposed by this Section 4 shall
terminate as to any Restricted Security as hereinabove provided, the Holder
thereof shall be entitled to receive from the Issuer, without expense, a
new certificate evidencing such Restricted Security not bearing the
restrictive legend otherwise required to be borne by a certificate
evidencing such Restricted Security.
SECTION 5. Dispositions of Securities.
5.01 Dispositions of Securities.
(a) Subject to compliance with the Securities Act, applicable
state securities laws and the requirement as to placement of a legend on
certificates for Restricted Securities specified in Section 4.03, this
Warrant and all rights hereunder are transferable (subject to any
restrictive legends hereon), in whole or in part, upon surrender of this
Warrant to the Issuer, together with a written assignment of this Warrant
duly executed by the Holder hereof or such Holder's agent or attorney.
Such written assignment shall be in the form of the Assignment Form
attached as Annex 2 hereto. Upon such surrender, the Issuer shall execute
and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denominations specified in such instrument of
assignment, and the original Warrant shall promptly be canceled.
(b) The Warrant may be exchanged for other Warrants of the
same series upon presentation to the Issuer, together with a written notice
specifying the denominations in which new Warrants are to be issued, signed
by the Holder hereof. The Issuer shall execute and deliver a new Warrant
or Warrants to the Holder in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice. The Issuer shall pay
all expenses, taxes (other than Federal, state or local income taxes) and
other charges payable in connection with the preparation, issuance and
delivery of the Warrants, including any transfer or exchange thereof.
(c) The Issuer shall maintain books for the registration and
transfer of the Warrants, and shall allow each Holder to inspect such books
at such reasonable times as such Holder shall request.
SECTION 6. Adjustments.
6.01 Dividends, Distributions and Purchases.
(a) If the Issuer shall pay or distribute during any calendar
quarter any cash dividend to holders of its Common Stock in excess of 0.75%
of the market price of its Common Stock immediately prior to the
declaration of such dividend, then (at the sole option of the Holder)
either (i) the per share Exercise Price shall be adjusted downward by the
per share amount of such dividend or (ii) the number of shares of Warrant
Stock comprising a Stock Unit shall be adjusted to be that number
determined by multiplying the number of shares of Warrant Stock comprising
a Stock Unit immediately prior to the payment of such dividend by a
fraction (A) the numerator of which shall be equal to the per share
Exercise Price immediately prior to the payment of such dividend and (B)
the denominator of which shall be equal to the per share Exercise Price as
determined in clause (i) of this Section 6.01(a);
(b) If at any time the Issuer shall pay any dividend or make
any other distribution to holders of its Common Stock of any evidence of
indebtedness or other property of any nature whatsoever (other than as
provided in Sections 6.01(a), 6.02, 6.03(i)(A) and 6.04(i)(A) hereof), the
Issuer shall at the same time pay or distribute to each Holder of Warrants
that are by their terms then exercisable (whether or not such Holder
exercises such Warrants) the evidence of indebtedness or other property
such Holder would have been entitled to receive if such Holder had
exercised such Warrants immediately prior to the record date for such
dividend or distribution; and
(c) If at any time the Issuer shall propose to purchase or
redeem any shares of its Common Stock owned by any of its Affiliates for
cash, evidence of indebtedness or other property of any nature whatsoever,
the Issuer shall deliver to each Holder of Warrants that are by their terms
then exercisable or shares of Warrant Stock a notice of such proposed
purchase or redemption, and each such Holder shall, at its option, have the
right to require the Issuer to at the same time purchase or redeem Warrants
that are by their terms then exercisable and shares of Warrant Stock owned
by such Holder, pro-rata based on the number of shares of such other Common
Stock to be so purchased or redeemed, on the same terms and conditions as
the proposed purchase or redemption of such other Common Stock and for the
same consideration per Warrant or share of Warrant Stock, as the case may
be, as is paid to the holders of such other Common Stock for each share of
Common Stock so redeemed or purchased, minus, in the case of Warrants, the
exercise price of the Warrants to be so purchased or redeemed.
6.02 Subdivisions and Combinations. If at any time the Issuer shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution
of Common Stock;
(b) subdivide, split or reclassify its outstanding shares of
Common Stock into a larger number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;
then immediately after the occurrence of any such event the number of
shares of Warrant Stock comprising a Stock Unit shall be adjusted so as to
equal the number of shares of Warrant Stock that such Holder would have
been entitled to receive if such Holder had exercised the Warrant
immediately prior to the occurrence of such event.
6.03 Issuance of Common Stock. In case at any time the Issuer (i)(A)
shall take a record of the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase shares of any class or series
of Common Stock or (B) shall otherwise sell or issue such securities and
(ii) the consideration per share of Common Stock to be paid upon such
issuance or subscription is less than the Exercise Price on such record
date, then (at the sole option of the Holder) either:
(x) the Exercise Price shall be adjusted to be that price
determined by dividing (i) an amount equal to the sum of (A) the
product of (1) the number of shares of Common Stock outstanding
immediately before such issuance, distribution, subscription or
purchase and (2) the then existing Exercise Price plus (B) the
aggregate consideration, if any, received by the Issuer upon such
issuance for the total number of shares of Common Stock to be issued,
distributed, subscribed for or purchased, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance,
distribution, subscription or purchase; or
(y) the number of shares of Warrant Stock comprising a Stock Unit
shall be adjusted to be that number determined by multiplying the
number of shares of Warrant Stock comprising a Stock Unit immediately
prior to such record date by a fraction (not to be less than one) (i)
the numerator of which shall be equal to the product of (A) the number
of shares of Common Stock outstanding after giving effect to such
issuance, distribution, subscription or purchase and (B) the Exercise
Price determined immediately before such record date and (ii) the
denominator of which shall be equal to the sum of (A) the product of
(1) the number of shares of Common Stock outstanding immediately
before such record date and (2) the Exercise Price determined
immediately before such record date and (B) the aggregate
consideration to be received by the Issuer for the total number of
shares of Common Stock to be issued, distributed, subscribed for or
purchased.
Aggregate consideration for purposes of this Section 6.03 shall be
determined as follows: In case any shares of Common Stock shall be issued
or sold for cash, the consideration received therefor shall be deemed to be
the amount payable to the Issuer therefor, after deduction therefrom of any
expenses incurred or any underwriting commissions or concessions or
discounts or, in the case of a private placement thereof, finders' fees or
commissions paid or allowed by the Issuer in connection therewith. In case
any shares of Common Stock shall be issued or sold for a consideration
other than cash payable to the Issuer, the consideration received therefor
shall be deemed to be the fair value of such consideration as determined by
the Board, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Issuer in connection therewith. In case any shares of Common Stock shall
be issued in connection with any merger of another corporation into the
Issuer, the amount of consideration therefor shall be deemed to be the fair
value as determined by the Board of such portion of the assets of such
merged corporation as the Board shall determine to be attributable to such
shares of Common Stock.
6.04 Issuance of other Securities, Rights or Obligation. In case at
any time the Issuer (i)(A) shall take a record of the holders of its Common
Stock for the purpose of entitling them to subscribe for or purchase
options to purchase or rights to subscribe for Common Stock or security
directly or indirectly convertible into or exchangeable for Common Stock
(or options or rights with respect to such securities) or (B) shall
otherwise issue or sell any such options, rights or securities and (ii) the
consideration per share for which Common Stock is deliverable upon exercise
of such options or rights or conversion or exchange of such securities
(determined by dividing (x) the total amount received or receivable by the
Issuer in consideration of the issuance of or subscription for such
options, rights or securities, plus the minimum aggregate amount of
premiums (if any) payable to the Issuer upon such exercise, conversion or
exchange, by (y) the total maximum number of shares of Common Stock
necessary to effect the exercise, conversion or exchange of all such
options, rights or securities) shall be less than the Exercise Price on
such record date or sale or issuance date, as the case may be, then the
number of shares of Warrant Stock comprising a Stock Unit shall be adjusted
to be that number determined by multiplying the number of shares of Warrant
Stock comprising a Stock Unit immediately prior to such date by a fraction
(not to be less than one) (i) the numerator of which shall be equal to the
product of (A) the total maximum number of shares of Common Stock
outstanding after giving effect to the assumed exercise or conversion of
all such options, rights or securities and (B) the Exercise Price
determined immediately before such date and (ii) the denominator of which
shall be equal to the sum of (A) the product of (l) the number of shares of
Common Stock outstanding immediately before such date and (2) the Exercise
Price determined immediately before such date and (B) the aggregate
consideration per share (determined as set forth in subsection (ii)(x) and
(y) above) for which Common Stock is deliverable upon exercise, conversion
or exchange of such options, rights or securities; provided, however, that
this Section 6.04 shall not apply to the issuance of Excluded Securities.
Aggregate consideration for purposes of the immediately preceding clause
(B) shall be determined as follows: In case any options, rights or
convertible or exchangeable securities (or options or rights with respect
thereto) shall be issued or sold, or exercisable, convertible or
exchangeable for cash, the consideration received therefor shall be deemed
to be the amount payable to the Issuer (determined as set forth in
subsection (ii)(x) and (y) above) therefor, after deduction therefrom of
any expense incurred or any underwriting commissions or concessions or
discounts or, in the case of a private placement thereof, finders' fees or
commissions paid or allowed by the Issuer in connection therewith. In case
any such options, rights or securities shall be issued or sold, or
exercisable, convertible or exchangeable for a consideration other than
cash payable to the Issuer, the consideration received therefor (determined
as set forth in subsection (ii)(x) and (y) above) shall be deemed to be the
fair value of such consideration as determined by the Board, after
deduction therefrom of any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by the Issuer in
connection therewith. In case any such options, rights or securities shall
be issued or sold, or excisable, convertible or exchangeable in connection
with any merger of another corporation into the Issuer, the amount of
consideration therefor shall be deemed to be the fair value as determined
by the Board of such portion of the assets of such merged corporation as
the Board shall determine to be attributable to such options, rights or
securities.
6.05 Superseding Adjustment. If, at any time after any adjustment in
the number of shares of Warrant Stock comprising a Stock Unit shall have
been made on the basis of the issuance of any options or rights, or
convertible or exchangeable securities (or options or rights with respect
to such securities) pursuant to Section 6.04 hereof:
(a) the options or rights shall expire prior to exercise or
the right to convert or exchange any such securities shall terminate;
or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to the terms of such options or rights or
convertible or exchangeable securities shall be increased or
decreased, other than under or by reason of provisions designed to
protect against dilution;
such previous adjustment shall be rescinded and annulled. Thereupon, a
recomputation shall be made of the effect of such options or rights or
convertible or exchangeable securities with respect to shares of Common
Stock on the basis of
(A) treating the number of shares of Common Stock, if any,
theretofore actually issued or issuable pursuant to the
previous exercise, conversion or exchange of such options,
rights or securities as having been issued on the date or
dates of such exercise, conversion or exchange and for the
consideration actually received and receivable therefore,
and
(B) treating any such options, rights or securities which then
remain outstanding as having been granted or issued
immediately after the time of such increase or decrease
for the consideration per share for which shares of Common
Stock are issuable upon exercise, conversion or exchange
of such options, rights or securities.
To the extent called for by the foregoing provisions of this Section 6.05
on the basis aforesaid, a new adjustment in the number of shares of Warrant
Stock comprising a Stock Unit shall be made, determined using the Exercise
Price used at the time of the original determination, which new adjustment
shall supersede the previous adjustment so rescinded and annulled. If the
exercise, conversion or exchange price provided for in any such option,
right or security shall decrease at any time under or by reason of
provisions designed to protect against dilution, then in the case of the
delivery of shares of Common Stock upon the exercise, conversion or
exchange of any such option, right or security, the Stock Unit purchasable
upon the exercise of a Warrant shall forthwith be adjusted in the manner
which would have obtained had the adjustment made upon issuance of such
option, right or security been made upon the basis of the issuance of (and
the aggregate consideration received for) the shares of Common Stock
delivered as aforesaid.
6.06 Other Provisions Applicable to Adjustments under this Section 6.
The following provisions shall be applicable to the making of adjustments
of the number of shares of Warrant Stock comprising a Stock Unit:
(a) The sale or other disposition of any issued shares of
Common Stock owned or held by or for the account of the Issuer shall
be deemed to be an issuance thereof for purpose of this Section 6.
(b) In computing adjustments under this Section 6, fractional
interest in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
(c) If the Issuer shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof, legally abandon its
plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
6.07 Merger, Consolidation or Disposition of Assets. If the Issuer
shall merge or consolidate with another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its assets to
another corporation and pursuant to the terms of such merger, consolidation
or disposition of assets, cash, shares of common stock or other securities
of the successor or acquiring corporation, or property of any nature is to
be received by or distributed to the holders of Common Stock of the Issuer,
then each Holder of Warrants that are by their terms then exercisable
shall, at such Holder's election, have the right to receive (whether or not
such Holder exercises such Warrants) the amount it would have been entitled
to receive if such Holder had exercised such Warrants immediately prior to
the occurrence of such merger, consolidation or disposition of assets, net
of the Exercise Price of such Warrants, and shall thereupon be deemed to
have exercised such Warrants. In case of any such merger, consolidation or
disposition of assets in which the foregoing election is not made, the
successor or acquiring corporation (and any affiliate thereof issuing
securities) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Issuer and all of the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board and reasonably
acceptable to the Holders of a majority in interest of the Warrants) in
order to provide for adjustments of Stock Units which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section.
The foregoing provisions shall similarly apply to successive mergers,
consolidations and dispositions of assets.
6.08 Other Action Affecting Common Stock. If at any time or from time
to time the Issuer shall take any action affecting its Common Stock, other
than an action described in any of the foregoing subsections of this
Section 6 or an action taken in the ordinary course of the Issuer's
business and consistent with past practice, then, unless in the reasonable
opinion of the Board such action will not have a material adverse effect
upon the rights of the Holders of the Warrant, the terms of the Warrant
shall be adjusted in such manner and at such time as the Board shall in
good faith determine to be equitable in the circumstances, but no such
adjustment shall decrease the number of shares of Warrant Stock comprising
a Stock Unit.
6.09 Notice of Adjustments. Whenever the number of shares of Warrant
Stock comprising a Stock Unit shall be adjusted pursuant to this Agreement,
the Issuer shall forthwith obtain a certificate signed by the Issuer's
chief financial officer (or, if a majority in interest of the Holders so
request after delivery of a certificate from the chief financial officer,
signed by a firm of independent accountants of recognized national standing
selected by the Issuer), setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated and specifying the number of shares of Warrant Stock comprising
a Stock Unit, after giving effect to such adjustment or change. The Issuer
shall promptly cause a signed copy of such certificate to be delivered to
each Holder. The Issuer shall keep at its office copies of all such
certificates and cause the same to be available for inspection at said
office during normal business hours by any Holder or any prospective
purchaser of Warrants designated by the registered Holder hereof.
6.10 Notice of Certain Corporate Action. If the Issuer shall propose
(i) to pay any dividend to the holders of its Common Stock or to make any
other distribution to the holders of its Common Stock; (ii) to offer to the
holders of its Common Stock rights to subscribe for or to purchase any
additional shares of Common Stock (or options or rights with respect
thereto); (iii) to effect any reclassification of its Common Stock; (iv) to
otherwise issue any Common Stock or other securities, excluding the
issuance, conversion, exercise or exchange of Excluded Securities; (v) to
effect any capital reorganization, excluding the issuance, conversion,
exercise or exchange of Excluded Securities; (vi) to effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all of its assets; or (vii) to effect the liquidation,
dissolution or winding up of the Issuer, then, in each such case, the
Issuer shall give to each Holder of Warrants a notice of such proposed
action, which shall specify the date on which a record is to be taken for
the purposes of such dividend, distribution or right offer, or the date on
which such reclassification, issuance, reorganization, consolidation,
merger, sale, transfer, disposition, liquidation, dissolution or winding up
is to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall also set forth
such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock, and the number of
shares of Warrant Stock which will comprise a Stock Unit after giving
effect to any adjustment which will be required as a result of such action.
Such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 20 days prior to the record date for determining
holders of the Common Stock for purposes of such action, and in the case of
any other such action, at least 20 days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier.
SECTION 7. Holders' Rights.
7.01 Delivery Expenses. If any Holder surrenders any certificate for
Warrants or Warrant Stock to the Issuer or a transfer agent of the Issuer
for exchange for instruments of other denominations or registered in
another name or names, the Issuer shall cause such new instruments to be
issued and shall pay the cost of delivering to such Holder from the Issuer
or its transfer agent, duly insured, the surrendered instrument and any new
instruments issued in substitution or replacement for the surrendered
instrument.
7.02 Taxes. The Issuer shall pay all taxes (other than Federal, state
or local income taxes) which may be payable in connection with the
execution and delivery of this Agreement or the issuance of the Warrants
and Warrant Stock hereunder or in connection with any modification of this
Agreement or the Warrants and shall hold each Holder harmless without
limitation as to time against any and all liabilities with respect to all
such taxes. The obligations of the Issuer under this Section 7.02 shall
survive any redemption, repurchase or acquisition of Warrants or Warrant
Stock by the Issuer, any termination of this Agreement, and any
cancellation or termination of the Warrants.
7.03 Replacement of Instruments. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument
evidencing any Warrants or Warrant Stock, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it, provided that, if the Common Stock is not at
the time publicly traded and the owner of the same is either of the
Purchasers or an institutional lender or investor, its or their own
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender or cancellation
thereof, at its expense, the Issuer, at its expense, shall execute,
register and deliver, in lieu thereof, a new certificate or instrument for
(or covering the purchase of) an equal number of Warrants or Warrant
Stock.
SECTION 8. Other Covenants of Issuer. The Issuer agrees with each
Holder that, so long as any of the Warrants and/or Warrant Stock shall be
outstanding:
8.01 Restrictions on Performance. The Issuer shall not at any time
enter into an agreement or other instrument limiting in any manner its
ability to perform its obligations under this Agreement or the Warrants, or
making such performance or the issuance of Warrant Stock upon the exercise
of any Warrant a default under any such agreement or instrument.
8.02 Modification of Other Equity Documents. The Issuer shall not
amend or consent to any modification, supplement or waiver of any provision
of any Other Equity Documents in any manner which would have an adverse
effect on the Warrant Stock Holders, in each case without the prior written
consent of the Holders of two-thirds of the Warrant Stock issued or
issuable upon exercise of the Warrants. Without limiting the generality of
the foregoing, the Issuer shall not amend, or consent to any modification,
supplement or waiver of any provision of any Other Equity Documents in a
way which would (i) restrict the transferability of the Warrants and the
Warrant Stock, (ii) restrict the transferability of the rights of any
Holder in this Agreement to any transferee of all or a portion of such
Holder's Warrants and/or Warrant Stock or (iii) require any consent or
other approval of any Person to the exercise of the Warrants by any Holder
or the issuance of Warrant Stock upon such exercise or the admission of
such Holder as a shareholder of the Issuer upon such exercise.
<PAGE>
SECTION 9. Miscellaneous.
9.01 Home Office Payment. Notwithstanding anything to the contrary in
this Agreement or the Warrants, so long as either of the Purchasers or any
nominee designated by either of them shall be a Holder, the Issuer shall
punctually pay all amounts which become due and payable with respect to any
Warrant or Warrant Stock to such Purchasers at the addresses registered on
the books of the Issuer maintained for such purpose, or at such other place
and in such manner as such Purchasers may designate by notice to the
Issuer, without presentation or surrender of such Warrants or the making of
any notation thereon. Each Purchaser agrees that prior to the sale,
transfer or other disposition of a part of any Warrant, it will make
notation thereon of the number of shares of Warrant Stock covered by the
part of the Warrant sold, transferred or disposed, or surrender the same in
exchange for a Warrant covering the number of shares of Warrant Stock
remaining on the Warrant so surrendered. The Issuer agrees that the
provisions of this Section 9.01 shall inure to the benefit of any other
Holder registered on the books of the Issuer.
9.02 Waiver. No failure on the part of any Purchaser to exercise and
no delay in exercising, and no course of dealing with respect to, any
right, power or privilege under this Agreement or the Warrants shall
operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement or the Warrant preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
9.03 Notices.
(a) All notices, requests and other communications provided
for herein and the Warrants (including any waivers or consents under this
Agreement and the Warrants) shall be given or made in writing,
(i) if to the Issuer:
Address for Notices:
Integrated Orthopaedics, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Attention: Chief Executive Officer
Fax No.: (713) 339-2858
(ii) if to Purchasers or any other Person who is the registered
Holder of any Warrants or Warrant Stock, to the address for such
Holder as it appears in the stock or warrant ledger of the Issuer;
or, in the case of any Holder, at such other address as shall be designated
by such party in a notice to the Issuer; or, in the case of the Issuer, at
such other address as the Issuer may designate in a notice to the
Purchasers and all other Holders.
(b) All such notices, requests and other communications shall be: (i)
personally delivered, sent by courier guaranteeing overnight delivery or
sent by registered or certified mail, return receipt requested, postage
prepaid, in each case given or addressed as aforesaid; and (ii) effective
upon-receipt.
9.04 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be amended or modified only
by an instrument in writing signed by the Issuer and the Holders of two-
thirds of the Warrant Stock issued or issuable upon exercise of the
Warrants; provided, however, that (a) the consent of the Holders of any
Warrant Stock or Warrants shall not be required with respect to any
amendment or waiver which does not affect the rights or benefits of such
class under this Agreement and (b) no such amendment or waiver shall,
without the written consent of all Holders of such Warrant Stock and
Warrants at the time outstanding, amend this Section 9.04.
9.05 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
9.06 Survival. All representations and warranties made by the Issuer
herein or in any certificate or other instrument delivered by it or on its
behalf under this Agreement shall be considered to have been relied upon by
the Purchasers and shall survive the issuance of the Warrants or the
Warrant Stock regardless of any investigation made by or on behalf of the
Purchasers. All statements in any such certificate or other instrument so
delivered shall constitute representations and warranties by the Issuer
hereunder.
9.07 Specific Performance. Damages in the event of a breach of this
Agreement by a Holder or the Issuer would be difficult, if not impossible,
to ascertain and it is therefore agreed that each Holder and the Issuer, in
addition to and without limiting any other remedy or right it may have,
will have the right to an injunction or other equitable relief in any court
of competent jurisdiction, enjoining any such breach, and enforcing
specifically the terms and provisions hereof, and each Holder and the
Issuer hereby waives any and all defenses it may have on the ground of lack
of jurisdiction or competence of the court to grant such an injunction or
other equitable relief. The existence of this right will not preclude the
Holders or the Issuer from pursuing any other rights and remedies at law or
in equity which the Holders or the Issuer may have.
9.08 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
9.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart signature page or counterpart.
9.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of Texas without giving
effect to the conflicts of law principles thereof.
9.11 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not
be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, (c) the remaining provisions of this Agreement will remain in all
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom and (d) in lieu of
such illegal, invalid or unenforceable provision there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal invalid or unenforceable
provision as may be possible.
9.12 Entire Agreement. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof, and together with the Warrants contains the sole and entire
agreement between the parties hereto with respect to the subject matter
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Agreement as of the date first above written.
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
FW INTEGRATED ORTHOPAEDICS, L.P.
By: GROUP 31, INC.,
its General Partner
By:
Name:
Title:
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
By: FW GROUP GENPAR, INC.,
its General Partner
By:
Name:
Title:
<PAGE>
Annex 1
To
Warrant Agreement
[Form of Warrant]
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE CONDITIONS SPECIFIED IN THAT CERTAIN WARRANT AGREEMENT DATED AS OF
DECEMBER 12, 1997 (THE "WARRANT AGREEMENT"), AMONG INTEGRATED ORTHOPAEDICS,
INC., A TEXAS CORPORATION (THE "ISSUER"), FW INTEGRATED ORTHOPAEDICS
INVESTORS, L.P., AND FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P., AS THE
WARRANT AGREEMENT MAY BE MODIFIED AND SUPPLEMENTED AND IN EFFECT FROM TIME
TO TIME, AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A
COPY OF THE FORM OF THE WARRANT AGREEMENT IS ON FILE AND MAY BE INSPECTED
AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER. THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE
PROVISIONS OF THE WARRANT AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
Number of
Stock Units: _____________ Warrant No. ________
WARRANT
to Purchase Common Stock of
INTEGRATED ORTHOPAEDICS, INC.
THIS IS TO CERTIFY THAT ___________________________________, or its
registered assigns (the "Holder"), is entitled to purchase ______ Stock
Units at the Exercise Price (as defined below), in whole or in part, from
time to time from Integrated Orthopaedics, Inc., a Texas corporation (the
"Issuer"), at any time on and after July 1, 2000, but not later than 5:00
p.m., Houston time, on the Expiration Date (as defined below), subject to
the terms and conditions hereinbelow provided. All capitalized terms
unless otherwise defined herein shall have the meanings set forth in the
Warrant Agreement. "Exercise Price" per share of Warrant Stock shall mean
$8.00; provided, however, that, upon receipt of the requisite vote of the
holders of Common Stock approving the following adjustment, the Exercise
Price shall be the lesser of (i) $8.00, (ii) the average closing sales
price of the Common Stock for the twenty trading days immediately prior to
the Closing Date, (iii) the average closing sales price of the Common Stock
for the twenty trading days immediately following the Closing Date, (iv)
the average closing sales price of the Common Stock for the twenty trading
days immediately following public disclosure of the Issuer's earnings for
calendar 1998 and (v) the average closing sales price of the Common Stock
for the twenty trading days immediately following public disclosure of the
Issuer's earnings for calendar 1999. "Expiration Date" shall mean the
fifth anniversary of the date on which this Warrant first becomes
exercisable for Warrant Stock; provided, however, that the Issuer shall
provide written notice to the Holder at least ten days before the
Expiration Date (but no more than 30 days before the Expiration Date)
informing the Holder that this Warrant is subject to this expiration
provision; provided further that if no such notice is provided as
contemplated by the immediately preceding proviso, the Expiration Date
shall mean the date which is ten days after Holder's receipt of such
notice. The number of Stock Units that this Warrant is exercisable for may
be reduced in accordance with Schedule B hereto based on the Issuer's
Revenue and EBITDA (each as defined below) for calendar years 1998 and
1999. "Revenue" shall mean accrual based gross clinic revenues less
provisions for doubtful accounts, contractual adjustments and amounts
retained by physician groups, which shall be audited by the Issuer's
auditors in the course of their annual audit, consistent with past
practices. "EBITDA" shall mean Revenue less all expenses except interest,
taxes, depreciation and amortization. For purpose of calculating Revenue
and EBITDA herein, any Revenue or EBITDA attributable to businesses other
than the provision of professional medical services and ancillary services
by Physician Practice Groups (as defined below) shall be excluded from such
calculation. "Physician Practice Groups" are defined as (i) physicians and
groups of physicians engaged in, and professional medical corporations and
other entities employing or engaging physicians for, the provision of
medical services and that have a management or similar relationship with
the Issuer or a Subsidiary of the Issuer and (ii) physician practice
management companies acquired by the Issuer or any of its Subsidiaries.
(In connection with any acquisition consummated by the Issuer subsequent to
the Closing Date, the acquired business will be considered a Physician
Practice Group for purposes of this Warrant unless the Purchasers shall
object to such designation. If the Issuer and the Purchasers are unable to
agree upon a designation with respect to an acquisition, the Board of
Directors of the Issuer shall submit the issue for resolution to a special
committee consisting of independent accountants and independent directors
created by the Board of Directors of the Issuer. The determination of the
special committee shall be final and binding upon the Issuer and
Purchasers.)
Notwithstanding any other provision herein, upon a Change of Control
(as defined below), this Warrant shall immediately become exercisable, in
whole or in part, from time to time, at any time prior to the Expiration
Date. "Change of Control" is defined as (i) the acquisition by another
person or group of persons of 35% or more of the outstanding shares of
Common Stock of the Issuer (other than through a merger, consolidation or
business combination with another physician practice management company
approved by the Purchasers), (ii) a majority change in the Board of
Directors over a twelve month period, (iii) a merger, consolidation, or
other similar transaction with another entity in which the Issuer is not
the surviving entity or in which the Issuer's shareholders do not own a
majority of the shares in the combined entity or (iv) a sale of all or
substantially all of the Issuer's assets.
The Holder may exercise this Warrant, on one or more occasions, on any
Business Day, in whole or in part, by delivering to the Issuer:
(a) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of Stock Units to
be purchased (the "Exercise Notice");
(b) payment of the aggregate Exercise Price for the number of Stock
Units as to which this Warrant is being exercised (payable as set
forth below); and
(c) this Warrant.
The Exercise Price shall be payable (a) in cash or by certified or
official bank check payable to the order of the Issuer or by wire transfer
of immediately available funds to the account of the Issuer or (b) by
delivery of this Warrant Certificate to the Issuer for cancellation in
accordance with the following formula: in exchange for each share of
Warrant Stock issuable on exercise of each Warrant represented by this
Warrant Certificate that is being exercised, the Holder shall receive such
number of shares of Warrant Stock as is equal to the product of (i) the
number of shares of Warrant Stock issuable upon exercise of the Warrants
being exercised at such time multiplied by (ii) a fraction, the numerator
or which is the fair market value per share of Warrant Stock at such time
minus the Exercise Price per share of Warrant Stock at such time, and the
denominator of which is the fair market value per share of Warrant Stock at
such time. Such Exercise Notice shall be substantially in the form of
Schedule A hereto. Upon receipt thereof, the Issuer shall, as promptly as
practicable and in any event within five Business Days thereafter, execute
or cause to be executed and deliver or cause to be delivered to the Holder
a certificate or certificates representing the aggregate number of Warrant
Stock and other securities issuable upon such exercise and any other
property to which such Holder is entitled.
The certificate or certificates for Warrant Stock so delivered shall
be in such denominations as may be specified in the Exercise Notice and
shall be registered in the name of the Holder or such other name or names
as shall be designated in such Exercise Notice. Such certificate or
certificates shall be deemed to have been issued and the Holder or any
other Person so designated to be named therein shall be deemed to have
become a Holder of record of Warrant Stock, including, to the extent
permitted by law, the right to vote Warrant Stock or to consent or to
receive notice as a Shareholder, as of the date on which the last of the
Exercise Notice, payment of the Exercise Price and this Warrant is received
by the Issuer as aforesaid, and all taxes required to be paid by the
Holder, if any, pursuant to the Warrant Agreement, prior to the issuance of
Warrant Stock have been paid. If this Warrant shall have been exercised
only in part, the Issuer shall, at the time of delivery of the certificate
or certificates representing Warrant Stock and other securities, execute
and deliver to the Holder a new Warrant evidencing the rights of the Holder
to purchase the unpurchased Stock Units called for by this Warrant, which
new Warrant shall in all other respects be identical with this Warrant, or,
at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
The Issuer shall not be required to issue a fractional amount of
Warrant Stock upon exercise of this Warrant. As to any fraction of a share
of Warrant Stock which the Holder would otherwise be entitled to purchase
upon such exercise the Issuer shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the fair
market value per share of Warrant Stock on the date of exercise.
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the Issuer has duly executed this Warrant.
Dated:
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
Attest:
Secretary<PAGE>
Schedule A
to
Warrant
FORM OF EXERCISE
(To be executed by the registered Holder hereof)
The undersigned registered owner of this Warrant irrevocably
[exercises this Warrant for the purchase of _______ Stock Units of
INTEGRATED ORTHOPAEDICS, INC. and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant],
[exchanges this Warrant for _______ Stock Units of INTEGRATED ORTHOPAEDICS,
INC., all on the terms and conditions specified in this Warrant,] and
requests that certificates for the shares of Warrant Stock be issued in
accordance with the instructions given below, and, if such Stock Units
shall not include all of the Stock Units to which the Holder is entitled
under this Warrant, that a new Warrant of like tenor and date for the
unpurchased balance of the Stock Units issuable hereunder be delivered to
the undersigned.
Dated:
(Signature of Registered Holder)
Instructions for issuance and
registration of Warrant Stock:
Name of Registered Holder
(please print)
Social Security or Other Identifying
Number:
Please deliver certificate to
the following address:
Street
City, State and Zip Code
<PAGE>
Schedule B
to
Warrant
EXPIRATION SCHEDULE
The following expiration schedule is for all Warrants issued pursuant
to the Warrant Agreement. If more that one Warrant is issued pursuant
thereto, the number of Stock Units Expiring below shall be adjusted in each
Warrant pro rata among the several Warrants issued.
Actual 1998 Revenue(1) Stock Units Expiring
$48.1 million or less none
More than $48.1 million but *
less than $51.3 million
$51.3 million or more 1,250,000
* One Stock Unit shall expire for every $2.56 of Revenue in excess of
$48.1 million, but in no event shall more than 1,250,000 Stock Units
expire.
Actual 1998 EBITDA(1) Stock Units Expiring
$7.6 million or less none
More than $7.6 million but *
less than $8.1 million
$8.1 million or more 1,250,000
* One Stock Unit shall expire for every $0.40 of EBITDA in excess of
$7.6 million, but in no event shall more than 1,250,000 Stock Units
expire.
Actual 1999 Revenue(2) Stock Units Expiring
$115.5 million or less none
More than $115.5 million but *
less than $138.7 million
$138.7 million or more 1,250,000
* One Stock Unit shall expire for every $18.56 of Revenue in excess
of $115.5 million, but in no event shall more than 1,250,000 Stock
Units expire.
Actual 1999 EBITDA(2) Stock Units Expiring
$22.5 million or less none
More than $22.5 million but *
less than $26.9 million
$26.9 million or more 1,250,000
* One Stock Unit shall expire for every $3.52 of EBITDA in excess of
$22.5 million, but in no event shall more than 1,250,000 Stock Units
expire.
- ----------------------------
(1) As determined after application of Positive Carryback or Negative
Carryback (as such terms are defined below).
(2) As determined after application of Positive Carryforward or Negative
Carryforward (as such terms are defined below).
For purposes of calculating expired Stock Units pursuant to the foregoing
tables, the following provisions shall apply:
(a) if 1998 Revenue is greater than $51.3 million or 1998 EBITDA is
greater than $8.1 million, the amount of such overage shall be carried
forward (a "Positive Carryforward") and added to 1999 Revenue or 1999
EBITDA, as the case may be;
(b) if 1998 Revenue is less than $48.1 million or 1998 EBITDA is less
than $7.6 million, the amount of such shortfall shall be carried forward (a
"Negative Carryforward") and subtracted from 1999 Revenue or 1999 EBITDA,
as the case may be;
(c) if 1999 Revenue is greater than $138.7 million or 1999 EBITDA is
greater than $26.9 million, the amount of such overage shall be carried
back (a "Positive Carryback") and added to 1998 Revenue or 1998 EBITDA, as
the case may be; and
(d) if 1999 Revenue is less than $115.5 million or 1998 EBITDA is less
than $22.5 million, the amount of such shortfall shall be carried back (a
"Negative Carryback") and subtracted from 1998 Revenue or 1998 EBITDA, as
the case may be.
Expiring Warrants for all periods pursuant to the foregoing tables may
be determined only after the Issuer's audited financial statements for the
year ended December 31, 1999 are delivered because of the impact of
Positive Carrybacks or Negative Carrybacks.<PAGE>
Annex 2
To
Warrant Agreement
FORM OF ASSIGNMENT
(To be executed by the registered Holder hereof)
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all the
rights of the undesigned under this Warrant with respect to the number of
shares of Warrant Stock covered thereby set forth hereinbelow unto:
Name of Assignee
Address
Number of Shares
of Warrant Stock
Dated:
Signature of Registered Holder
Name of Registered Holder
(Please Print)
Witness:
<PAGE>
WARRANT AGREEMENT
Among
INTEGRATED ORTHOPAEDICS, INC.,
FW INTEGRATED ORTHOPAEDICS INVESTORS, L.P.
AND
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
Dated as of December 12, 1997
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions; Accounting Terms and Determinations. . . . . . . 1
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . 4
SECTION 2. Purchase and Sale of Warrant. . . . . . . . . . . . . . . . . 5
2.01 Authorization and Issuance of Warrant Stock and Warrants. . . 5
2.02 Issuance of the Warrant . . . . . . . . . . . . . . . . . . . 5
2.03 Securities Act Compliance . . . . . . . . . . . . . . . . . . 5
SECTION 3. Representations and Warranties. . . . . . . . . . . . . . . . 5
SECTION 4. Restrictions on Transferability . . . . . . . . . . . . . . . 5
4.01 Transfers Generally . . . . . . . . . . . . . . . . . . . . . 5
4.02 Transfers of Restricted Securities Pursuant to Registration
Statements, Rule 144 and Rule 144A. . . . . . . . . . . . . . 6
4.03 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . 6
4.04 Termination of Restrictions . . . . . . . . . . . . . . . . . 6
SECTION 5. Dispositions of Securities. . . . . . . . . . . . . . . . . . 7
5.01 Dispositions of Securities. . . . . . . . . . . . . . . . . . 7
SECTION 6. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.01 Dividends, Distributions and Purchases. . . . . . . . . . . . 7
6.02 Subdivisions and Combinations . . . . . . . . . . . . . . . . 8
6.03 Issuance of Common Stock. . . . . . . . . . . . . . . . . . . 9
6.04 Issuance of other Securities, Rights or Obligation. . . . . . 10
6.05 Superseding Adjustment. . . . . . . . . . . . . . . . . . . . 11
6.06 Other Provisions Applicable to Adjustments under this Section 6 12
6.07 Merger, Consolidation or Disposition of Assets. . . . . . . . 12
6.08 Other Action Affecting Common Stock . . . . . . . . . . . . . 13
6.09 Notice of Adjustments . . . . . . . . . . . . . . . . . . . . 13
6.10 Notice of Certain Corporate Action. . . . . . . . . . . . . . 13
SECTION 7. Holders' Rights . . . . . . . . . . . . . . . . . . . . . . . 14
7.01 Delivery Expenses . . . . . . . . . . . . . . . . . . . . . . 14
7.02 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.03 Replacement of Instruments. . . . . . . . . . . . . . . . . . 15
SECTION 8. Other Covenants of Issuer . . . . . . . . . . . . . . . . . . 15
8.01 Restrictions on Performance . . . . . . . . . . . . . . . . . 15
8.02 Modification of Other Equity Documents. . . . . . . . . . . . 15
SECTION 9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 15
9.01 Home Office Payment . . . . . . . . . . . . . . . . . . . . . 15
9.02 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.04 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . 17
9.05 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 17
9.06 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.07 Specific Performance. . . . . . . . . . . . . . . . . . . . . 17
9.08 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.09 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 18
9.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 18
9.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 18
9.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
<PAGE> EXHIBIT C
OPINION OF
WILLKIE FARR & GALLAGHER INTENTIONALLY OMITTED
<PAGE>
<PAGE>
EXHIBIT D
OPINION OF
HUTCHESON & GRUNDY, L.L.P. INTENTIONALLY OMITTED
<PAGE>
<PAGE> EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 12, 1997, by
Integrated Orthopaedics, Inc., a Texas corporation (the "Company"), for the
benefit of FW Integrated Orthopaedics Investors, L.P., a Texas limited
partnership, and FW Integrated Orthopaedics Investors II, L.P., a Texas
limited Partnership (each a "Purchaser" and collectively, the "Purchasers"),
and their Permitted Transferees.
W I T N E S S E T H:
WHEREAS, the Company and the Purchasers (and for limited purposes,
Chartwell Capital Investors, L.P.) have entered into a Securities Purchase
Agreement, dated as of December 12, 1997 (the "Securities Purchase
Agreement"), pursuant to which the Purchasers have agreed to purchase, and
the Company has agreed to sell, 250,000 shares of Series B Convertible, Non-
Redeemable Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred") and contingent warrants ("Warrants" and together with
the Series B Preferred, the "Securities") to acquire shares of common stock,
par value $.001 per share, of the Company ("Common Stock"), all in accordance
with the terms and subject to the conditions set forth in the Securities
Purchase Agreement; and
WHEREAS, in order to induce the Purchasers to accept the unregistered
securities of the Company, the Company has agreed to provide registration
rights with respect to the Common Stock issuable upon conversion of the
Series B Preferred and upon exercise of the Warrants and with respect to any
other Common Stock hereafter acquired by the Purchasers.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
a. Definitions. Unless otherwise defined herein, the following terms
shall have the following respective meanings (such meanings being equally
applicable to both the singular and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement, including all
amendments, modifications and supplements, and any exhibits or schedules to
any of the foregoing, and shall refer to this Agreement as the same may be in
effect at the time such reference becomes operative.
"Business Day" shall mean any day other than a Saturday, a Sunday, or
other day on which banking institutions in the City of Houston, Texas shall
be permitted or required by law or executive order to be closed.
"Closing Date" shall mean the date on which the Securities shall be
issued by the Company to the Purchasers in accordance with the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
"Form S-3" shall mean such form under the Securities Act as is in effect
on the date hereof or any successor registration form under the Securities
Act subsequently adopted by the Commission that permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the Commission.
"Holders" shall mean the Purchasers and each Permitted Transferee.
"NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.
"Permitted Transferee" shall mean a transferee or assignee of Securities
or Registrable Securities, which were transferred or assigned pursuant to
Section 10 hereof.
"Registrable Securities" shall mean (i) shares of Common Stock owned by
a Holder, whether acquired on the date hereof or hereafter acquired, and any
other securities issued or issuable with respect to such Registrable
Securities by way of dividend or stock split or in connection with any
combination of shares of Common Stock, recapitalization, exchange, merger,
consolidation or reorganization and (ii) the Warrants and the Series B
Preferred (for purposes of a Demand Registration (as defined in Section 2));
provided, that any Registrable Security shall cease to be a Registrable
Security when (a) a registration statement covering such Registrable Security
has been declared effective by the Commission and it has been disposed of
pursuant to such effective registration statement, (b) it is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or
(c)(i) it has been otherwise transferred, (ii) the Company has delivered a
new certificate or other evidence of ownership for it not bearing a legend
restricting further transfer and (iii) it may be resold without subsequent
registration under the Securities Act.
"Requesting Holders" shall mean any Holders requesting registration of
its or their Registrable Securities in accordance with the terms of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
b. Demand Registration.
(a) Request for Registration. (i) Subject to Section 5
hereof, at any time following the Closing Date, the Holders holding a
majority of the then outstanding Registrable Securities (on an "as converted"
and "as exercised" basis) may make a written request of the Company (a
"Demand Request") for registration under the Securities Act (a "Demand
Registration") of all or part of its or their Registrable Securities.
The Demand Request shall specify the number of shares of
Registrable Securities proposed to be sold by the Requesting Holders making
such Demand Request. Subject to Section 4(b), the Company shall file the
Demand Registration as soon as practicable and in any event within 60 days
after receiving the Demand Request (the "Required Filing Date") and shall use
its best efforts to cause the same to be declared effective by the Commission
as promptly as practicable after such filing; provided, that the Company need
effect only three Demand Registrations pursuant to this Section 2.
(b) Effective Registration. A registration shall not count
as a Demand Registration until it has been declared effective by the
Commission (unless the Requesting Holders withdraw all their Registrable
Securities, in which case such demand shall count as a Demand Registration
unless (i) the Requesting Holders pay all registration expenses (excluding
the cost of Company personnel) in connection with such withdrawn
registration, (ii) the Holders have learned of a material adverse change in
the condition, business or prospects of the Company not known to the Holders
at the time of their Demand Request or (iii) the amount of Registrable
Securities proposed to be included in such Demand Registration by the
Requesting Holders is reduced by more than 50% pursuant to Section 2(d));
provided that if, after the registration has become effective, an offering of
Registrable Securities pursuant to such registration is interfered with by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court, such registration shall be deemed not to
have been declared effective.
(c) Selection of Underwriters. The offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a "firm
commitment" underwritten offering (or a "best efforts" underwritten offering
upon the written consent of the Requesting Holders). The Requesting Holders
holding a majority of the shares of Registrable Securities to be registered
in a Demand Registration shall select the managing underwriter or
underwriters to be used in connection with the offering; provided that such
selections shall be subject to the reasonable consent of the Company.
(d) Priority on Demand Registrations. No securities to be
sold for the account of any person (including the Company) other than a
Requesting Holder shall be included in a Demand Registration unless the
managing underwriter or underwriters shall advise the Requesting Holders in
writing that the inclusion of such securities will not materially and
adversely affect the price or success of the offering (a "Material Adverse
Effect"). Furthermore, in the event the managing underwriter or underwriters
shall advise the Requesting Holders that even after exclusion of all
securities of other persons (including the Company) pursuant to the
immediately preceding sentence, the amount of Registrable Securities proposed
to be included in such Demand Registration by Requesting Holders is
sufficiently large to cause a Material Adverse Effect, the Registrable
Securities of Requesting Holders to be included in such Demand Registration
shall be allocated pro rata among the Requesting Holders on the basis of the
number of shares of Common Stock requested to be included in such
registration by each such Requesting Holder.
(e) Rights of Non-Requesting Holders. Upon receipt of any
Demand Request, the Company shall promptly (but in any event within ten
Business Days) give written notice of such proposed Demand Registration to
all other Holders who shall have the right, exercisable by written notice to
the Company within 20 Business Days of their receipt of the Company's notice,
to elect to include in such Demand Registration such portion of their
Registrable Securities as they may request on the same terms as the
Requesting Holders who delivered the initial Demand Request. All Holders
requesting to have their Registrable Securities included in a Demand
Registration in accordance with the preceding sentence shall be considered
"Requesting Holders" for purposes of this Agreement.
c. Piggy-Back Registration.
(a) Notice by Company. Subject to the provisions of this
Agreement, if the Company at any time proposes to file on its behalf and/or
on behalf of any of its equity holders a registration statement under the
Securities Act on any form (other than a registration statement (i) pursuant
to Sections 2 or 4 or (ii) on Form S-8 or any successor form for securities
to be offered to employees of the Company pursuant to any employee benefit
plan), the Company will give written notice to all Holders, at least 30 days
before the initial filing with the Commission of such registration statement,
which notice shall set forth the intended method of disposition of the
securities proposed to be registered by the Company. Subject to this
Agreement, the notice shall offer to include in such filing the aggregate
amount of Registrable Securities as such Holders may request.
(b) Procedure. Each Holder desiring to have such Registrable
Securities registered under this Section 3 shall so advise the Company, in
writing, within 20 Business Days after the date of receipt of such offer from
the Company, setting forth the amount of Registrable Securities for which
registration is requested by such Holder. The Company shall thereupon
include in such filing the amount of such Registrable Securities for which
registration is so requested, subject to the next two sentences, and shall
use best efforts to effect registration under the Securities Act of such
Registrable Securities. If the managing underwriter of a proposed public
offering shall advise the Company in writing that, in its opinion, including
all the Registrable Securities requested to be included in such registration
would cause a Material Adverse Effect, then in such event the securities to
be included in such offering shall be allocated first to the Company or the
holder initiating such request for registration, as appropriate, and then, to
the extent that any additional securities can, in the opinion of such
managing underwriter or underwriters, be sold without any such Material
Adverse Effect, pro rata among the Holders of Registrable Securities and
other holders requesting their securities of the Company to be registered
pursuant to similar piggy-back registration rights on the basis of the number
of shares of Registrable Securities requested to be included in such
registration of each Holder and the number of shares of other securities
requested to be included in such registration of each other holder having
similar piggy-back registration rights. If the managing underwriter of a
proposed public offering shall advise the Company in writing that, in its
opinion, the distribution of any of the Registrable Securities requested to
be included in the registration concurrently with the securities being
registered by the Company or such other equity holder would materially and
adversely affect the distribution of such securities by the Company or such
other equity holder, then the Holders shall have no right to have any of
their securities included in such registration. The Company may discontinue
registration of any of its securities which are not Registrable Securities
(and, in connection with any piggy-back registration described in this
Section 3, its securities which are Registrable Securities) at any time prior
to the effective date of the registration statement relating thereto.
(c) Unlimited Rights. Each Holder shall be entitled to the
registration rights set forth in this Section 3 for so long as such Holder
owns Registrable Securities, regardless of the number of times such Holder is
offered or has exercised such rights.
d. Shelf Registration.
(a) Request for Registration. At any time following the
Closing Date, the Holders holding a majority of the then outstanding
Registrable Securities (on an "as converted" and "as exercised" basis) may
make a written request of the Company (a "Shelf Request") for registration on
Form S-3 (a "Shelf Registration") of all or part of its or their Registrable
Securities; provided, that the Company is eligible to use Form S-3.
The Shelf Request shall specify the number of shares of
Registrable Securities proposed to be sold by the Requesting Holders making
such Shelf Request. The Company shall file the Shelf Registration as soon as
practicable and in any event within 60 days after receiving the Shelf Request
and shall use its best efforts to cause the same to be declared effective by
the Commission as promptly as practicable after such filing. Each Holder
shall be entitled to the registration rights set forth in this Section 4 for
so long as such Holder owns Registrable Securities, regardless of the number
of times such Holder is offered or has exercised such rights.
(b) Selection of Underwriters. If the Requesting Holders
holding a majority of the shares of Registrable Securities to be registered
in such Shelf Registration shall elect to distribute such securities pursuant
to an underwritten offering, such Holders shall select the managing
underwriter or underwrites to be used in connection with the Shelf
Registration; provided that such selections shall be subject to the
reasonable consent of the Company. The Company shall not be obligated to
effect an underwritten Shelf Registration unless the Holders, together with
the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities, if any, at an aggregate price to the public greater than
$5,000,000.
(c) Priority on Shelf Registrations. No securities to be
sold for the account of any person (including the Company) other than a
Requesting Holder shall be included in a Shelf Registration unless the
managing underwriter or underwriters shall advise the Requesting Holders in
writing that the inclusion of such securities will not have a Material
Adverse Effect. Furthermore, in the event the managing underwriter or
underwriters shall advise the Requesting Holders that even after exclusion of
all securities of other persons pursuant to the immediately preceding
sentence, the amount of Registrable Securities proposed to be included in
such Shelf Registration by Requesting Holders is sufficiently large to cause
a Material Adverse Effect, the Registrable Securities of Requesting Holders
to be included in such Shelf Registration shall be allocated pro rata among
the Requesting Holders on the basis of the number of shares of Common Stock
requested to be included in such registration by each such Requesting Holder.
For purposes of this Section 4(c), in the event that a Shelf Registration is
not underwritten, such determinations relating to the inclusion of securities
in such Shelf Registration shall be made in good faith by the Requesting
Holders holding a majority of the shares of Registrable Securities to be
registered in such Shelf Registration.
(d) Rights of Non-Requesting Holders. Upon receipt of any
Shelf Request, the Company shall promptly (but in any event within ten
Business Days) give written notice of such proposed Shelf Registration to all
other Holders who shall have the right, exercisable by written notice to the
Company within 20 Business Days of their receipt of the Company's notice, to
elect to include in such Shelf Registration such portion of their Registrable
Securities as they may request on the same terms as the Requesting Holders
who delivered the initial Shelf Request.
<PAGE>
e. Holdback Provisions and Other Limitations.
(a) Restrictions on Public Sale. Each Holder participating
in a registration pursuant to Section 2 agrees not to effect any public sale
or distribution of the class of securities being registered or of any
securities convertible into or exchangeable or exercisable for such
securities, during the 14 days prior to, and during the 90 days after, the
effective date of a registration statement filed pursuant hereto except as
part of such registration, if and to the extent requested by the managing
underwriter or underwriters in the case of an underwritten public offering;
provided, that all executive officers and directors of the Company then
holding Common Stock (or securities convertible into or exchangeable or
exercisable for Common Stock) enter into similar agreements.
(b) Deferral of Filing. The Company may defer the filing
(but not the preparation) of a registration statement required by Sections 2
or 4 until a date not later than 60 days after the Required Filing Date if
(i) at the time the Company receives the Demand Request, the Company or its
subsidiaries are engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such
registration statement (but would not be required if such registration
statement were not filed), and the Board of Directors of the Company
determines in good faith that such disclosure would be materially detrimental
to the Company and its stockholders, or (ii) the Company had received, prior
to receiving the Demand Request, a separate written demand request from a
different person or group of persons having contractual rights (whether
exercisable alone or in connection with other rights) to require the Company
to file a registration statement (a "preferred request") and is proceeding
with reasonable diligence to comply with the preferred request, or (iii)
prior to receiving the Demand Request, the Board of Directors had formally
determined to effect a registered underwritten public offering of the
Company's equity securities for the Company's account and the Company had
taken substantial steps (including, but not limited to, selecting and
entering into a letter of intent with the managing underwriter for such
offering) and is proceeding with reasonable diligence to effect such
offering. A deferral of the filing of a registration statement pursuant to
this Section 5(b) shall be lifted, and the requested registration statement
shall be filed forthwith, if, in the case of a deferral pursuant to clause
(i) of the preceding sentence, the negotiations or other activities are
disclosed or terminated, or, in the case of a deferral pursuant to clause
(ii) of the preceding sentence, the preferred request is withdrawn or
effected, or in the case of a deferral pursuant to clause (iii) of the
preceding sentence, the proposed registration for the Company's account is
abandoned. In order to defer the filing of a registration statement pursuant
to this Section 5(b), the Company shall promptly, upon determining to seek
such deferral, deliver to each Requesting Holder a certificate signed by an
executive officer of the Company stating that the Company is deferring such
filing pursuant to this Section 5(b) and the basis therefor in reasonable
detail; provided, that the Company may not utilize this right more than
[twice] in any 12-month period. Within 20 Business Days after receiving such
certificate, the Holders of a majority of the Registrable Securities held by
the Requesting Holders and for which registration was previously requested
may withdraw such request by giving notice to the Company; if withdrawn, the
Demand Request or the Shelf Request shall be deemed not to have been made for
all purposes of this Agreement.
f. Registration Procedures.
(a) Action of the Company. If the Company is required by the
provisions of Sections 2, 3 or 4 hereof to use best efforts to effect the
registration of any of its securities under the Securities Act, the Company
shall, as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use best efforts to cause
such registration statement to become and remain effective for a period
of time required for the disposition of such securities by the Holders
thereof, but not to exceed 12 months; provided, that such 12-month
period shall be extended for a period of time equal to the period the
Holder(s) refrain(s) from selling any securities included in such
registration at the request of the Company or an underwriter of such
securities;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement until the earlier of
such time as all of such securities have been disposed of in a public
offering or the expiration of 12 months;
(iii) furnish to such selling Holders such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling Holders may
reasonably request;
(iv) use best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each Holder of such securities shall request,
and do such other reasonable acts and things as may be required of it to
enable such Holder to consummate the disposition in such jurisdiction of
the securities covered by such registration statement;
(v) furnish, at the request of any Holder requesting
registration of such Registrable Securities pursuant to Sections 2, 3 or
4 hereof, on the date that such Registrable Securities are delivered to
the underwriters for sale pursuant to such registration or, if such
Registrable Securities are not being sold through underwriters, on the
date that the registration statement with respect to such Registrable
Securities becomes effective, (i) an opinion, dated as of such date, of
the independent counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to
the Holders making such request, in a customary form and covering
matters of the type customarily covered in such legal opinions; and (ii)
a comfort letter dated as of such date, from the independent certified
public accountants of the Company addressed to the underwriters, if any,
and if such Registrable Securities are not being sold through
underwriters, then to the Holders making such request and, if such
accountants refuse to deliver such letter to such Holders, then to the
Company, in a customary form and covering matters of the type
customarily covered by such comfort letters. Such opinion of counsel
shall additionally cover such other legal matters regarding the
registration in respect of which such opinion is being given as the
Holders holding a majority of the Registrable Securities being so
registered may reasonably request. Such letter from the independent
certified public accountants shall additionally cover such other
financial matters (including information as to the period ending not
more than five Business Days prior to the date of such letter) regarding
the registration in respect of which such letter is being given as the
Holders holding a majority of the Registrable Securities being so
registered may reasonably request;
(vi) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(vii) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than 16 months after the effective date of the registration
statement, an earnings statement covering the period of at least 12
months beginning with the first full month after the effective date of
such registration statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Securities Act; and
(ix) cause all Registrable Securities registered
pursuant hereunder to be listed on each securities exchange or automated
quotation system on which similar securities issued by the Company are
then listed.
(b) Information to be Provided by Holders. It shall be a
condition precedent to the obligation of the Company to take any action
pursuant to this Agreement in respect of the Registrable Securities that are
to be registered at the request of any Holder of the Registrable Securities
that such Holder shall furnish to the Company such information regarding the
securities held by such Holder and the intended method of disposition thereof
as the Company shall reasonably request and as shall be required in
connection with the action taken by the Company.
g. Expenses. All expenses incurred in complying with this Agreement,
including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD and the American Stock
Exchange), printing expenses, fees and disbursements of counsel for the
Company, fees and disbursements of one counsel for all selling Holders of
Registrable Securities, expenses of any special audits incident to or
required by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Section 6(d),
shall be paid by the Company except that the Company shall not be liable for
any discounts or commissions to any underwriter in respect of the securities
sold by such Holder.
h. Indemnification and Contribution.
(a) Indemnification by Company. In the event of any
registration of Registrable Securities under the Securities Act pursuant to
this Agreement, the Company shall indemnify and hold harmless the Holder of
such Registrable Securities, its officers, directors, partners, legal
counsel, each other person (including each underwriter) who participated in
the offering of such Registrable Securities and each other person, if any,
who controls such Holder or such participating person within the meaning of
the Securities Act, against any expenses, losses, claims, damages or
liabilities, joint or several, to which such Holder, officer, director,
partner, legal counsel, or any such participating person or controlling
person may become subject under the Securities Act or any other statute or at
common law, insofar as such expenses, losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any
alleged untrue statement of any material fact contained, on the effective
date thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or
(iii) any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
and shall reimburse such Holder, officer, director, partner, legal counsel or
such participating person or controlling person for any legal or any other
expenses reasonably incurred by such Holder, officer, director, partner,
legal counsel or such participating person or controlling person in
connection with investigating and defending or settling any such expense,
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission made in such registration statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
information furnished in writing to the Company by such Holder. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or such participating
person or controlling person, and shall survive the transfer of such
securities by such Holder.
(b) Indemnification by Holders. Each Holder, by acceptance
of the Registrable Securities, agrees to indemnify and hold harmless the
Company, its directors and officers and each other person, if any, who
controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the
Company or any such director or officer or any such person may become subject
under the Securities Act or any other statute or at common law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon information provided in writing to the Company
by such Holder and contained in (or omitted from, as the case may be), on the
effective date of, any registration statement under which securities were
registered under the Securities Act at the request of such Holder, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto; provided, however, in no event shall any
Holder be liable for an amount in excess of the net proceeds received from
all Registrable Securities offered and sold by such Holder pursuant to such
registration statement.
(c) Contribution. If the indemnification provided for in
this Section 8 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties
in connection with the actions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action; provided, however, in no event shall any Holder be required to
contribute any amount in excess of the net proceeds received from all
Registrable Securities offered and sold by such Holder pursuant to such
registration statement.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) Notice and Defense of Claims. Whenever a claim shall
arise for indemnification under this Section 8, the indemnified party shall
promptly notify the indemnifying party of such claim and, when known, the
facts constituting the basis for such claim. In the event of any such claim
for indemnification resulting from or in connection with a claim or legal
proceeding by a third party, the indemnifying party may, at its sole expense,
assume the defense thereof. If an indemnifying party assumes the defense of
any such claim or legal proceeding, the indemnifying party shall be entitled
to select counsel reasonably acceptable to the indemnified party and take all
steps necessary in the defense thereof; provided, however, that no settlement
shall be made without the prior written consent of the indemnified party,
which shall not be unreasonably withheld (it being understood that the
indemnified party may not withhold consent to any settlement involving only
a monetary payment where the indemnifying party is ready, willing and able to
pay such amount); and, provided further, that the indemnified party may, at
its own expense, participate in any such proceeding with the counsel of its
choice. If the indemnifying party does not assume the defense of any such
claim or litigation in accordance with the terms hereof, the indemnified
party may defend against such claim or litigation in such manner as it may
deem appropriate, including, but not limited to, settling such claim or
litigation (after giving notice of the same to the indemnifying party) on
such terms as the indemnified party may deem appropriate, and the
indemnifying party will promptly indemnify the indemnified party in
accordance with the provisions of this Section 8.
i. Public Information. The Company covenants and agrees that for so
long as the Common Stock shall be registered under Section 12(b) or 12(g) of
the Exchange Act or the Company shall be subject to the reporting
requirements of Section 15(d) of the Exchange Act, at any time when any
Holder so entitled desires to make sales of any Registrable Securities in
reliance on Rule 144 under the Securities Act either (i) there will be
available adequate current public information with respect to the Company as
required by Rule 144, or (ii) if such information is not available the
Company will use its best efforts to make such information available without
delay. Without limiting the foregoing, the Company covenants and agrees that
for so long as the Common Stock shall be registered under Section 12(b) or
12(g) of the Exchange Act or the Company shall be subject to the reporting
requirements of Section 15(d) of the Exchange Act, it will timely file with
the Commission all reports required to be filed under Sections 13 and 15(d)
of the Exchange Act and will promptly furnish to any Holder so requesting a
written statement that the Company has complied with all such reporting
requirements.
j. Transfer or Assignment of Registration Rights. If any person
shall acquire Securities or Registrable Securities from any Holder, in any
manner, whether by operation of law or otherwise, such person shall be
entitled to receive the rights granted to a Holder under this Agreement,
including the rights to cause the Company to register the Registrable
Securities; provided that, (i) the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying
the securities with respect to which such rights are being transferred or
assigned and (ii) the transferee or assignee of such rights assumes the
obligations of a Holder under this Agreement.
k. Miscellaneous.
(a) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless the Company has obtained the written consent of
Holders of at least a majority of the Registrable Securities (on an "as
converted" and "as exercised" basis) then outstanding.
(b) Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement will be in writing and (i)
delivered personally, (ii) sent by telefacsimile, (iii) delivered by a
nationally recognized overnight courier service, or (iv) sent by registered
or certified mail, postage prepaid, as follows:
(i) If to any Holder, at its last known address
appearing on the books of the Company maintained for such purpose.
With a copy to
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attention: David A. Spuria
Telecopy Number: (214) 746-7777
<PAGE>
(ii) If to the Company, at
Integrated Orthopaedics, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Attention: Chief Executive Officer
Telecopy Number: (713) 339-2858
With a copy to
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile No.: (212) 821-8111
Attention: Bruce R. Kraus
Every notice, demand, request, consent, approval, declaration, delivery or
other communication required or permitted under this Agreement that is
addressed as provided in this Section 11(b) will (x) if delivered personally
or by overnight courier service, be deemed given upon delivery; (y) if
delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (z) if sent by registered or certified
mail, be deemed given when received. Any party from time to time may change
its address for the purpose of notices to that party by giving a similar
notice specifying a new address, but no such notice will be deemed to have
been given until it is actually received by the party sought to be charged
with the contents thereof.
(c) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, and their respective
successors and assigns including any person to whom the Securities or any
Registrable Securities are transferred in accordance with their terms and the
terms of any agreement relating thereto.
(d) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) Governing Law. This Agreement shall be governed by the
laws of the State of Texas, without regard to the provisions thereof relating
to conflict of laws.
(f) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
(g) Entire Agreement. This Agreement represents the complete
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
(h) No Inconsistent Agreement. The Company shall not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders of
Registrable Securities pursuant to this Agreement.
[Remainder of page left blank intentionally]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
Accepted and Acknowledged by:
FW INTEGRATED ORTHOPAEDICS INVESTORS, L.P.
By: GROUP 31, INC.,
its General Partner
By:
Name:
Title:
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
By: FW GROUP GENPAR, INC.,
its General Partner
By:
Name:
Title:
<PAGE>
EXHIBIT F
FIRST AMENDMENT
TO
INVESTMENT AGREEMENT
This First Amendment, dated as of December 12, 1997 (this
"Amendment"), by and between Integrated Orthopaedics, Inc., a Texas
corporation (the "Company"), and Chartwell Capital Investor, L.P., a
Delaware limited partnership ("Investor"), hereby amends that certain
Investment Agreement, dated as of April 12, 1996, by and between the
Company and Investor (the "Investment Agreement"). Capitalized terms used
herein but not defined herein shall have the meanings assigned to such
terms in the Investment Agreement.
WITNESSETH:
WHEREAS, the Company and Investor desire to amend the Investment
Agreement;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
l. Amendment of Section 7. Section 7 (consisting of subsections
7.1 through 7.8) of the Investment Agreement is hereby amended to read in
its entirety as follows:
"Section 7. INTENTIONALLY OMITTED."
m. Addition of Section 10.14. The following Section is hereby
added to the Investment Agreement to appear immediately following Section
10.13:
"Section 10.14 Board Visitation Rights. The Company hereby agrees
that on and after December 12, 1997, and until the Termination Date, the
Investor shall be entitled, upon written invitation of the Board of
Directors of the Company (the "Board") (which invitation may be withheld or
qualified at the sole discretion of the Board), to send one representative
to attend as an observer any regularly scheduled or special meeting of the
Board; provided, however, that at any meeting in which such a
representative of Investor is present, the Board may request that such
representative vacate the meeting of the Board if the Board deems that the
information to be discussed is of a sensitive nature, and the
representative shall honor any such request. The Company shall reimburse
Investor for all reasonable out of pocket costs and expenses in connection
with the attendance by any such representative of Investor at any such
meeting of the Board.
n. Approval. The signatures of each of the parties below shall
constitute the approval of each such party for all purposes to the form,
terms and provisions of this Amendment.
o. Governing Law. This Amendment shall be governed and construed
is accordance with the laws of the State of Texas without giving effect to
the principles of conflicts of law.
p. Fees and Expenses. The Company shall reimburse Investor for
all reasonable out of pocket costs and expenses (including without
limitation the fees and disbursements of Investor's counsel) in connection
with the review, execution and delivery of this Amendment, the modification
of all documents and instruments related to or contemplated by the
Investment Agreement, and the entry by the Company into the Securities
Purchase Agreement, dated December 12, 1997, with FW Integrated
Orthopaedics Investors, L.P., FW Integrated Orthopaedics Investors II,
L.P., and the other parties signatories thereto, and the transactions
contemplated thereby; provided, however, that the Company shall not be
required to reimburse Investor for any costs or expenses in excess of
$6,500.
q. No Further Amendment; Counterparts. Except as amended hereby,
the Investment Agreement shall remain in full force and effect. This
Amendment may be executed in separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the
same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
CHARTWELL CAPITAL INVESTORS, L.P.
By: Chartwell Capital Partners, L.P., its
General Partner
By: Chartwell Partners, L.P., its General
Partner
By: Chartwell, Inc., its General Partner
By:
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT G
TERMINATION AGREEMENT
This Termination Agreement (this "Termination Agreement") is
made and entered into this 12th day of December, 1997, by and between
Integrated Orthopaedics, Inc. (f/k/a DRCA Medical Corporation), a Texas
corporation (the "Company"), and Chartwell Capital Investors, L.P., a
Delaware limited partnership ("Chartwell").
WHEREAS, the Company and Chartwell are parties to that certain
Consulting Agreement dated as of April 12, 1996, as amended, pursuant to
which, among other things, Chartwell is engaged to provide to the Company
certain advisory services (the "Consulting Agreement"); and
WHEREAS, the parties hereto deem it to be in their respective
best interests to terminate the Consulting Agreement on the terms set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and
subject to the terms and conditions set forth below, the parties hereto
agree as follows:
1. Subject to Section 2 below, the Consulting Agreement is
hereby terminated, and neither party thereto shall have any further
liability or obligation to the other party thereto in connection with or
related to the Consulting Agreement.
2. This Termination Agreement shall be effective upon the
Closing Date (as defined in the Securities Purchase Agreement dated
December 12, 1997, by and among FW Integrated Orthopaedics Investors, L.P.,
a Texas limited partnership, FW Integrated Orthopaedics Investors II, L.P.,
a Texas limited partnership, the Company, and, for certain limited
purposes, Chartwell and certain other parties).
3. This Termination Agreement supersedes and replaces any
and all prior agreements and understandings, written or oral, among the
parties with respect to the subject matter hereof, states the entire
agreement and understanding among the parties and may not be amended,
supplemented, or modified in any manner other than by a written instrument
executed by all parties. This Termination Agreement may be executed in
multiple counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same agreement.
4. This Termination Agreement shall be governed by and
construed in accordance with the laws of the State of Texas (without regard
to principles of conflicts of laws).
IN WITNESS WHEREOF, the parties hereto have caused this
Termination Agreement to be duly executed as of the date first above
written.
INTEGRATED ORTHOPAEDICS, INC.
By:
Name:
Title:
CHARTWELL CAPITAL INVESTORS, L.P.
By: CHARTWELL CAPITAL
PARTNERS, L.P.,
its General Partner
By: CHARTWELL PARTNERS, L.P.,
its General Partner
By: CHARTWELL, INC.,
its General Partner
By:
Name:
Title: <PAGE>
<PAGE> EXHIBIT H
CERTIFICATE OF DESIGNATION AND DETERMINATION OF RIGHTS AND PREFERENCES OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A,
OF
INTEGRATED ORTHOPAEDICS, INC.
Integrated Orthopaedics, Inc., a Texas corporation (the "Company"),
does hereby certify that:
FIRST: The name of the Company is Integrated Orthopaedics,
Inc.
SECOND: By unanimous vote of the Board of Directors of the
Company (the "Board of Directors") at a meeting duly called and held, the
following resolutions were duly adopted:
RESOLVED, that pursuant to the authority conferred upon the
Board of Directors by the Articles of Incorporation, as amended through the
date hereof, of the Company (the "Articles of Incorporation"), a series of
the class of authorized Preferred Stock, with a par value of $0.01 per
share, of the Company be hereby created, and that the designation of amount
thereof and the voting powers, preferences and relative, optional and other
special rights of the shares of such series, and the qualifications,
limitations and restrictions of such series, be as set forth below; and
RESOLVED FURTHER, that such provisions supersede any prior
certificate of designation filed by the Company with the Secretary of State
of the State of Texas with respect to such series of the class of Preferred
Stock authorized hereby.
10. Designation. The designation of the Series of Preferred
Stock authorized hereby shall be "Cumulative Convertible Preferred Stock,
Series A" ("Series A Preferred Stock") with a par value of $0.01 per share,
and 26,000 shares are hereby authorized for issuance.
11. Ranking. The Series A Preferred Stock shall rank as to
dividends (i) senior to the Common Stock, par value $0.001 per share, of
the Company (the "Common Stock") and any other class or series of capital
stock that by its express terms provides that it ranks junior to the Series
A Preferred Stock as to dividends or that does not expressly provide for
any ranking as to dividends ("Junior Securities"), (ii) on a parity with
the Series B Preferred Stock, par value $0.01 per share, of the Company
(the "Series B Preferred Stock") and any other class or series of capital
stock that by its express terms provides that it ranks on a parity with the
Series A Preferred Stock as to payment of dividends ("Parity Securities")
and (iii) junior to any class or series of capital stock that by its
express terms provides that it ranks senior to the Series A Preferred Stock
("Senior Securities").
12. Dividends. The holders of Series A Preferred Stock
shall be entitled to receive cumulative cash dividends at the rate of
(i) $8.00 per share for the period beginning on the date of issuance and
ending on June 30, 2001, (ii) $10.00 per share for the period beginning
July 1, 2001 and ending on June 30, 2002, (iii) $12.00 per share for the
period beginning July 1, 2002 and ending on June 30, 2003, and (iv) $16.00
per share after July 1, 2004 (subject to appropriate adjustments in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) per annum, and no more, payable
quarterly on March 31, June 30, September 30 and December 31. Such
dividends shall first be payable on June 30, 1999. Such dividends shall be
payable in preference and priority to any payment of any cash dividend on
Junior Securities, when and as declared by the Board of Directors of the
Company. Notwithstanding the foregoing, the Company may defer payment of
accrued dividends to the holders of the Series A Preferred Stock to the
extent the dividends cannot be paid from the Company's "Free Cash Flow" (as
hereinafter defined). Such dividends may be deferred until the earlier of
such times as Free Cash Flow is available for payment of same or June 30,
2001.
Free Cash Flow is defined as the Net Increase in Cash and Cash
Equivalents (as expressed in the Company's "Consolidated Statement of Cash
Flows" for the number of months which have passed since the end of the
prior fiscal year, calculated as of the end of the month most recently
ended prior to the due date of a dividend payment), adjusted to eliminate
any net cash provided or used by financing activities, minus any accrued
dividends on Series A Preferred Stock, less $750,000.
Such dividends shall (even though such dividends are not
payable until beginning June 30, 1999) accrue with respect to each share of
Series A Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists profits,
surplus or other funds legally available for the payment of dividends, and
shall be cumulative so that if such dividends on the Series A Preferred
Stock shall not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or declared and set apart for payment before
any dividend shall be paid or declared or set apart for any Junior
Securities or (other than dividends on Series B Preferred Stock or other
Parity Securities paid in additional shares of Series B Preferred Stock)
any Parity Securities and before any purchase or acquisition of any Junior
Securities or Parity Securities is made by the Company. At the earlier of:
(1) the redemption of the Series A Preferred Stock, (2) the liquidation,
sale or merger of the Company or (3) June 30, 2001, any accrued but unpaid
dividends shall be paid to the holders of record of outstanding shares of
Series A Preferred Stock.
The Company shall give written notice, sent by first class
certified mail, postage prepaid and return receipt requested, specifying
the date and amount of each dividend to be paid on Series A Preferred
Stock, at least 5 days in advance of the dividend payment date to all
holders of record of the Series A Preferred Stock as their names and
addresses appear on the share register of the Company on the date of such
notice. Each dividend shall be mailed to the holders of record of the
Series A Preferred Stock as their names and addresses appear on the share
register of the Company on the corresponding dividend payment date.
Anything contained in this Section 3 to the contrary notwithstanding, the
holders of shares of Series A Preferred Stock with respect to which
dividends are to be paid in accordance with this Section shall have the
right, exercisable at any time up to the close of business on the
applicable dividend payment date to convert all or any part of such shares
into shares of Common Stock pursuant to Section 10 hereof and for such
purpose such dividend shall not be deemed to have been paid or set apart at
the date of such conversion.
13. Preference on Liquidation, etc. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus), or proceeds thereof, shall be made to or set
apart for the holders of shares of any Junior Securities, the holders of
shares of Series A Preferred Stock shall be entitled to receive payment of
$100 per share held by them, plus an amount equal to all accrued and unpaid
dividends thereon, whether or not declared to the date of such payment.
If, upon any liquidation, dissolution or winding-up of the Company, the
assets of the Company, or proceeds thereof, distributed among the holders
of shares of Series A Preferred Stock and the holders of all Parity
Securities shall be insufficient to pay in full the respective preferential
amounts on shares of Series A Preferred Stock and all Parity Securities,
then such assets, or the proceeds thereof, shall be distributed among the
holders of Series A Preferred Stock and the holders of Parity Securities
ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. After
payment of the full amount of the liquidation preference to which the
holders of Series A Preferred Stock are entitled, such holders will not be
entitled to any further participation in any distribution of assets of the
Company. For the purpose of this Section 4, none of the merger or the
consolidation of the Company into or with another corporation or the merger
or consolidation of any other corporation into or with the Company or the
sale, transfer, or other disposition of all or substantially all of the
assets of the Company, shall be deemed to be a voluntary or involuntary
liquidation, dissolution, or winding-up of the Company.
14. Retirement of Shares. Shares of Series A Preferred
Stock that have been issued and have been redeemed, repurchased or
reacquired in any manner by the Company shall be retired and not reissued
and shall resume the status of authorized but unissued and non-designated
shares of preferred stock of the Company.
15. Voting. Each holder of Series A Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Series A Preferred Stock could be
converted pursuant to the provisions of Section 10 hereof at the record
date for the determination of the shareholders entitled to vote on such
matters or, if no such record date is established, the date such vote is
taken or any written consent of shareholders is solicited. Each holder of
Series A Preferred Stock shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any shareholders' meeting in accordance with the
bylaws of the Company (as in effect at the time in question) and applicable
law, and shall be entitled to vote, together with the holders of Common
Stock, with respect to any question upon which holders of Common Stock have
the right to vote, except for the election of directors and as may be
otherwise provided by applicable law. Except as otherwise expressly
provided herein or as required by law, and except for the vote of the
Series A Preferred Stock provided for in Section 7 and Section 8 hereof,
the holders of Series A Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes.
16. Special Voting Rights. After June 30, 2001, the number
of directors constituting the Board of Directors of the Company shall be
increased by one, and the holders of Series A Preferred Stock, voting as a
separate series shall be entitled by written consent or at the next annual
meeting of stockholders or the next special meeting of stockholders, or at
a special meeting of holders of Series A Preferred Stock called as
hereinafter provided, to elect a director to fill such newly created
directorship, without diminution of their right to participate with holders
of Common Stock and holders, if any, of any other capital stock of the
Company entitled to vote for the election of directors in the election of
any other directors.
Whenever such voting right shall vest, it may be exercised
initially by consent in writing of the holders of two-thirds of the
Series A Preferred Stock at the time outstanding or at a special meeting of
holders of Series A Preferred Stock or at any annual or special
stockholders' meeting, but thereafter it shall be exercised only at annual
stockholders' meetings. A special meeting for the exercise of such right
shall be called by the Secretary of the Company within ten days after
receipt of a written request therefor, signed by the holders of record of
at least 10% of the votes of the then outstanding shares of Series A
Preferred Stock; however, no such special meeting shall be held during the
90-day period preceding the date fixed for the annual meeting of
stockholders.
Any director who shall have been elected by holders of Series A
Preferred Stock as a series pursuant to this subsection shall hold office
for a term expiring (subject to the earlier termination of arrearages) at
the next annual meeting of stockholders, and during such term may be
removed at any time, either for or without cause, only by the affirmative
votes of holders of record of a majority of the votes of the then
outstanding shares of Series A Preferred Stock given at a special meeting
of such stockholders called for the purpose or by written consent of two-
thirds. Any vacancy created by such removal may also be filled at such
meeting or by such a consent. A meeting for the removal of a director
elected by holders of Series A Preferred Stock as a series and the filling
of the vacancy created thereby shall be called by the Secretary of the
Company within ten days after receipt of a written request therefor, signed
by the holders of not less than 25% of the votes of the then outstanding
shares of Series A Preferred Stock. Such meeting shall be held at the
earliest practicable date thereafter.
Any vacancy caused by the death, resignation, or expiration of
term (except upon a termination of arrearages) of a director who shall have
been elected by the holders of Series A Preferred Stock as a series
pursuant to this subsection may be filled only by the holders of Series A
Preferred Stock by written consent of two-thirds, at any annual or special
stockholders' meeting, or at a meeting called for such purpose. Such
meeting of the holders of Series A Preferred Stock shall be called by the
Secretary of the Company at the earliest practicable date after any such
death or resignation and in any event within ten days after receipt of a
written request therefor, signed by the holders of record of at least 10%
of the votes of the then outstanding shares of Series A Preferred Stock.
If any meeting of the holders of Series A Preferred Stock
required by this subsection to be called shall not have been called within
ten days after personal service of a written request therefor upon the
Secretary of the Company or within 15 days after mailing the same within
the United States of America by registered mail addressed to the Secretary
of the Company at its principal office, then holders of record of at least
10% of the votes of the then outstanding shares of Series A Preferred Stock
may designate in writing one of their number to call such a meeting may be
called by such person so designated upon the notice required for annual
meetings of stockholders. Any holder of Series A Preferred Stock so
designated shall have access to the stock books of the Company for the
purpose of causing meetings of stockholders to be called pursuant to these
provisions.
Any meetings of holders of Series A Preferred Stock to vote as
a series for the election or removal of directors shall be held at such
place or places designated in the Company's Bylaws for meeting of its
stockholders or at such other place as the holders of at least 10% of the
votes of the then outstanding shares of Series A Preferred Stock may
designate. At such meeting, the presence in person or by proxy of holders
of a majority of the votes of the then outstanding shares of Series A
Preferred Stock shall be required to constitute a quorum; in the absence of
a quorum, a majority of the holders present in person or by proxy shall
have power to adjourn the meeting from time to time without notice, other
than announcement at the meeting, until a quorum shall be present.
17. Other Rights and Amendments. Except as otherwise
provided by law, without the written consent of two-thirds of the
outstanding shares of Series A Preferred Stock or the vote of holders of
two-thirds of the outstanding shares of Series A Preferred Stock (voting as
a class) at a meeting of the holders of Series A Preferred Stock called for
such purpose, the Company will not (i) create, authorize or issue any
Parity Securities or Senior Securities, (ii) increase the authorized number
of shares of Series A Preferred Stock or (iii) amend, alter, repeal or
waive any provision of the bylaws, the Articles of Incorporation or this
Certificate of Designation so as to adversely affect the preferences,
rights, powers or other terms of the Series A Preferred Stock.
18. Issuance. The Company will not issue more than 26,000
shares of Series A Preferred Stock.
19. Conversion. The outstanding shares of Series A
Preferred Stock shall be convertible into Common Stock as follows:
19.1 Optional Conversion.
(a) At the option of the holder thereof, each share of
Series A Preferred Stock shall be convertible, at any time or from time to
time, into fully paid and nonassessable shares of Common Stock as provided
herein.
(b) Each holder of Series A Preferred Stock who elects
to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or any transfer agent for the Series A Preferred Stock or Common
Stock, and shall give written notice to the Company at such office that
such holder elects to convert the same and shall state therein the number
of shares of Series A Preferred Stock being converted. Thereupon the
Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled upon such conversion. Such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate or certificates representing
the shares of Series A Preferred Stock to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock on such date.
19.2 Mandatory Conversion.
(a) Mandatory Conversion Event. The Company may, at
its option, require all (and not less than all) holders of shares of
Series A Preferred Stock then outstanding to convert their shares of
Series A Preferred Stock into shares of Common Stock, at the then effective
Conversion Price if the average daily trading volume of Common Stock for
the 30 consecutive days of trading ending not more than 5 calendar days
immediately preceding the date of the notice described in this subsection
10(a) equals or exceeds 16,500 shares (33,000 if the principal trading
market for Common Stock is a NASDAQ or other over-the-counter market and
such market includes, or "double counts," both buy and sell transactions
with respect to the same shares in reporting volume) and the Company's
Common Stock shall have had an average closing market price on the
principal stock exchange on which it is listed (or, if not listed on any
stock exchange, a last sale price on the NASDAQ National Market System, or
if not listed or admitted to trading on such system, a closing bid price in
the over-the-counter market) of not less than $5.50 (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares) on the same period of
30 consecutive trading days. All holders of record of shares of Series A
Preferred Stock then outstanding will be given at least 10 days' prior
written notice of the date fixed and the place designated for mandatory or
special conversion of all such shares of Series A Preferred Stock pursuant
to this Section 10.2. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Series A
Preferred Stock at such holder's address last shown on the records of the
Company.
(b) Effect of Mandatory Conversion. Upon the date
filed for conversion in accordance with Section 10.2(a) hereof, the
outstanding shares of Series A Preferred Stock shall be converted into
Common Stock automatically without the need for any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Company or its transfer agent; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificates evidencing such shares of Series A Preferred Stock are
either delivered to the Company or its transfer agent as provided below, or
the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by it in connection with such certificates. Upon the occurrence of such
mandatory conversion of the Series A Preferred Stock, the holders of Series
A Preferred Stock shall surrender the certificates representing such shares
at the office of the Company or any transfer agent for the Series A
Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown
on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares
of Series A Preferred Stock surrendered were convertible on the date on
which such mandatory conversion occurred.
19.3 Conversion Price. Each share of Series A Preferred
Stock shall be convertible in accordance with Section 10.1 or 10.2 hereof
into the number of shares of Common Stock that results from dividing the
liquidation value for Series A Preferred Stock (including the stated
liquidation preference and accrued but unpaid dividends) by the conversion
price for Series A Preferred Stock that is in effect at the time of
conversion (the "Conversion Price"). The initial Conversion Price for the
Series A Preferred Stock shall be the lesser of (a) $3.50 per share and (b)
the average closing sales price for the twenty days immediately preceding
the conversion of the Series A Preferred Stock. The Conversion Price of
the Series A Preferred Stock shall be subject to adjustment from time to
time as provided below.
19.4 Adjustment Upon Common Stock Event. Upon the happening
of a Common Stock Event (as hereinafter defined), the Conversion Price of
the Series A Preferred Stock shall, simultaneously with the happening of
such Common Stock Event, be adjusted by multiplying the Conversion Price of
Series A Preferred Stock in effect immediately prior to such Common Stock
Event by a fraction, (a) the numerator of which shall be the number of
shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (b) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for Series A Preferred Stock. The Conversion Price for Series A
Preferred Stock shall be readjusted in the same manner upon the happening
of each subsequent Common Stock Event. As used herein, the term "Common
Stock Event" means (i) the issue by the Company of additional shares of
Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock or (iii) a combination of the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock.
19.5 Adjustment for Other Dividends and Distributions. If
at any time or from time to time after the Original Issue Date the Company
pays a dividend or makes any other distribution to the holders of the
Common Stock payable in securities of the Company other than shares of
Common Stock, then in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
upon conversion thereof, the amount of securities of the Company that they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable)
and had they thereafter, during the period from the date of such event (or
such record date, as applicable) to and including the conversion date,
retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period
under this Section 10 with respect to the rights of the holders of the
Series A Preferred Stock or with respect to such other securities by their
terms.
19.6 Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue
Date the Common Stock issuable upon the conversion of the Series A
Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than by a Common Stock Event or a
stock dividend, reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 10), then in any such event each
holder of Series A Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or
other change by holders of the number of shares of Common Stock into which
such shares of Series A Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such
other securities or property by the terms thereof. The Company shall give
each holder of Series A Preferred Stock at least 30 days prior written
notice of any event requiring adjustment pursuant to this Section 10.6.
19.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time
to time after the Original Issue Date the Company issues or sells, or is
deemed by the provisions of this Section 10.7 to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), otherwise than
in connection with a Common Stock Event as provided in Section 10.4 hereof,
a dividend or distribution as provided in Section 10.5 hereof or a
recapitalization, reclassification or other change as provided in Section
10.6 hereof, for an Effective Price (as hereinafter defined) that is less
than the Conversion Price for Series A Preferred Stock in effect
immediately prior to such issue or sale, then, and in each such case, the
Conversion Price for Series A Preferred Stock shall be reduced, as of the
close of business on the date of such issue or sale, to the price obtained
by multiplying such Conversion Price by a fraction:
(1) The numerator of which shall be the sum of
(A) the number of Common Stock Equivalents Outstanding (as hereinafter
defined) immediately prior to such issue or sale of Additional Shares
of Common Stock plus (B) the quotient obtained by dividing the
Aggregate Consideration Received (as hereinafter defined) by the
Company for the total number of Additional Shares of Common Stock so
issued or sold (or deemed so issued and sold pursuant to the
provisions of Section 10.7(c) hereof) by the Conversion Price for
Series A Preferred Stock in effect immediately prior to such issue or
sale; and
(2) The denominator of which shall be the sum of
(A) the number of Common Stock Equivalents Outstanding immediately
prior to such issue or sale plus (B) the number of Additional Shares
of Common Stock so issued or sold (or deemed so issued and sold
pursuant to the provisions of Section 10.7(c) hereof).
(b) Certain Definitions. For the purpose of making
any adjustment required under this Section 10.7:
(1) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued by the Company, whether or not
subsequently reacquired or retired by the Company and whether or not
restricted at the time of issuance or sale (or deemed issuance or
sale), other than (A) shares of Common Stock issued or issuable upon
conversion of Series A Preferred Stock and (B) Excluded Securities.
(2) The "Aggregate Consideration Received" by the
Company for any issue or sale (or deemed issue or sale) of securities
shall (A) to the extent it consists of cash, be computed at the gross
amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid
or allowed by the Company in connection with such issue or sale and
any expenses payable by the Company; (B) to the extent it consists of
property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors; and
(C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock
or Convertible Securities are issued or sold together with other stock
or securities or other assets of the Company for a consideration that
covers both, be computed as the portion of the consideration so
received that may be reasonably determined in good faith by the Board
of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities or Rights or Options.
(3) "Common Stock Equivalents Outstanding" shall
mean the number of shares of Common Stock that is equal to the sum of
(A) all shares of Common Stock of the Company that are outstanding at
the time in question, plus (B) all shares of Common Stock of the
Company issuable upon conversion of all shares of Series A Preferred
Stock or other Convertible Securities that are outstanding at the time
in question, plus (C) all shares of Common Stock of the Company that
are issuable upon the exercise of vested Rights or Options that are
outstanding at the time in question assuming the full conversion or
exchange into Common Stock of all such vested Rights or Options that
are vested Rights or Options to purchase or acquire Convertible
Securities into or for Common Stock.
(4) "Convertible Securities" shall mean stock or
other securities convertible into or exchangeable for shares of Common
Stock, other than Excluded Securities.
(5) The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold, by the Company under this Section 10.7,
into the Aggregate Consideration Received, or deemed to have been
received, by the Company under this Section 10.7, for the issue of
such Additional Shares of Common Stock.
(6) "Excluded Securities" shall mean,
collectively (i) shares of Common Stock issued or issuable upon
conversion of the Series B Preferred Stock (including additional
shares of Series B Preferred Stock that may have been heretofore
issued or may be issued after the date hereof as a stock dividend in
the Series B Preferred Stock) and (ii) the Common Stock issuable by
the Company upon exercise of stock options to acquire shares of Common
Stock that have been granted by the Company prior to the Original
Issue Date.
(7) "Rights or Options" shall mean warrants,
options or other rights to purchase or acquire shares of Common Stock
or Convertible Securities, other than Excluded Securities.
(c) Deemed Issuances. For the purpose of making any
adjustment to the Conversion Price of the Series A Preferred Stock required
under this Section 10.7, if the Company issues or sells any Rights or
Options or Convertible Securities and if the Effective Price of the shares
of Common Stock issuable upon exercise of such Rights or Options and/or the
conversion or exchange of Convertible Securities (computed without
reference to any additional or similar protective or antidilution clauses)
is less than the Conversion Price, then the Company shall be deemed to have
issued, at the time of the issuance of such Rights, Options or Convertible
Securities, that number of Additional Shares of Common Stock that is equal
to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their
issuance and to have received, as the Aggregate Consideration Received for
the issuance of such shares, an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such
Rights or Options or Convertible Securities, plus, in the case of such
Rights or Options, the minimum amounts of consideration, if any, payable to
the Company upon the exercise in full of such Rights or Options, plus, in
the case of Convertible Securities, the minimum amounts of consideration,
if any, payable to the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof; provided that:
(a) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar
protective clauses, then the Company shall be deemed to have received
the minimum amounts of consideration without reference to such
clauses;
(b) if the minimum amount of consideration
payable to the Company upon the exercise of Rights or Options or the
conversion or exchange of Convertible Securities is reduced over time
or upon the occurrence or non-occurrence of specified events other
than by reason of antidilution or similar protective adjustments, then
the Effective Price shall be recalculated using the figure to which
such minimum amount of consideration is reduced; and
(c) if the minimum amount of consideration
payable to the Company upon the exercise of such Rights or Options or
the conversion or exchange of Convertible Securities is subsequently
increased, then the Effective Price shall again be recalculated using
the increased minimum amount of consideration payable to the Company
upon the exercise of such Rights or Options or the conversion or
exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance
of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of
any such Rights or Options or the conversion or exchange of any such
Convertible Securities. If any such Rights or Options or the conversion
rights represented by any such Convertible Securities shall expire without
having been fully exercised, then the Conversion Price as adjusted upon the
issuance of such Rights or Options or Convertible Securities shall be
readjusted to the Conversion Price that would have been in effect had an
adjustment been made on the basis that the only shares of Common Stock so
issued were the shares of Common Stock, if any, that were actually issued
or sold on the exercise of such Rights or Options or rights of conversion
or exchange of such Convertible Securities, and such shares of Common
Stock, if any, were issued or sold for the consideration actually received
by the Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of any such Rights or Options,
whether or not exercised, plus the consideration received for issuing or
selling all such Convertible Securities actually converted or exchanged,
plus the consideration, if any, actually received by the Company (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such Convertible
Securities, provided that such readjustment shall not apply to prior
conversions of Series A Preferred Stock.
19.8 Certificate of Adjustment. In each case of an
adjustment or readjustment of the Conversion Price for Series A Preferred
Stock, the Company, at its expense, shall cause its Chief Financial Officer
to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of the Series A Preferred Stock at the
holder's address as shown in the Company's books.
19.9 Fractional Shares. No fractional shares of Common
Stock shall be issued upon any conversion of Series A Preferred Stock. In
lieu of any fractional share to which the holder would otherwise be
entitled, the Company shall pay the holder cash equal to the product of
such fraction multiplied by the Common Stock's fair market value as
determined in good faith by the Board of Directors as of the date of
conversion.
19.10 Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of the Series A Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
19.11 Notices. Any notice required by the provisions of this
Section 10 to be given to the holders of shares of the Series A Preferred
Stock shall be deemed given upon the earlier of actual receipt or deposit
in the United States mail, by certified or registered mail, return receipt
requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
19.12 No Impairment. The Company shall not avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
20. Redemption of the Series A Preferred Stock.
(a) Optional Redemption; Notice. If, on June 30, 2001, any
shares of Series A Preferred Stock shall be then outstanding, the Company
may redeem (unless otherwise prevented by law) all (but not less than all)
such outstanding shares at any amount per share equal to $100.00 plus an
amount equal to accrued but unpaid dividends, if any, to the date of
redemption of such share (the "Redemption Price"). 60 days' prior notice
by the Company of such redemption shall be sent by first-class certified
mail, postage prepaid and return receipt requested, by the Company to the
holders of the shares of Series A Preferred Stock to be redeemed at their
respective addresses as the same shall appear on the books of the Company.
(b) Deposit. On or prior to the date of redemption
contained in a notice pursuant to Section 11(a) hereof (the "Redemption
Date"), the Company shall deposit the Redemption Price of all shares of
Series A Preferred Stock with a bank or trust corporation having aggregate
capital and surplus in excess of $100,000 as a trust fund for the benefit
of the respective holders of Series A Preferred Stock, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holder on or after the
Redemption Date upon receipt of his share certificate or notification from
the Company that such holder has surrendered his share certificate to the
Company. As of the Redemption Date, the deposit shall constitute full
payment of the Redemption Price to their holders, and from and after the
Redemption Date the shares so called for redemption shall be redeemed and
shall be deemed to be no longer outstanding, and the holders thereof shall
cease to be stockholders with respect to such shares and shall have no
rights with respect thereto except the rights to receive from the bank or
trust corporation payment of the Redemption Price of the shares, without
interest, upon surrender of their certificates therefor. Such instructions
shall also provide that any moneys deposited by the Company pursuant to
this Section 11(b) for the redemption of the shares thereafter converted
into shares of the Company's Common Stock pursuant to Section 10 hereof
prior to Redemption Date shall be returned to the Company forthwith upon
such conversion. The balance of any moneys deposited by the Company
pursuant to this Section 11(b) remaining unclaimed at the expiration of six
(6) months following the Redemption Date shall thereafter be returned to
the Company upon its request expressed in a resolution of its Board of
Directors. The Company will be responsible for costs and expenses to be
incurred in connection with such deposit arrangement, such amounts to be
offset by any interest earned on the deposit, with any excess interest to
be payable to the Company.
(c) Repurchase Prohibited. The Company will not, and will
not permit any affiliate (as defined in the Securities Exchange Act of
1934, as amended) of the Company to, purchase or acquire any shares of
Series A Preferred Stock otherwise than pursuant to (i) the terms of this
Section 11, or (ii) an offer made on the same terms to all holders of
Series A Preferred Stock at the time outstanding.
(d) Right to Convert Unaffected. Anything contained in
this Section 11 to the contrary notwithstanding, the holders of shares of
Series A Preferred Stock to be redeemed in accordance with this Section 11
shall have the right, exercisable at any time up to the close of business
on the applicable redemption date (unless the Company is legally prohibited
from redeeming such shares on such date, in which event such right shall be
exercisable until the removal of such legal disability), to convert all or
any part of such shares to be redeemed as herein provided into shares of
Common Stock pursuant to Section 10 hereof.
21. General Provisions.
(a) The term "Person" as used herein means any corporation,
partnership, trust, organization, association, or other entity or
individual.
(b) The term "outstanding", when used with reference to
shares of stock, shall mean issued shares, excluding shares held by the
Company or a subsidiary.
(c) The headings of the paragraphs, subparagraphs, clauses
and subclauses of this Certificate of Designation are for convenience of
reference only and shall not define, limit or affect any of the provisions
hereof.
THIRD: The foregoing resolutions were duly adopted as of
December 1, 1997 by all necessary action on the part of the Company.
Dated: December 12, 1997 INTEGRATED ORTHOPAEDICS, INC.
By:
Jeff R. Casey,
Senior Vice President
<PAGE>
<PAGE> EXHIBIT I
FIRST AMENDED AND RESTATED BYLAWS
OF
INTEGRATED ORTHOPAEDICS, INC.
(a Texas corporation)
ARTICLE XXII. NAMES AND OFFICES
1.01 Name. The name of the Corporation shall be Integrated
Orthopaedics, Inc.
1.02 Principal Office. The principal office shall be 5858
Westheimer, Suite 500, Houston, Texas 77057.
1.03 Other Offices. The Corporation may also have an office or
offices at such other place or places, within or without the State of
Texas, as the Board of Directors may from time to time designate or the
business of the Corporation may require.
ARTICLE XXIII. SHAREHOLDERS' MEETINGS
2.01 Place of Meetings. All meetings of the shareholders for the
election of Directors shall be held at such time and place, within or
without the State of Texas, as shall be stated in the Notice of the Meeting
or in a duly executed Waiver of Notice thereof.
2.02 Annual Meeting. An Annual Meeting of the shareholders shall be
held at such place, within or without the State of Texas, on such date and
at such time as the Board of Directors shall fix each year as set forth in
the notice of meeting for the purpose of electing Directors and for the
transaction of any and all such other business as may be properly brought
before or submitted to the meeting.
2.03 Special Meetings. Special Meetings of the shareholders, for
any purpose or purposes, may be called by the President, the Board of
Directors, or the holders of fifty percent (50%) of all the shares entitled
to vote at the meetings. Business transacted at a Special Meeting shall be
confined to the objects stated in the Notice of the meeting.
2.04 Notice. Written or printed notice stating the place, day and
hour of the meeting and, in case of a Special Meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten (10) or more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or person calling the meeting, to each
shareholder of record entitled to vote at the meeting. If mailed, such
Notice shall be deemed to be delivered when deposited in the United States
mail addressed to the shareholder at his address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid.
2.05 Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote, represented in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business except as otherwise provided by statute, by the
Articles of Incorporation of the Corporation (the "Articles of
Incorporation"), or by these Bylaws. If a quorum is not present or
represented at a meeting of the shareholders, the shareholders entitled to
vote, present in person or represented by proxy, shall have power to
adjourn the meeting until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented, any business
may be transacted which might have been transacted at the meeting as
originally notified.
2.06 Majority Vote; Withdrawal of Quorum. When a quorum is present
at any meeting, the vote of the holders of a majority of the shares having
voting power, present in person or represented by proxy, shall decide any
question brought before such meeting, unless the question is one upon
which, by express provision of the statutes or of the Articles of
Incorporation or of these Bylaws, a vote of a greater number is required,
in which case such express provision shall govern and control the decision
of such question. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
2.07 Method of Voting. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation. At any meeting of the shareholders, every shareholder having
the right to vote may vote either in person or by proxy executed in writing
by the shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and unless otherwise
made irrevocable by law. Each proxy shall be filed with the Secretary of
the Corporation prior to or at the time of the meeting. Voting for
Directors shall be in accordance with Section 3.06 of these Bylaws. Any
vote may be taken by voice or by show of hands unless someone entitled to
vote objects, in which case written ballots shall be used. At all
elections of Directors, or any other case in which the inspectors may act,
two inspectors of election may be appointed by the Chairman of the meeting;
provided that, the failure to appoint inspectors of election shall not
invalidate any action taken at any shareholders' meeting.
2.08 Voting List. At least ten (10) days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each and the
number of voting shares held by each, shall be prepared by the officer or
agent having charge of the stock transfer books. The list, for a period of
ten (10) days prior to the meeting, shall be kept on file at the registered
office of the Corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. The list shall also
be produced and kept open at the time and place of the meeting during the
whole time thereof, and shall be subject to the inspection of any
shareholder during the whole time of the meeting.
2.09 Record Date; Closing Transfer Books. The Board of Directors
may fix in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of the
shareholders, the record date to be not less than ten (10) nor more than
sixty (60) days prior to the meeting; or the Board of Directors may close
the stock transfer books for such purpose for a period of not less than ten
(10) nor more than sixty (60) days prior to such meeting. In the absence
of any action by the Board of Directors, the date upon which the notice of
the meeting is mailed shall be the record date.
2.10 Registered Shareholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact of such share or shares for all purposes, and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express
or other notice of such claim or interest, except as expressly provided by
the laws of the State of Texas.
2.11 Action Without Meeting. Any action required by statute to be
taken at a meeting of the shareholders, or any action which may be taken at
a meeting of the shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by holders of shares having not less
than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on
the action were present and voted. The signed consent, or a signed copy,
shall be placed in the Minute Book.
2.12 Order of Business at Meetings; Rules of Meeting. The order of
business at Annual Meetings and, so far as practicable, at other meetings
of shareholders, shall be as follows unless changed by the Board of
Directors in its sole discretion and without notice requirements:
(1) Call to order;
(2) Proof of due notice of meeting;
(3) Determination of quorum and examination of proxies;
(4) Announcement of availability of voting list (see Bylaw
2.08);
(5) Announcement of distribution of annual statement (see
Bylaw 7.03);
(6) Reading and disposing of minutes of last meeting of
shareholders;
(7) Reports of officers and committees;
(8) Appointment of voting inspectors;
(9) Election of Directors;
(10) Report of voting inspectors;
(11) Unfinished business;
(12) New business; and
(13) Adjournment.
The rules that shall govern the meeting shall be those established by the
Board of Directors.
ARTICLE XXIV. DIRECTORS
3.01 Management. The business and affairs of the Corporation shall
be managed by the Board of Directors who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not (by
statue or by the Articles of Incorporation or by these Bylaws) directed or
required to be exercised or done by the shareholders.
3.02 Number; Qualifications; Election; Term. The Board of Directors
shall consist of at least two (2) Directors, none of whom need to be
shareholders or residents of any particular state. The first Board of
Directors shall consist of the number of Directors named in the Articles of
Incorporation. Thereafter, the number of Directors which shall constitute
the entire Board of Directors shall be determined by resolution of the
Board of Directors at any meeting thereof or by the shareholders at any
meeting thereof; provided, however, that at all times during which shares
of the Corporation's Series B Convertible, Non-Redeemable Preferred Stock,
par value $0.01 per share (the "Series B Preferred"), shall be outstanding,
such number of Directors constituting the entire Board of Directors shall
not be greater than eight without the prior affirmative vote (at a meeting
duly called and held) or written consent of the holders of two-thirds of
the outstanding shares of Series B Preferred. The Directors shall be
elected at the Annual Meeting of the shareholders, except as provided in
Bylaws 3.03 and 3.05. Each Director elected shall hold office until his
successor shall be elected and shall qualify.
3.03 Change in Number. Subject to the restrictions set forth in
Section 3.02, the number of Directors may be increased or decreased from
time to time by amendment to these Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent Director. Any directorship
to be filled by reason of an increase in the number of Directors shall be
filled by election at an Annual Meeting or at a Special Meeting of
Shareholders called for that purpose.
3.04 Removal. Any Director may be removed, with or without cause,
at any Special or Annual Meeting of Shareholders by the affirmative vote of
a majority in number of shares of the shareholders present in person or by
proxy at such meeting and entitled to vote for the election of such
Director if notice of intention to act upon such matter shall have been
given in the notice calling such meeting.
3.05 Vacancies. Any vacancy occurring in the Board of Directors (by
death, resignation, removal or otherwise) may be filled by an affirmative
vote of a majority of the Directors then in office though less than a
quorum of the Board of Directors. A Director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office.
3.06 Election of Directors. Directors shall be elected by majority
vote.
3.07 Chairman of the Board of Directors. The Board of Directors may
elect a Chairman to preside at all meetings of the Board of Directors and
the shareholders, and invest him with such powers and delegate to him such
duties as the Board of Directors may from time to time designate. In the
event no Chairman is elected, or the designated Chairman is unable to act,
the President shall preside at meetings of the Board of Directors.
3.08 Place of Meetings. Meetings of the Board of Directors, Regular
or Special, may be held either within or without the State of Texas.
3.09 First Meeting. The first meeting of each newly elected Board
shall be held without further notice, immediately following the Annual
Meeting of Shareholders, and at the same place, unless (by unanimous
consent of the Directors then elected and serving) such time or place shall
be changed.
3.10 Regular Meetings. Regular Meetings of the Board of Directors
may be held without notice at such time and place as shall from time to
time be determined by the Board.
3.11 Special Meetings. Special Meetings of the Board of Directors
may be called by the Chairman of the Board of Directors or the President on
three (3) days' notice to each Director, either personally or by mail or by
telegram. Special Meetings shall be called by the President or Secretary
in like manner and on like notice by a majority of the Directors. Except
as otherwise expressly provided by statute, or by the Articles of
Incorporation, or by these Bylaws, neither the business to be transacted
at, nor the purpose of, any Special Meeting need be specified in a Notice
or Waiver of Notice.
3.12 Quorum; Majority Vote. At all meetings of the Board of
Directors, a majority of the Directors shall constitute a quorum for the
transaction of business. The act of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by statute or by
the Articles of Incorporation or by these Bylaws. If a quorum is not
present at a meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.
3.13 Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No
such payment shall preclude any Director from serving the Corporation in
any other capacity and receiving compensation therefore. Members of the
executive committee or of a special or standing committee may, by
resolution of the Board of Directors, be allowed like compensation for
attending committee meetings.
3.14 Procedure. The Board of Directors shall keep regular minutes
of its proceedings. The Minutes shall be placed in the Minute Book of the
Corporation.
3.15 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by
all the members of the Board of Directors. Such consent shall have the
same force and effect as an unanimous vote at a meeting. The signed
consent, or a signed copy, shall be placed in the Minute Book.
3.16 Interested Directors, Officers and Shareholders. No contract
or other transaction between the Corporation and any of its Directors,
officers or shareholders (or any corporation or firm which any of them are
directly or indirectly interested) shall be invalid solely because of this
relationship or because of the presence of such Director, officer or
shareholder at the meeting authorizing such meeting or authorization
provided that (a) the material facts of the relationship or interest of
each such Director, officer or shareholder are known or disclosed and (b)
the contract of transaction is fair to the Corporation as of the time it is
authorized or ratified by the Board of Directors, a committee of the Board
or the shareholders.
ARTICLE XXV. COMMITTEES
4.01 Designation. The Board of Directors may, by resolution adopted
by a majority of the entire Board of Directors, designate one or more
committees.
4.02 Number; Qualification; Term. The Board of Directors, by
resolution adopted by a majority of the entire Board of Directors, shall
designate one or more of its members as members of any committee and may
designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the Board of Directors,
replace absent or disqualified members at any meeting of that committee.
The number of committee members may be increased or decreased from time to
time by resolution adopted by a majority of the entire Board of Directors.
Each committee member shall serve as such until the earliest of (i) the
expiration of his term as Director, (ii) his resignation as a committee
member or as a Director, or (iii) his removal, as a committee member or as
a Director.
4.03 Authority. Each committee, to the extent expressly provided
herein or in the resolution establishing such committee, shall have and may
exercise all of the authority of the Board of Directors, including, without
limitation, the authority to authorize a distribution and to authorize the
issuance of shares of the Corporation. Notwithstanding the foregoing,
however, no committee shall have the authority of the Board of Directors in
reference to:
(a) amending the Articles of Incorporation, except that a
committee may, to the extent provided in the resolution
designating that committee, exercise the authority of
the Board of Directors vested in it in accordance with
Article 2.13 of the Texas Business Corporation Act;
(b) proposing a reduction of the stated capital of the
Corporation in the manner permitted by Article 4.12 of
the Texas Business Corporation Act;
(c) approving a plan of merger or share exchange of the
Corporation;
(d) recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the property
and assets of the Corporation otherwise than in the
usual and regular course of its business;
(e) recommending to the shareholders a voluntary disso-
lution of the Corporation or a revocation thereof;
(f) amending, altering, or repealing these Bylaws or
adopting new Bylaws of the Corporation;
(g) filling vacancies in the Board of Directors;
(h) filling vacancies in, or designating alternate members
of, any committee;
(i) filling any directorship to be filled by reason of an
increase in the number of Directors;
(j) electing or removing officers of the Corporation or
members or alternate members of any committee;
(k) fixing the compensation of any member or alternate
member of any committee; or
(l) altering or repealing any resolution of the Board of
Directors that by its terms provides that it shall not
be amendable or repealable.
4.04 Regular Meetings. Regular meetings of any committee may be
held without notice at such time and place as may be designated from time
to time by the committee and communicated to all members thereof.
4.05 Special Meetings. Special meetings of any committee may be
held whenever called by any committee member. The committee member calling
any Special Meeting shall cause Notice of such Special Meeting, including
therein the time and place of such Special Meeting, to be given to each
committee member at least two days before such Special Meeting. Neither
the business to be transacted at, nor the purpose of, any Special Meeting
of any committee need be specified in the Notice or Waiver of Notice of any
Special Meeting.
4.06 Quorum; Majority Vote. At meetings of any committee, a
majority of the number of members designated by the Board of Directors
shall constitute a quorum for the transaction of business. If a quorum is
not present at a meeting of any committee, a majority of the members
present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. The act of
a majority of the members present at any meeting at which a quorum is in
attendance shall be the act of a committee, unless the act of a greater
number is required by law, the Articles of Incorporation, or these Bylaws.
4.07 Minutes. Each committee shall cause minutes of its proceedings
to be prepared and shall report the same to the Board of Directors upon the
request of the Board of Directors. The minutes of the proceedings of each
committee shall be delivered to the secretary of the Corporation for
placement in the Minute Book of the Corporation.
4.08 Compensation. Committee members may, by resolution of the
Board of Directors, be allowed a fixed sum and expenses of attendance, if
any, for attending any committee meetings or a stated salary.
4.09 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the Board of
Directors or any Director of any responsibility imposed upon it or such
Director by law.
4.10 Acquisition and Budget Committee. Notwithstanding any other
provision hereof, without the affirmative recommendation of a majority of
the members of the acquisition and budget committee of the Board of
Directors, the Board of Directors shall not (a) authorize or approve, and
shall not permit any officer, employee or representative of the Corporation
to cause, the Corporation or any subsidiary of the Corporation, directly or
indirectly, to acquire all or a substantial portion of the assets,
properties or capital stock of, or otherwise combine with, any individual,
corporation, partnership, association, trust or other entity or (b)
authorize or approve a budget for the Corporation.
ARTICLE XXVI. NOTICE
5.01 Method. Whenever by statute or the Articles of Incorporation
or these Bylaws, notice is required to be given to a Director or
shareholder, and no provision is made as to how the notice shall be given,
it shall not be construed to mean personal notice, but any such notice may
be given (a) in writing, by mail, postage prepaid, addressed to the
Director or shareholder at the address appearing on the books of the
Corporation, or (b) in any other method permitted by law. Any notice
required or permitted to be given by mail shall be deemed given at the time
when the same is thus deposited in the United States mails.
5.02 Waiver. Whenever, by statute or the Articles of Incorporation
or these Bylaws, notice is required to be given to a shareholder or
Director, a Waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated in such
notice, shall be equivalent to the giving of such notice. Attendance of a
Director at a meeting shall constitute a Waiver of Notice of such meeting,
except where a Director attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE XXVII. OFFICERS AND AGENTS
6.01 Number; Qualification; Election; Term.
(a) The Corporation shall have:
(1) A President, a Vice President, a Secretary, and a
Treasurer, and
(2) Such other officers (including an Executive
Chairman of the Board, a Nonexecutive Chairman of the Board, a Chief
Executive Officer and additional Vice Presidents) and assistant officers
and agents as the Board of Directors may think necessary; provided, that,
prior to April 1, 1999, the Executive Chairman of the Board and the Chief
Executive Officer of the Corporation must be elected by at least three-
fourths of the entire Board of Directors.
(b) No officer or agent need be a shareholder, a Director,
or a resident of Texas.
(c) Officers named in Section 5.01(a)(1) shall be elected
by the Board of Directors on the expiration of an officer's term or
whenever a vacancy exists. Officers and agents named in Section 5.01(a)(2)
may be elected by the Board at any meeting.
(d) Unless otherwise specified by the Board at the time of
election or appointment, or in an employment contract approved by the
Board, each officer's and agent's term shall end at the first meeting of
Directors after the next Annual Meeting of Shareholders. He shall serve
until the end of his term or, if earlier, his death, resignation, or
removal.
(e) Any two or more offices may be held by the same person.
6.02 Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby.
Such removal shall be without prejudice to the contract rights, if any, of
the person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the
Corporation (by death, resignation, removal or otherwise) may be filed by
the Board of Directors.
6.04 Authority. Officers and agents shall have such authority and
perform such duties in the management of the Corporation as are provided in
these Bylaws or as may be determined by resolution of the Board of
Directors not inconsistent with these Bylaws.
6.05 Compensation.
(a) The compensation of officers and agents shall be fixed
from time to time by the Board of Directors; provided, however, that all
salary voted must be no more than reasonable compensation for services
rendered or to be rendered to the Corporation.
(b) Any payments made to an officer of the Corporation such
as salary, commission, bonus, interest, rent, or entertainment expenses
incurred by him, which shall be disallowed in whole or in part as a
deductible expenses by the Internal Revenue Service, shall be reimbursed by
such officer to the Corporation to the full extent of such disallowance.
It shall be the duty of the Directors, as a Board, to enforce payment of
such amount disallowed.
6.06 Executive Chairman of the Board. The Executive Chairman of the
Board shall have such powers and duties as may be prescribed by the Board
of Directors.
6.07 Chief Executive Officer. Unless otherwise provided by
resolution of at least three-fourths of the entire Board of Directors, the
Executive Chairman of the Board shall serve as Chief Executive Officer of
the Corporation and shall have such powers and duties as may be prescribed
by the Board of Directors.
6.08 President. The President shall be the Chief Operating Officer
of the Corporation and shall perform such duties and have such authority
and powers as the Board of Directors and the Chief Executive Officer, if
any, may from time to time prescribe.
6.09 Vice President. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in
the absence or disability of the Chairman of the Board or President,
perform the duties and have the authority and exercise the powers of the
Chairman of the Board or President. They shall perform such other duties
and have such other authority and powers as the Board of Directors may from
time to time prescribe or as the Chairman of the Board or President may
from time to time delegate.
6.10 Secretary.
(a) The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all votes and the
Minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee when required.
(b) He shall give, or cause to be given, notice of all
meetings of the shareholders and Special Meetings of the Board of Directors
(c) He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors or the Executive
Committee, affix the name to any instrument requiring it, and when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary.
(d) He shall be under the supervision of the President. He
shall perform such other duties and have such other authority and powers as
the Board of Directors may from time to time prescribe or as the President
may from time to time delegate.
6.11 Assistant Secretary. The Assistant Secretaries in the order of
their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the Secretary, perform the duties
and have the authority to exercise the powers of the Secretary. They shall
perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe or as the President may from time
to time delegate.
6.12 Treasurer.
(a) The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements of the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designed by the Board of Directors.
(b) He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and Directors, at the
Regular Meetings of the Board, or whenever they may require it, an account
of all his transactions as Treasurer and of the financial condition of the
Corporation.
(c) If required by the Board of Directors, he shall give
the Corporation a bond in such form, in such sum, and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance
of the duties of his office and for the restoration to the Corporation, in
case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property at whatever kind in his
possession or under his control belonging to the Corporation.
(d) He shall perform such other duties and have such other
authority and powers as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate.
6.13 Assistant Treasurer. The Assistant Treasurers in the order of
their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the Treasurer, perform the duties
and have the authority to exercise the powers of the Treasurer. They shall
perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe or the President may from time to
time delegate.
ARTICLE XXVIII. CERTIFICATES AND SHAREHOLDERS
7.01 Certificates. Certificates in the form determined by the Board
of Directors shall be delivered representing all shares to which
shareholders are entitled. Certificates shall be consecutively numbered
and shall be entered in the books of the Corporation as they are issued.
Each certificate shall state on the face thereof the holder's name, the
number and class of shares, the par value of shares or a statement that
such shares are without par value, and such other matters as may be
required by law. They shall be signed by the President or a Vice President
and such other officer or officers as the Board of Directors shall
designate, and may be sealed with the seal of the Corporation or a
facsimile thereof. If any certificate is countersigned by a transfer
agent, or an assistant transfer agent or registered by a registrar (either
of which is other than the Corporation or an employee of the Corporation),
the signature of any such officer may be a facsimile.
7.02 Issuance. Shares (both treasury and authorized but unissued)
may be issued for such consideration (not less than par value) and to such
persons as the Board of Directors may determine from time to time. Shares
may not be issued until the full amount of the consideration, fixed as
provided by law, has been paid.
7.03 Payment for Shares.
(a) Kind. The consideration for the issuance of shares
shall consist of money paid, labor done (including services actually
performed for the Corporation), or property (tangible or intangible)
actually received. Neither promissory notes nor the promise of future
services shall constitute payment for shares.
(b) Valuation. In the absence of fraud in the transaction,
the judgment of the Board of Directors as to the value of consideration
received shall be conclusive.
(c) Effect. When consideration, fixed as provided by law,
has been paid, the shares shall be deemed to have been issued and shall be
considered fully paid and nonassessable.
(d) Allocation of Consideration. The consideration
received for shares shall be allocated by the Board of Directors, in
accordance with law, between stated capital and capital surplus accounts.
7.04 Subscriptions. Unless otherwise provided, subscription of
shares, whether made before or after organization of the Corporation, shall
be paid in full at such time or in such installments and at such times as
shall be determined by the Board of Directors. Any call made by the Board
of Directors for payment on subscriptions shall be uniform as to all shares
of the same series, as the case may be. In case of default in the payment
on any installment or call when payment is due, the Corporation may proceed
to collect the amount due in the same manner as any debt due to the
Corporation.
7.05 Lien. For any indebtedness of a shareholder to the
Corporation, the Corporation shall have a first and prior lien on all
shares of its stock owned by him and on all dividends or other
distributions declared thereon.
7.06 Lost, Stolen or Destroyed Certificates. The Corporation shall
issue a new certificate in place of any certificate for shares previously
issued if the registered owner of the certificate:
(a) Claim. Makes proof in affidavit form that it has been
lost, destroyed or wrongfully taken;
(b) Timely Request. Requests the issuance of a new
certificate before the Corporation has notice that the certificate has been
acquired by a purchaser for value in good faith and without notice of an
adverse claim;
(c) Bond. Gives a bond in such form, and with such surety
or sureties, with fixed or open penalty, as the Corporation may direct, to
indemnify the Corporation (and its transfer agent and registrar, if any)
against any claim that may be made on account of the alleged loss,
destruction, or theft of the certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the Corporation. When a certificate has been lost,
apparently destroyed or wrongfully taken, and the holder of record fails to
notify the Corporation within a reasonable time after he has notice of it,
and the Corporation registers a transfer of the shares represented by the
certificate before receiving such notification, the holder of record is
precluded from making any claim against the Corporation for the transfer or
for a new certificate.
7.07 Registration of Transfer. The Corporation shall register the
transfer of a certificate for shares presented to it for transfer if:
(a) Endorsement. The certificate is properly endorsed by
the registered owner or by his duly authorized attorney;
(b) Guaranty and Effectiveness of Signature. The signature
of such person has been guaranteed by a national banking association or
member of the New York Stock Exchange, or reasonable assurance is given
that such endorsements are effective;
(c) Adverse Claims. The Corporation has no notice of an
adverse claim or has discharged any duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law relating to
the collection of taxes has been complied with.
7.08 Registered Owner. Prior to due presentation for registration
for transfer of a certificate for shares, the Corporation may treat the
registered owner as the person exclusively entitled to vote, to receive
notices and otherwise to exercise all the rights and powers of a
shareholder.
ARTICLE XXIX. GENERAL PROVISIONS
8.01 Dividends and Reserves.
(a) Declaration and Payment. Subject to provisions of
applicable statutes and the Articles of Incorporation, dividends may be
declared by the Board of Directors at any regular or Special Meeting and
may be paid in cash, in property, or in shares of the Corporation. The
declaration and payment shall be at the discretion of the Board of
Directors.
(b) Record Date. The Board of Directors may fix in advance
a record date for the purpose of determining shareholders entitled to
receive payment of any dividend, the record date to be not more than sixty
(60) days prior to the payment date of such dividend, or the Board of
Directors may close the stock transfer books for such purpose for a period
of not more than sixty (60) days prior to the payment date of such
dividend. In the absence of any action by the Board of Directors, the date
upon which the Board of Directors adopts the resolution declaring the
dividend shall be the record date.
(c) Reserves. By resolution the Board of Directors may
create such reserve or reserves out of the earned surplus of the
Corporation as the Directors from time to time, in their discretion, think
proper to provide for contingencies, or to equalize dividends, or to repair
or maintain any property of the Corporation, or for any other purpose they
think beneficial to the Corporation. The Directors may modify or abolish
any such reserve in the manner in which it was created.
8.02 Books and Records. The Corporation shall keep correct and
complete books of account and shall keep Minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer
agent or register, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held
by each.
8.03 Annual Statement. At the request of any holder of record of
any shares, the Corporation shall mail to each shareholder within a
reasonable time an annual statement for its last fiscal year showing in
reasonable detail its assets and liabilities, and the results of its
operations. The Corporation shall also mail to each shareholder its most
recent interim statement if such statement has been filed for public
record.
8.04 Checks and Notes. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
8.05 Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
8.06 Seal. The Corporate seal (of which there may be one or more
exemplars) shall contain the name of the Corporation and the name of the
state of incorporation. The seal may be used by impressing it or
reproducing a facsimile of it.
8.07 Indemnification of Officers and Directors. Each Director or
officer, whether or not then in office, subject always to the provisions of
the laws of the State of Texas and the Articles of Incorporation, shall be
indemnified by the Corporation against all costs and expenses (including
counsel fees) reasonably incurred by or imposed upon him in connection with
or arising out of any action, suit or proceeding which he may be for any
reason involved by reason of his being or having been a director or officer
of the Corporation, such expense to include the costs of any settlement
which has been approved by the Board of Directors (other than amounts to be
paid to the Corporation itself), made with the view to curtailment of costs
of litigation. Such indemnification shall be to the full extent as
provided for in Article 2.02-1, as it presently exists and as it is
amended.
8.08 Resignation. Any Director, officer or agent may resign by
giving written notice to the President or the Secretary. The resignation
shall take effect at the time specified therein, or immediately if no time
is specified therein. Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
8.09 Limitation of Liability. Each Director shall be availed of the
provisions of any limitation of director liability as provided for in the
Articles of Incorporation.
8.10 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
8.11 Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by resolution of the Board of Directors. Such authority
may be general or confined to specific instances
8.12 Nonexecutive Chairman of the Board. The Board of Directors may
appoint a Nonexecutive Chairman of the Board. The Nonexecutive Chairman of
the Board shall not be an officer of the Corporation and shall have no
power or authority to manage the business or affairs of the Corporation (or
otherwise bind the Corporation in any manner). The Nonexecutive Chairman
of the Board may, but need not be, a Director of the Corporation and shall
serve such roles as may be prescribed by the Board of Directors.
8.13 Amendment of Bylaws. Subject to any limitations imposed by the
Articles of Incorporation (or any Certificate of Designation filed in
connection therewith), these Bylaws may be altered, amended or repealed at
any meeting of the Board of Directors at which a quorum is present by the
affirmative vote of a majority of the Directors present at such meeting,
provided notice of the proposed alteration, amendment or repeal is
contained in the notice of such meeting.
8.14 Conflicts. In the event of a direct conflict between the
provisions of these Bylaws and the mandatory provisions of the Texas
Business Corporation Act or the provisions of the Articles of Incorporation
(including any Certificate of Designation thereto), such provisions of the
Texas Business Corporation Act or the Articles of Incorporation, as the
case may be, will be controlling.
8.15 Persons and Numbers. Whenever the context so requires, the
masculine shall include the feminine and neuter, and the singular shall
include the plural, and conversely.
8.16 Construction and Interpretation. The place of these Bylaws,
their status and their forum shall be at all times in the State of Texas;
and these Bylaws shall be governed by the laws of the State of Texas as to
all matters relating to their validity, construction and interpretation.
In the event that any Court of competent jurisdiction shall adjudge any
portion of these Bylaws to be invalid or inoperative, then, so far as is
reasonable and possible:
(a) The remainder of these Bylaws shall be considered valid
and operative; and
(b) Effect shall be given to the intent manifested by the
portion of these Bylaws held invalid or inoperative.
8.17 Table of Contents; Headings. The Table of Contents and
headings are for organization, convenience, and clarity. In interpreting
these Bylaws, they shall be subordinated in importance to the other written
material.
I HEREBY CERTIFY that the foregoing is a true, complete and
correct copy of the Bylaws of Integrated Orthopaedics, Inc., a Texas
corporation, as in effect on the date hereof.
IN WITNESS WHEREOF, I hereunder set my hand and affix the seal
of the Corporation, this the ___ day of December, 1997.
INTEGRATED ORTHOPAEDICS, INC.
By
JEFFERSON R. CASEY, Secretary
<PAGE>
FIRST AMENDED AND RESTATED BYLAWS OF
INTEGRATED ORTHOPAEDICS, INC.
TABLE OF CONTENTS
ARTICLE I. NAMES AND OFFICES . . . . . . . . . . . . . . . . . . . . 1
1.01 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Principal Office . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . 1
2.01 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
2.04 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.05 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.06 Majority Vote; Withdrawal of Quorum. . . . . . . . . . . . . . 2
2.07 Method of Voting . . . . . . . . . . . . . . . . . . . . . . . 2
2.08 Voting List. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.09 Record Date; Closing Transfer Books. . . . . . . . . . . . . . 3
2.10 Registered Shareholders. . . . . . . . . . . . . . . . . . . . 3
2.11 Action Without Meeting . . . . . . . . . . . . . . . . . . . . 3
2.12 Order of Business at Meetings; Rules of Meeting. . . . . . . . 3
ARTICLE III. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . 4
3.01 Management . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.02 Number; Qualifications; Election; Term . . . . . . . . . . . . 4
3.03 Change in Number . . . . . . . . . . . . . . . . . . . . . . . 5
3.04 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.05 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.06 Election of Directors. . . . . . . . . . . . . . . . . . . . . 5
3.07 Chairman of the Board of Directors . . . . . . . . . . . . . . 5
3.08 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . 5
3.09 First Meeting. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.10 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 5
3.11 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 6
3.12 Quorum; Majority Vote. . . . . . . . . . . . . . . . . . . . . 6
3.13 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.14 Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.15 Action Without Meeting . . . . . . . . . . . . . . . . . . . . 6
3.16 Interested Directors, Officers and Shareholders. . . . . . . . 6
ARTICLE IV. COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . 7
4.01 Designation. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.02 Number; Qualification; Term. . . . . . . . . . . . . . . . . . 7
4.03 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.04 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 8
4.05 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 8
4.06 Quorum; Majority Vote. . . . . . . . . . . . . . . . . . . . . 9
4.07 Minutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.08 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.09 Responsibility . . . . . . . . . . . . . . . . . . . . . . . . 9
4.10 Acquisition and Budget Committee . . . . . . . . . . . . . . . 9
ARTICLE V. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.01 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.02 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI. OFFICERS AND AGENTS . . . . . . . . . . . . . . . . . . . 10
6.01 Number; Qualification; Election; Term. . . . . . . . . . . . . 10
6.02 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.03 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.04 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.06 Executive Chairman of the Board. . . . . . . . . . . . . . . . 11
6.07 Chief Executive Officer. . . . . . . . . . . . . . . . . . . . 11
6.08 President. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.09 Vice President . . . . . . . . . . . . . . . . . . . . . . . . 12
6.10 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.11 Assistant Secretary. . . . . . . . . . . . . . . . . . . . . . 12
6.12 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Assistant Treasurer. . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII. CERTIFICATES AND SHAREHOLDERS . . . . . . . . . . . . . . 13
7.01 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.02 Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.03 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . 14
7.04 Subscriptions. . . . . . . . . . . . . . . . . . . . . . . . . 14
7.05 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.06 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . 14
7.07 Registration of Transfer . . . . . . . . . . . . . . . . . . . 15
7.08 Registered Owner . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 16
8.01 Dividends and Reserves . . . . . . . . . . . . . . . . . . . . 16
8.02 Books and Records. . . . . . . . . . . . . . . . . . . . . . . 16
8.03 Annual Statement . . . . . . . . . . . . . . . . . . . . . . . 16
8.04 Checks and Notes . . . . . . . . . . . . . . . . . . . . . . . 17
8.05 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.06 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.07 Indemnification of Officers and Directors. . . . . . . . . . . 17
8.08 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.09 Limitation of Liability. . . . . . . . . . . . . . . . . . . . 17
8.10 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.11 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.12 Nonexecutive Chairman of the Board . . . . . . . . . . . . . . 18
8.14 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.15 Persons and Numbers. . . . . . . . . . . . . . . . . . . . . . 18
8.16 Construction and Interpretation. . . . . . . . . . . . . . . . 18
8.17 Table of Contents; Headings. . . . . . . . . . . . . . . . . . 18
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS, L.P.
This Limited Partnership Agreement ("Agreement") of FW Integrated
Orthopaedics Investors, L.P. is made and entered into effective as of the
day of December, 1997 (the "Effective Date"), by and among Group 31, Inc.,
a Texas corporation ("Group 31"), as the general partner and Keystone,
Inc., a Texas corporation ("Keystone"), FW Strategic Partners, L.P., a
Delaware limited partnership ("Strategic"), and FW Integrated Orthopaedics
Coinvestment Partners, L.P., a Texas limited partnership ("Coinvestors"),
as the limited partners.
WITNESSETH:
For and in consideration of the mutual covenants set forth herein and
for other good and valuable consideration, the adequacy, receipt, and
sufficiency of which are hereby acknowledged, Group 31, Keystone,
Strategic, and Coinvestors (collectively, the "Partners" and individually,
a "Partner") hereby agree as follows:
ARTICLE I
ORGANIZATION AND PURPOSE
Section 1.01. Formation of Limited Partnership. The Partners hereby
agree to become partners and to form a limited partnership (the
"Partnership") pursuant to Article 6132a-1 Tex. Rev. Civ. Stat. Ann., known
as the Texas Revised Limited Partnership Act (the "Act"). Group 31 shall
be the general partner and is hereinafter sometimes referred to in such
capacity as the "General Partner." Keystone, Strategic, and Coinvestors
shall be the limited partners and are hereinafter sometimes referred to in
such capacity individually as a "Limited Partner" or collectively as the
"Limited Partners."
Section 1.02. Name. The name of the Partnership shall be FW
Integrated Orthopaedics Investors, L.P. All business and affairs of the
Partnership shall be conducted solely under, and all Partnership Assets (as
that term is defined in Section 1.04) shall be held solely in, such name
unless otherwise determined by the General Partner.
Section 1.03. Effective Date and Term. The Partnership shall be in
effect for a term beginning on the Effective Date and shall continue under
this Agreement (as amended from time to time) until dissolved upon the
occurrence of an event that causes the dissolution of the Partnership in
accordance with the provisions of this Agreement, and thereafter to the
extent provided by applicable law, until wound up and terminated as
provided herein.
Section 1.04. Purposes and Scope of Business. The business and
purposes of the Partnership are to buy, sell, exchange or otherwise
acquire, hold, trade, invest in, and deal with the securities of Integrated
Orthopaedics, Inc., a Texas corporation ("Integrated"), including without
limitation, common or preferred stock, bonds, debentures, notes, warrants,
options and all other rights of every kind and description (collectively,
the "Securities"), whether such Securities are acquired directly or
indirectly through partnerships, joint ventures or otherwise, and to
borrow, on margin or otherwise, such funds (in addition to the capital
contributions provided for herein) that the General Partner determines to
be necessary or advisable to conduct the business of the Partnership and to
carry out the foregoing. Subject to the terms and conditions of this
Agreement, the Partnership shall have the power and authority to do all
such other acts and things as may be necessary, desirable, expedient,
convenient for, or incidental to, the furtherance and accomplishment of the
foregoing objectives and purposes and for the protection and benefit of the
Partnership. The assets of the Partnership, whether now or hereafter
owned, are sometimes referred to as the "Partnership Assets."
Section 1.05. Documents. The General Partner, or anyone designated
by the General Partner, is hereby authorized to execute a certificate of
limited partnership of the Partnership ("Certificate of Limited
Partnership") in accordance with the Act and cause the same to be filed in
the office of the Secretary of State of the State of Texas in accordance
with the provisions of the Act. The Partnership shall promptly execute and
duly file with the proper offices in each state in which the Partnership
may conduct the activities hereinafter authorized, one or more certificates
as required by the laws of each such state in order that the Partnership
may lawfully conduct the business, purposes, and activities herein
authorized in each such state, and the Partnership shall take any other
action or measures necessary in such state or states for the Partnership to
conduct such activities.
Section 1.06. Principal Place of Business. The principal place of
business of the Partnership shall be 201 Main Street, Suite 3100, Fort
Worth, Texas 76102 or at such other place or places as may be approved by
the General Partner. The General Partner shall be responsible for
maintaining at the Partnership's principal place of business those records
required by the Act to be maintained there.
Section 1.07. Registered Agent and Office. The Registered Agent (as
defined in the Act) for the Partnership shall be W. R. Cotham. The
Registered Office (as defined in the Act) of the Partnership shall be 201
Main Street, Suite 2600, Fort Worth, Texas 76102.
Section 1.08. Certain Definitions.
(a) "Valuation Date" shall mean any date that the Securities or
other Partnership Assets are valued for any reason.
(b) "Value" shall mean (i) with respect to any Security:
(A) for marketable Securities listed on a national
Securities exchange or authorized for trading on the National
Market System Quotations, the last sales price on the Valuation
Date, or in the absence of a sale on such date, the mean
between the "bid" and "asked" prices on such day, or if no such
"bid" and "asked" prices exist, by such method as the General
Partner reasonably determines will reflect the fair market
value, provided, that if a Security is listed on more than one
exchange, the General Partner shall use the price on the New
York Stock Exchange, if available, or, if not, the price on the
exchange selected by the General Partner;
(B) for marketable Securities traded in the
over-the-counter market and reported in the National
Association of Securities Dealers' Automated Quotation System,
the closing bid price on the Valuation Date as reported by such
system if held long and its closing "asked" price if held
short, provided, that if such price is not available, the
Securities shall be valued by such method as the General
Partner reasonably determines will reflect their fair value;
(C) for Securities not specified in (A) or (B) above, and
for which prices are regularly quoted (on a daily basis) by at
least two (2) independent recognized dealers, the most recent
market prices as reported by such dealers;
(D) for exchange-traded options, the closing price on the
Valuation Date on the principal exchange on which the option is
traded, and for non-exchange traded options, the value of the
options as reasonably determined by the General Partner using
standard option pricing models; and
(E) for all other Securities, the cost of or such other
value as reasonably determined by the General Partner.
Foreign Securities listed on a recognized exchange shall be
included in (A) above; those regularly reported on a recognized
automated quotation system shall be included in (B) above; and
those regularly quoted (on a daily basis) by at least two (2)
independent recognized dealers shall be included in (C) above;
and
(ii) with respect to any other Partnership Asset the market
value of such Partnership Asset as of the Valuation Date as reasonably
determined by the General Partner.
ARTICLE II
OPERATIONS
Section 2.01. Management of Partnership.
(a) The right to manage, control, and conduct the business and
affairs of the Partnership shall be vested solely in the General Partner.
Except as provided in Sections 2.01(b) and 7.01, the Limited Partners shall
not take part in the management of the affairs of the Partnership and under
no circumstances may the Limited Partners control the Partnership business
or sign for or bind the Partnership. Without limiting the generality of
the foregoing, and notwithstanding anything to the contrary contained in
this Agreement, the General Partner shall have the exclusive authority to
act for and on behalf of the Partnership, including, without limitation,
causing the Partnership to enter into acquisition agreements related to the
acquisition of Integrated, and documents and other instruments related
thereto, and no third party shall ever be required to inquire into the
authority of the General Partner to take such action on behalf of the
Partnership. Except as expressly limited in this Agreement, the General
Partner shall have the rights, authority, and powers of general partners
with respect to the Partnership business and the Partnership Assets as set
forth in the Act as in effect upon the Effective Date of this Agreement.
The General Partner shall not be required to devote its full time and
attention to the business of the Partnership, but only such time as it
deems necessary for the proper conduct of the Partnership's affairs.
(b) No act shall be taken, sum expended or obligation incurred by
the General Partner for or on behalf of the Partnership with respect to a
matter within the scope of any of the following major decisions ("Major
Decisions") affecting, directly or indirectly, the Partnership, or the
Partnership Assets, unless approved as described in subsection 2.01(c):
(i) Financing or refinancing the Partnership or the
Partnership Assets, including, without limitation, the granting
of any mortgages, pledges, or other encumbrances of the
Partnership Assets in connection therewith (other than in the
ordinary course of business);
(ii) Selling, exchanging or otherwise conveying or
disposing of any interest in all or any portion of the Securities
or any other Partnership Asset, including, without limitation, by
merger or consolidation, except for disposition or replacement of
personal property in the ordinary course of business;
(iii)Admitting a New Partner (as defined in Section 5.05) to the
Partnership;
(iv) Seeking or allowing the Partnership to seek protection from
creditors under any state or federal law, code, or statute;
(v) Initiating, settling, or compromising any material litigation
matters involving the Partnership;
(vi) Voting the Securities with respect to material matters,
including, without limitation, the election of directors of Integrated; or
(vii)Dissolving the Partnership pursuant to Article 6.02(d).
(c) No Major Decision may be made or effected by or on behalf of the
Partnership without the approval of the Partners holding 75% of all
Percentage Interests (as defined in Section 4.01) in the Partnership. As
used in this Agreement, "Approved by the Partners," "Approval of the
Partners," and other like terms shall mean the approval or consent of the
Partners holding 75% of the Percentage Interests in the Partnership. The
General Partner may at any time propose an action requiring Approval of the
Partners to the Limited Partners by giving written notice to the Limited
Partners. Within ten days after receipt of such notice, each Partner shall
indicate, in writing, to the General Partner, his or its approval or
disapproval of such Major Decision; provided, that, in the event any
Partner does not respond in such 10-day period, such Partner shall be
deemed to have disapproved such Major Decision. If Partners holding 75% of
the Percentage Interests in the Partnership approve of, consent to, or
otherwise take any action contemplated by this Section 2.01, such action
shall neither require any further polling of any other Partners, nor
require any further approval, consent, or action of any other Partners. In
the event Partners holding less than 75% of the Percentage Interests of the
Partners with respect to a Major Decision have approved or consented to
such Major Decision within the aforementioned 10-day period, such action
shall constitute disapproval by the Partners of such Major Decision.
Section 2.02. Affiliates. The General Partner shall have the right
to cause the Partnership to enter into contracts or otherwise deal with any
affiliates of any Partner in any capacity, including, without limitation,
in connection with the financing, management, and development of the
Partnership Assets, except that the terms of any such arrangement shall be
commercially reasonable and competitive with amounts that would be paid to
third parties on an "arms-length" basis.
Section 2.03. Expenses. The Partnership shall pay or reimburse the
General Partner and the Tax Matters Partner (as defined in Section 2.05)
for all direct, out-of-pocket expenses incurred by them with respect to
their respective duties under Section 2.01 and Section 2.05 to the
Partnership, including, without limitation, salaries, accounting expenses,
insurance premiums attributable directly to the Partnership, legal fees,
and other direct costs associated with the formation and operation of the
Partnership.
Section 2.04. Exculpation; Indemnity.
(a) Neither a Partners nor any affiliate of any Partner
(individually, an "Actor", and collectively, the "Actors") shall be liable
to the Partnership or any other Partner for (i) any act or omission taken
or suffered by any Actor in connection with the conduct of the Partnership
business, unless such act or omission constitutes bad faith, willful
misconduct, fraud or misappropriation or conversion of funds by such Actor,
(ii) any act or omission taken or suffered by any Actor in the good faith
exercise of discretion or judgment of the Actor as provided by this
Agreement, unless such act or omission constitutes bad faith, willful
misconduct, fraud or misappropriation or conversion of funds by such Actor,
or (iii) any action or omission taken or suffered by any other Partner.
(b) To the fullest extent allowed or permitted under any provision of
applicable law, including, without limitation, the Act, the Partnership
shall indemnify, defend, and hold harmless each Partner or any officer,
shareholder, director, or agent of such Partners (with such Partner,
officer, shareholder, director, or agent being referred to as an
"Indemnitee") to the extent of the Partnership Assets, from and against any
losses, expenses, judgments, fines, settlements, and damages (collectively,
"Liabilities") incurred by the Partnership or such Indemnitee arising out
of any claim based upon acts (including, without limitation, negligent
acts) performed or omitted to be performed by the Partnership or such
Indemnitee in connection with the business of the Partnership, including,
without limitation, costs, expenses, and attorneys' fees expended in the
settlement or defense of any such Liability, unless, in each case, such
Liability results from such Indemnitee's own bad faith, willful misconduct,
fraud or misappropriation or conversion of funds.
Section 2.05. Tax Matters Partner. The General Partner shall act as
the "Tax Matters Partner" for federal income tax purposes. The Tax Matters
Partner shall mean the Partner (a) designated as the "tax matters partner"
within the meaning of Section 6231(a)(7) of the Internal Revenue Code of
1986, as amended from time to time (or any corresponding provisions of
succeeding law, collectively the "Code") and (b) whose responsibilities as
Tax Matters Partner include, where appropriate, commencing on behalf of the
Partnership certain judicial proceedings regarding Partnership federal
income tax items and informing all Partners of any administrative or
judicial proceeding involving federal income taxes. In exercising its
responsibilities as Tax Matters Partner, the General Partner shall have the
final decision making authority with respect to all federal income tax
matters involving the Partnership. Any direct out-of-pocket expense
incurred by the Tax Matters Partner in carrying out its responsibilities
and duties under this Agreement shall be allocated to and charged to the
Partnership as an expense of the Partnership for which the Tax Matters
Partner shall be reimbursed.
ARTICLE III
FINANCING
Section 3.01. Capital Contributions.
(a) Each of the Partners agrees to contribute (the "Initial Capital
Contributions") to the capital of the Partnership on the Effective Date the
amount in cash set forth opposite each Partner's name on the attached
Exhibit A which is made a part of this Agreement for all purposes.
(b) If at any time the General Partner determines, in its sole
discretion, that additional funds are needed for (i) any direct
out-of-pocket costs and expenses incurred by the Partnership in connection
with the formation, financing, and operation of the Partnership, including,
without limitation, any amounts required to repay indebtedness of the
Partnership incurred in connection with the acquisition of the Securities,
and (ii) any other sums of money needed, in the sole opinion of the General
Partner, for the normal day-to-day business and affairs of the Partnership,
then from time to time the General Partner may make a written call for such
funds ("Call"). Within 30 days after the General Partner gives written
notice of the Call, the Partners may, but shall not be obligated to, make
such additional capital contributions to the Partnership, pro rata in
accordance with their Percentage Interests (with each such contribution
being referred to as an "Additional Capital Contribution"). If any Partner
elects not to deliver (the "Non-Contributing Partner") to the General
Partner for the use of the Partnership his or its pro rata portion of any
Call (with such portion not being contributed being referred to herein as
the "Defaulted Amount") within the time prescribed above, the other
Partners shall have the right, but not the obligation, without further
notice, to advance for his or its own capital account all or a portion of
the Defaulted Amount (with any Partner contributing a portion of the
Defaulted Amount being referred to as a "Contributing Partner"); provided,
however, that if more than one Partner desires to be a Contributing Partner
and to advance a portion of the Defaulted Amount, each such Contributing
Partner shall only advance his or its pro rata portion of the Defaulted
Amount as among all Contributing Partners. Notwithstanding anything
contained in this Agreement to the contrary, each Partner shall have the
right to contribute his or its pro rata portion of any Additional Capital
Contributions (except to the extent such Additional Capital Contribution is
from a New Partner as part of his or its initial contribution to the
capital of the Partnership) pro rata in accordance with his or its then
existing Percentage Interest in order to maintain such Partner's Percentage
Interest in the Partnership.
Section 3.02. Capital Accounts. The amount of a Partner's capital
account ("Capital Account") in the Partnership shall be determined
according to Regulations Section 1.704-(b)(2)(iv), including by:
(a) crediting to such account (i) all contributions to the
Partnership made by or on behalf of such Partner or his or its predecessor
in interest, including the Value of any property contributed (less any
liabilities assumed by the Partnership or to which any property may be
subject) and (ii) all gains and income of the Partnership allocated to such
Partner or his or its predecessor in interest; and
(b) debiting to such account (i) all distributions from the
Partnership made to or on behalf of such Partner or his or its predecessor
in interest, including the Value of any property distributed (less any
liabilities assumed by the Partner or to which any property may be subject)
and (ii) all losses and deductions of the Partnership allocated to such
Partner or his or its predecessor in interest.
Section 3.03. Limited Liability of the Limited
Partners. Notwithstanding anything contained in this Agreement to the
contrary, the liability of each Limited Partner for any of the debts,
losses, or obligations of the Partnership shall be limited to the amount of
the sum of such Limited Partner's capital contributions pursuant to Section
3.01 hereof. Accordingly, no Limited Partner shall be obligated to provide
additional capital to the Partnership or its creditors by way of
contribution, loan, or otherwise beyond the amount of the capital
contributions required of such Limited Partner pursuant to Section 3.01
hereof. Except as provided in the Act, no Limited Partner shall have any
personal liability whatsoever, whether to the Partnership or any third
party, for the debts of the Partnership or any of its losses beyond the
amount of such Limited Partner's capital contributions.
Section 3.04. Treatment of Capital Contributions. Except as provided
in this Agreement to the contrary, no Partner shall be entitled to interest
on his or its contributions to the capital of the Partnership nor shall any
Partner be entitled to demand the return of all or any part of such
contributions to the capital of the Partnership.
Section 3.05. Benefits of Agreement. Nothing in this Agreement, and,
without limiting the generality of the foregoing, in this Article III,
expressed or implied, is intended or shall be construed to give to any
creditor of the Partnership or to any creditor of any Partner or any other
person or entity whatsoever, other than the Partners and the Partnership,
any legal or equitable right, remedy, or claim under or in respect of this
Agreement or any covenant, condition, or provision herein contained, and
such provisions are and shall be held to be for the sole and exclusive
benefit of the Partners and the Partnership.
ARTICLE IV
ACCOUNTING, ALLOCATIONS, AND CURRENT DISTRIBUTIONS
Section 4.01. Percentage Interests. Except as may be adjusted
pursuant to Section 4.02, for purposes of allocating profits and losses in
accordance with Section 4.03, and for purposes of distributions under
Section 4.07, each Partner shall have the percentage interest in the
Partnership (collectively the "Percentage Interests" and individually a
"Percentage Interest") set forth opposite his or its name on the attached
Exhibit A which is made a part of this Agreement for all purposes.
Section 4.02. Adjustments to Percentage Interests.
(a) If (i) any Partner elects to become a Contributing Partner under
Section 3.01(b) and contributes a share of the Defaulted Amount, (ii) more
than a de minimis Additional Capital Contribution is made other than pro
rata by Percentage Interests, as among the Partners, or (iii) a New Partner
is admitted to the Partnership in accordance with Section 5.05 (with each
such event described in Section 4.02(a)(i), (ii), or (iii) being referred
to as an "Adjusting Event"), then the Percentage Interests of the Partners
shall be immediately adjusted such that the Percentage Interest of each
Partner equals a fraction, expressed as a percentage, in which the
numerator equals the Current Value (as defined in Section 4.02(b)) of such
Partner's interest in the Partnership, and the denominator equals the Net
Value of the Partnership Assets (as defined in Section 4.02(b)). If the
Percentage Interests of any Partners are adjusted pursuant to this Section
4.02(a), no Partner shall have the right to modify, rectify, or undo such
adjustments thereafter, and such adjustments shall be made without the need
for any further act or writing to effect any such adjustment. Each Partner
hereby appoints the General Partner as his or its duly authorized agent and
attorney-in-fact for purposes of preparing and executing any amendments to
this Agreement necessary or desirable to reflect any adjustment of
Percentage Interests under this Section 4.02(a). The rights granted to any
Partner under this Section 4.02 shall be such Partner's sole and exclusive
remedy for seeking relief with respect to any Adjusting Event.
(b) For purposes of this Agreement, the "Net Value of the Partnership
Assets" shall mean the net fair market value of all of the Partnership
Assets at the time the Adjusting Event occurs, as determined by the General
Partner in its sole discretion, and such Net Value of the Partnership
Assets shall include the value of the contributions made in connection with
the Adjusting Event. The Partners agree that because of the difficulty of
valuing an interest in the Partnership due to the unique nature of the
Partnership Assets, the General Partner is granted the sole discretion to
determine such values and shall take into account whatever factors it deems
appropriate to reflect such values, including, without limitation, the
dollar value of all contributions to date and any other reasonable methods
for determining the value of all of the Partnership Assets at the time of
the Adjusting Event. Without limiting the foregoing, the General Partner
may deem the Net Value of the Partnership Assets to equal the historical
net cost of those assets. The "Current Value" of any Partner's interest in
the Partnership shall be a dollar amount equal to the sum of (i) an amount
equal to such Partner's Percentage Interest immediately prior to the
Adjusting Event multiplied by the Net Value of the Partnership Assets
determined above excluding the net fair market value (as determined by the
General Partner) of any contributions associated with the Adjusting Event,
plus, (ii) the net fair market value (as determined by the General Partner)
of any contributions made by such Partner associated with the Adjusting
Event. Each Partner's Percentage Interest shall be immediately adjusted to
reflect such valuation by the General Partner, effective as of the date of
such Adjusting Event.
Section 4.03. Tax Status, Reports, and Allocations.
(a) Notwithstanding any provision contained in this Agreement to the
contrary, solely for federal income tax purposes, each of the Partners
hereby recognizes that the Partnership will be subject to all provisions of
Subchapter K of the Code; provided, however, that the filing of United
States Partnership Returns of Income shall not be construed to extend the
purposes of the Partnership or expand the obligations or liabilities of the
Partners.
(b) The General Partner or, at its discretion, an accountant
("Accountant") selected by the General Partner shall prepare or cause to be
prepared all tax returns and statements, if any, that must be filed on
behalf of the Partnership with any taxing authority and shall timely file
such returns or statements.
(c) For accounting and federal and (if any) state income tax
purposes, all income, deductions, credits, gains and losses shall be
allocated to the Partners pro rata in accordance with their respective
Percentage Interests.
Section 4.04. Minimum Gain and Income Offsets.
(a) Definitions.
(i) "Partner Minimum Gain" shall be "partner nonrecourse debt
minimum gain," as defined in Regulations Section 1.704-2(i)(2) and
determined in accordance with Regulations Sections 1.704-2(i)(3) and
1.704-2(k).
(ii) "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
(iii) "Partner Nonrecourse Deduction" has the meaning set
forth in Regulations Section 1.704-2(i).
(iv) "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(d) and shall be determined in accordance
with the provisions of Regulations Section 1.704-2(k).
(v) "Regulations" means the temporary and permanent Income Tax
Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of
succeeding Regulations).
(b) Minimum Gain.
(i) Notwithstanding any other provision of this Agreement to
the contrary, if the Partnership Minimum Gain on the last day of any
fiscal year is less than the Partnership Minimum Gain on the last day
of the immediately preceding fiscal year, then (before any other
allocation of Partnership items for such year under this Agreement,
other than as provided in paragraph (ii) below) there shall be
specially allocated to each Partner items of Partnership income and
gain for such year (and, if necessary, subsequent fiscal years) in an
amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain (determined in accordance with Regulations
Section 1.704-2(g)). The items to be so allocated shall be determined
in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2)(i) and (iii). This Section 4.04(b)(i) is intended to
comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Subsequent to any allocations under Section
4.04(b)(i) above, other than allocations of gain from the disposition
of property subject to Partner Nonrecourse Debt, if Partner Minimum
Gain on the last day of any fiscal year is less than the Partner
Minimum Gain on the last day of the immediately preceding fiscal year,
then, except as provided herein, each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent fiscal years) in an amount equal to that
Partner's share, if any, (determined in accordance with Regulations
Section 1.704-2(i)(4)) of the net decrease in Partner Minimum Gain
(such net decrease to be determined in a manner consistent with the
provisions of Regulations Section 1.704-2(d) and 1.704-2(g)(3)). The
items to be so allocated shall be determined in accordance with the
provisions of Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii)
and (iii). Notwithstanding the foregoing, no such special allocations
of income and gain shall be made to the extent that the net decrease
in Partner Minimum Gain described above arises because the liability
ceases to be Partner Nonrecourse Debt due to a conversion,
refinancing, or other change in the debt instrument that causes it to
become partially or wholly a nonrecourse liability within the meaning
of Regulations Section 1.752-1(a)(2). This Section 4.04(b)(ii) is
intended to comply with the chargeback and other provisions of
Regulations Section 1.704-2(i) and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. Notwithstanding any other provision of
this Agreement, if during any fiscal year any Partner (i) is allocated
pursuant to Code Section 706(d) or Regulations Section 1.751-1(b)(2)(ii)
any loss, items of loss, deductions, or Code Section 705(a)(2)(B)
expenditures, (ii) is distributed any cash or property from the Partnership
and such distributions exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during such year, or
(iii) receives any other adjustment, allocation, or distribution described
in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6) and, as a
result of such adjustment, allocation, or distribution, such Partner has a
Qualified Income Offset Amount (as hereinafter defined), then items of
income and gain (including gross income) for such fiscal year or other
period (and, if necessary, subsequent fiscal years) shall (prior to any
allocation pursuant to Section 4.03 hereof) be allocated to such Partner in
an amount equal to his Qualified Income Offset Amount; provided, however,
that any allocation of income or gain shall be required under this sentence
only if and to the extent that such Partner would have a Qualified Income
Offset Amount after all other allocations provided for in this Agreement
have been tentatively made as if Sections 4.04(b) and (c) were not
contained herein. As used herein, the term "Qualified Income Offset
Amount" for a Partner means the excess, if any, of (x) the negative balance
a Partner has in its Capital Account following the adjustment, allocation,
or distribution described in the preceding sentence, over (y) the maximum
amount that it is obligated (or is deemed to be obligated) to restore to
the Partnership upon liquidation as determined in accordance with
Regulations Sections 1.704-2(f), (g), and (i). This Section 4.04(c) is
intended to satisfy the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Section 4.05. Accounting.
(a) The fiscal year of the Partnership shall end on the last day of
December of each year.
(b) The books of account of the Partnership shall be kept and
maintained at all times at the principal place of business of the
Partnership or at such other place or places approved by the General
Partner. The books of account shall be maintained according to federal
income tax principles using the accrual method of accounting, consistently
applied, and shall show all items of income and expense.
(c) The General Partner shall cause a balance sheet of the
Partnership dated as of the end of the fiscal year and a related statement
of income or loss for the Partnership for such fiscal year to be prepared
by the Accountant and furnished, at the expense of the Partnership, to each
of the Partners on an annual basis, within 90 days after the close of each
fiscal year.
(d) Each Partner shall have the right at all reasonable times during
usual business hours to audit, examine, and make copies of or extracts from
the books of account of the Partnership. Such right may be exercised
through any agent or employee of such Partner designated by it or by an
independent certified public accountant designated by such Partner. Each
Partner shall bear all expenses incurred in any examination made on behalf
of such Partner.
Section 4.06. Bank Accounts. Funds of the Partnership shall be
deposited in a Partnership account or accounts in the bank or banks as
selected by the General Partner. Withdrawals from bank accounts shall only
be made by the General Partner or such other parties as may be approved by
the General Partner.
Section 4.07. Current Distributions to Partners. Except as provided
in Section 6.05 in connection with the termination and liquidation of the
Partnership, the General Partner shall distribute funds at such times and
in such amounts as it may determine, in its sole discretion, provided, that
such funds shall be distributed by the General Partner to the Partners pro
rata in accordance with their respective Percentage Interests at the time
of the distribution. In determining the amount of funds to distribute
pursuant to this Section, the General Partner may consider such factors as
the need to allocate funds to any reserves for Partnership contingencies,
Partnership indebtedness or any other Partnership purposes that the
General Partner deems necessary or appropriate.
Section 4.08. Changes in Percentage Interests. If a Partner's
Percentage Interest changes during any fiscal year, the allocations to be
made pursuant to this Agreement shall be made in accordance with Section
706 of the Code, using any convention permitted by Section 706 of the Code
and the Regulations promulgated thereunder and selected by the General
Partner so as to equitably effectuate the allocations of this Article IV.
ARTICLE V
ASSIGNMENT
Section 5.01. Prohibited Transfers. Except as specifically provided
in this Article V and in Section 7.01, no Limited Partner may sell,
transfer, assign, mortgage, hypothecate, or otherwise encumber or permit or
suffer any encumbrance of all or any part of his or its interest in the
Partnership unless prior written consent is obtained from the General
Partner, and no General Partner may sell, transfer, assign, mortgage,
hypothecate, or otherwise encumber or permit or suffer any encumbrance of
all or any part of his or its interest in the Partnership without obtaining
prior written Approval of the Partners. Any attempt so to transfer or
encumber any such interest shall be null and void, ab initio. The Partners
will be excused from accepting the performance of and rendering performance
to any person other than the Partner hereunder (including any trustee or
assignee of or for such Partner) as to whom such prior written consent has
not been rendered.
Section 5.02. Further Restrictions on Transfer.
(a) In the event of any assignment or transfer permitted under this
Article, the interest so assigned or transferred shall remain subject to
all terms and provisions of this Agreement; the assignee or transferee
shall be deemed, by accepting the interest so assigned or transferred, to
have assumed all the obligations hereunder relating to the interests or
rights so assigned or transferred and shall agree in writing to the
foregoing if requested by the General Partner. Any transferee or assignee
of the interest of a Partner shall be entitled only to receive
distributions hereunder until such transferee or assignee has been admitted
as a Substituted Partner; provided, however, that such transferee or
assignee shall be subject to the Additional Capital Contribution provisions
of Article III and that the Percentage Interest of such transferee or
assignee shall be subject to reallocation pursuant to Section 4.02 in the
event of an Adjusting Event. Until such transferee or assignee (other than
an existing Partner) is admitted to the Partnership as a Substituted
Partner, the Partner transferring all or any portion of his or its interest
to such assignee or transferee shall remain primarily and directly liable
for the performance of all his or its obligations under this Agreement.
After the admission of such assignee or transferee as a Substituted
Partner, such transferor Partner shall only be primarily and directly
liable under this Agreement or otherwise for any obligations or liabilities
accruing prior to the effective time of the admission of such Substituted
Partner, unless such transferor Partner is released in writing from such
obligations or liabilities by the General Partner and such release is
Approved by the Partners.
(b) Any Partner making or offering to make a transfer of all or any
part of his or its interest in the Partnership shall indemnify and hold
harmless the Partnership and all other Partners from and against any costs,
damages, claims, suits, or fees suffered or incurred by the Partnership or
any such other Partner arising out of or resulting from any claims by the
transferee of such Partnership interest or any offerees of such Partnership
interest in connection with such transfer or offer.
Section 5.03. Substituted Partner. Except as otherwise provided in
Section 7.01 hereof, an assignee or transferee (other than an existing
Partner) of the interest of a Partner may be admitted as a substitute
partner ("Substituted Partner") only with the written consent of the
General Partner, which such consent shall be granted or denied in the sole
discretion of the General Partner. Unless the assignee is already a
General Partner, any assignee of a Partnership interest to whose admission
such consent is given shall become and shall have only the rights and
duties of a Limited Partner and the assigned Partnership interest shall
thereafter be a Limited Partner's interest. Upon the receipt by the
General Partner of an appropriate supplement to this Agreement pursuant to
which such Substituted Partner agrees to be bound by all the terms and
provisions of this Agreement, the General Partner shall reflect the
admission of a Substituted Partner and the withdrawal of the transferring
Partner, if appropriate, by preparing a supplemental Exhibit, dated as of
the date of such admission and withdrawal, and by filing it with the
records of the Partnership. Any Substituted Partner shall, if required by
the General Partner, prior to such admission, also execute any other
documents requested by the General Partner, including, without limitation,
an irrevocable power of attorney in form satisfactory to the General
Partner appointing the General Partner as such person's attorney-in-fact
with full power to execute, swear to, acknowledge, and file all
certificates and other instruments necessary to carry out the provisions of
this Agreement, including, without limitation, such undertakings as the
General Partner may require for the payment of all fees and costs necessary
to effect any such transfer and admission. At the General Partner's sole
discretion, the transferor and transferee of the transferred interest shall
be responsible for the costs associated with the transfer of the interest,
including, without limitation, reasonable attorney's fees. Upon admission,
such Substituted Partner shall be subject to all provisions of this
Agreement in the place and stead of his assignor as if the Substituted
Partner originally was a party to this Agreement.
Section 5.04. Basis Adjustment. The Tax Matters Partner may cause,
in its sole and absolute discretion, the Partnership to elect pursuant to
Section 754 of the Code and the Regulations thereunder to adjust the basis
of the Partnership Assets as provided by Sections 743 or 734 of the Code
and the Regulations thereunder.
Section 5.05. Admission of Additional Partners.
(a) When Approved by the Partners, a new Partner (each a "New
Partner") may be admitted to the Partnership; provided, however, that such
New Partner shall (i) be admitted for fair value, as determined by the
General Partner in its reasonable discretion and in a manner consistent
with the reallocation of Percentage Interests set forth in Section 4.02,
and (ii) execute an appropriate supplement to this Agreement and to Exhibit
A pursuant to which he agrees to be bound by all the terms and provisions
of this Agreement.
(b) Upon the receipt of the supplement described in Section 5.05(a),
the General Partner shall reflect the admission of the New Partner and the
reallocation of Percentage Interests by preparing a supplemental or
restated Exhibit A, dated as of the date of such admission, and filing it
with the records of the Partnership. The admission of a New Partner shall
not cause the dissolution of the Partnership. Upon the admission of a New
Partner pursuant to Section 5.05(a), the Percentage Interests shall be
reallocated, with the New Partner receiving the Percentage Interest
calculated in accordance with Section 4.02 that reflects, as determined by
the General Partner in its sole discretion, the ratio of the New Partner's
contribution to the Value of the Partnership Assets, which the General
Partner may determine based on the aggregate Capital Contributions to the
Partnership, and with the Percentage Interests of each existing Partner
being adjusted in accordance with Section 4.02(a)(B).
Section 5.06. Other Restricted Transfers. Notwithstanding any other
provision herein to the contrary, unless prior written consent is given by
the General Partner, no transfer of any interest in the Partnership may be
made to any person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender of the Partnership whose loan constitutes
a nonrecourse liability of the Partnership.
ARTICLE VI
WITHDRAWAL, DISSOLUTION, TERMINATION, AND LIQUIDATION
Section 6.01. Withdrawal. No Limited Partner shall at any time
retire or withdraw from the Partnership without obtaining the prior written
consent of the General Partner, and the General Partner shall not at any
time retire or withdraw from the Partnership without obtaining the prior
written Approval of the Partners. Retirement or withdrawal by any Partner
in contravention of this Section 6.01 shall subject such Partner to
liability for all damages caused any other Partner (other than a Partner
who is, at the time of such withdrawal, in default under this Agreement) by
such retirement or withdrawal and the consequential dissolution of the
Partnership.
Section 6.02. Dissolution of the Partnership. The Partnership shall
be dissolved upon the occurrence of any of the following:
(a) The withdrawal, as defined in the Act, of a General Partner,
unless:
(i) the remaining General Partner, if any, elects in
writing within 90 days after such event to reconstitute the
Partnership, to continue as the General Partner, and to continue
the Partnership and its business, or
(ii) if there is no remaining General Partner, within 90
days after such event, the Limited Partners constituting Approval
of the Partners agree to appoint in writing a successor General
Partner, as of the date of the withdrawal of the General Partner,
and agrees to reconstitute the Partnership and to continue the
business of the Partnership, and such successor General Partner
agrees in writing to accept such election; or
(b) The sale or other disposition, not including an exchange, of
substantially all of the assets of the Partnership (except under
circumstances where all or a portion of the purchase price is payable after
the closing of the sale or other disposition);
(c) December 31, 2047; or
(d) Subject to any obligations of the Partnership, when Approved by
the Partners.
Nothing contained in this Section 6.02 is intended to grant to any Partner
the right to dissolve the Partnership at will (by retirement, resignation,
withdrawal, or otherwise) or to exonerate any Partner from liability to the
Partnership and the remaining Partners if he or it dissolves the
Partnership at will.
Section 6.03. Continuation and Reconstitution of Partnership. If the
Partnership is continued as provided in Section 6.02(a)(i) or (ii), then,
as of the date of withdrawal, the General Partner with respect to which an
event of withdrawal under Section 6.02 has occurred (or his or its estate
or successor in interest) (the "Withdrawing General Partner") shall have
none of the powers of a General Partner under this Agreement or applicable
law and shall have only the rights and powers of an assignee of a Partner
hereunder to share in any Partnership profits, losses, gains, and
distributions in accordance with his or its Percentage Interest and shall
have no other rights or powers of a Partner hereunder; provided, however,
that any Withdrawing General Partner shall be subject to the Additional
Capital Contribution provisions of Article III and that the Percentage
Interest of such Withdrawing General Partner shall be subject to
reallocation under Section 4.02 in the event of any Adjusting Event.
Section 6.04. Withdrawal, etc. of a Limited Partner. The withdrawal,
termination (in the case of a Limited Partner that is a partnership or a
trust), dissolution (in the case of a Limited Partner that is a corporation
or limited liability company), retirement, or adjudication as a bankrupt of
a Limited Partner (the "Withdrawing Limited Partner") shall not dissolve
the Partnership, but the rights of such Limited Partner to share in the
profits and losses of the Partnership and to receive distributions of
Partnership funds shall, upon the happening of such an event, pass to the
Limited Partner's successors in interest subject to the Agreement, and the
Partnership shall continue as a limited partnership.
Section 6.05. Termination and Liquidation of the Partnership.
(a) Upon dissolution of the Partnership unless continued pursuant to
Section 6.02, the Partnership shall be terminated as rapidly as business
circumstances will permit. At the direction of the General Partner, or a
Partner approved by the Limited Partners if the dissolution of the
Partnership is caused by the withdrawal of the General Partner (the General
Partner or the other Partner, as the case may be, being herein called the
"Terminating Partner"), a full accounting of the assets and liabilities of
the Partnership shall be taken and a statement of the Partnership Assets
and a statement of each Partner's Capital Account shall be furnished to all
Partners as soon as is reasonably practicable. The Terminating Partner
shall take such action as is necessary so that the Partnership's business
shall be terminated, its liabilities discharged, and its assets distributed
as hereinafter described. The Terminating Partner may sell all of the
Partnership Assets or distribute the Partnership Assets in kind; provided
however, that the Terminating Partner shall ascertain the fair market value
by appraisal or other reasonable means of all Partnership Assets remaining
unsold and each Partner's Capital Account shall be charged or credited, as
the case may be, as if such Partnership Assets had been sold at such fair
market value and the income, gains, losses, deductions, and credits
realized thereby had been allocated to the Partners in accordance with
Article IV hereof. A reasonable period of time shall be allowed for the
orderly termination of the Partnership to minimize the normal losses of a
liquidation process.
(b) After the payment of all expenses of liquidation and of all debts
and liabilities of the Partnership in such order or priority as provided by
law (including any debts or liabilities to Partners, who shall be treated
as secured or unsecured creditors, as may be the case, to the extent
permitted by law, for sums loaned to the Partnership, if any, as
distinguished from capital contributions) and after all resulting items of
Partnership income, gain, credit, loss, or deduction are credited or
debited to the Capital Accounts of the Partners in accordance with Articles
III and IV hereof, all remaining Partnership Assets shall then be
distributed among the Partners in accordance with their relative positive
Capital Account balances. Upon termination, a Partner may not demand and
receive cash in return for such Partner's capital contributions and no
Partner shall have any obligation to restore any deficit that may then
exist in that Partner's Capital Account. Distribution on termination may
be made by the distribution to each Partner of an undivided interest in any
asset of the Partnership that has not been sold at the time of termination
of the Partnership.
Section 6.06. General Partners Not Personally Liable. No General
Partner nor any affiliate of any General Partner shall be personally liable
for the return of the Capital Contributions of any Partner, and such return
shall be made solely from available Partnership Assets, if any, and each
Limited Partner hereby waives any and all claims they may have against any
General Partner or any such affiliate in this regard.
Section 6.07. Provisions Cumulative. All provisions of this
Agreement relating to the dissolution, liquidation, and termination of the
Partnership shall be cumulative to the extent not inconsistent with other
provisions herein; that is, the exercise or use of one of the provisions
hereof shall not preclude the exercise or use of any other provision of
this Agreement to the extent not inconsistent therewith.
ARTICLE VII
GENERAL
Section 7.01. Removal and Replacement of General Partner.
(a) The General Partner may be removed and replaced at any time by
Limited Partners constituting Approval of the Partners by sending the
General Partner a written notice of such removal. In the event of the
removal of the General Partner, a successor General Partner ("Successor
General Partner") shall be selected by Approval of the Partners. With the
Approval of the Partners, the Limited Partners shall have the right to
transfer a portion of their interests to such Successor General Partner and
such interest shall be converted to that of a general partner. The removal
will not be effective until the Successor General Partner has been admitted
to the Partnership as a General Partner, such admission to be by Approval
of the Partners. After the admission of the Successor General Partner, the
Successor General Partner shall have all the rights, powers, and
obligations of a General Partner under this Agreement and all references in
this Agreement to the "General Partner" shall refer to the Successor
General Partner appointed in this Section 7.01. Third parties shall be
conclusively deemed entitled to rely upon the representation of Group 31
that Group 31 is the General Partner unless such third parties have actual
notice of its replacement.
(b) Following the replacement of the General Partner, the Limited
Partners constituting Approval of the Partners may convert such Partner's
interest into a Limited Partner's interest. The Successor General Partner
shall have the authority to execute and file all documents necessary to
signify such conversion. The General Partner hereby appoints the Successor
General Partner as his or its attorney-in-fact to execute and file all
documents signifying such conversion including, without limitation, an
amendment to the Certificate of Limited Partnership.
Section 7.02. Competing Business. Notwithstanding anything to the
contrary contained in or inferable from this Agreement, the Act, or any
other statute or principle of law, neither the Partners nor any of their
shareholders, directors, officers, employees, partners, agents, family
members, or affiliates (each a "Partner Affiliate") shall be prohibited or
restricted in any way from investing in or conducting, either directly or
indirectly, and may invest in and/or conduct, either directly or
indirectly, businesses of any nature whatsoever, including the ownership
and operation of businesses or properties similar to or in the same
geographical area as those held by the Partnership. Any investment in or
conduct of any such businesses by a Partner or any Partner Affiliate shall
not give rise to any claim for an accounting by the other Partners or the
Partnership or any right to claim any interest therein or the profits
therefrom.
Section 7.03. LIMITED PARTNER REPRESENTATIONS. NOTWITHSTANDING
ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, EACH LIMITED PARTNER
HEREBY REPRESENTS AND WARRANTS TO THE PARTNERSHIP, THE GENERAL PARTNER, AND
TO EACH OFFICER, DIRECTOR, SHAREHOLDER, CONTROLLING PERSON, AND AGENT OF
EACH GENERAL PARTNER THAT: (a) THE INTEREST IN THE PARTNERSHIP OF SUCH
LIMITED PARTNER IS ACQUIRED FOR INVESTMENT PURPOSES ONLY FOR HIS OR ITS OWN
ACCOUNT AND NOT WITH A VIEW TO OR IN CONNECTION WITH ANY DISTRIBUTION,
REOFFER, RESALE, OR OTHER DISPOSITION NOT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER (THE
"1933 ACT") AND APPLICABLE STATE SECURITIES LAWS; (b) SUCH LIMITED PARTNER,
ALONE OR TOGETHER WITH HIS OR ITS REPRESENTATIVES, POSSESSES SUCH
EXPERTISE, KNOWLEDGE, AND SOPHISTICATION IN FINANCIAL AND BUSINESS MATTERS
GENERALLY, AND IN THE TYPE OF TRANSACTIONS IN WHICH THE PARTNERSHIP
PROPOSES TO ENGAGE IN PARTICULAR, THAT HE OR IT IS CAPABLE OF EVALUATING
THE MERITS AND ECONOMIC RISKS OF ACQUIRING AND HOLDING HIS OR ITS
PARTNERSHIP INTEREST, AND HE OR IT IS ABLE TO BEAR ALL SUCH ECONOMIC RISKS
NOW AND IN THE FUTURE; (c) SUCH LIMITED PARTNER HAS HAD ACCESS TO ALL OF
THE INFORMATION WITH RESPECT TO THE INTEREST ACQUIRED BY HIM OR IT UNDER
THIS AGREEMENT THAT HE OR IT DEEMS NECESSARY TO MAKE A COMPLETE EVALUATION
THEREOF AND HAS HAD THE OPPORTUNITY TO QUESTION THE GENERAL PARTNER
CONCERNING SUCH INTEREST; (d) SUCH LIMITED PARTNER'S DECISION TO ACQUIRE
HIS OR ITS INTEREST FOR INVESTMENT HAS BEEN BASED SOLELY UPON THE
EVALUATION MADE BY HIM OR IT; (e) SUCH LIMITED PARTNER IS AWARE THAT HE OR
IT MUST BEAR THE ECONOMIC RISK OF HIS OR ITS INVESTMENT IN THE PARTNERSHIP
FOR AN INDEFINITE PERIOD OF TIME BECAUSE INTERESTS IN THE PARTNERSHIP HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT OR UNDER THE SECURITIES LAWS OF ANY
STATES, AND, THEREFORE, CANNOT BE SOLD UNLESS SUCH INTERESTS ARE
SUBSEQUENTLY REGISTERED UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE; (f) SUCH
LIMITED PARTNER IS AWARE THAT ONLY THE PARTNERSHIP CAN TAKE ACTION TO
REGISTER SUCH INTEREST IN THE PARTNERSHIP AND THE PARTNERSHIP IS UNDER NO
SUCH OBLIGATION AND DOES NOT PROPOSE TO ATTEMPT TO DO SO; AND (g) SUCH
LIMITED PARTNER IS AWARE THAT THIS AGREEMENT PROVIDES RESTRICTIONS ON THE
ABILITY OF A LIMITED PARTNER TO SELL, TRANSFER, ASSIGN, MORTGAGE,
HYPOTHECATE, OR OTHERWISE ENCUMBER HIS OR ITS INTEREST IN THE PARTNERSHIP.
Section 7.04. Notice.
(a) All notices, demands, or requests provided for or permitted to be
given pursuant to this Agreement must be in writing.
(b) All notices, demands, and requests to be sent to a Partner
pursuant to this Agreement shall be deemed to have been properly given or
served if: (i) personally delivered, (ii) deposited prepaid for next day
delivery by Federal Express, or other similar overnight courier services,
addressed to such Partner, (iii) deposited in the United States mail,
addressed to such Partner, prepaid and registered or certified with return
receipt requested, or (iv) transmitted via telecopier or other similar
device to the attention of such Partner.
(c) All notices, demands, and requests so given shall be deemed
received: (i) when personally delivered, (ii) 24 hours after being
deposited for next day delivery with an overnight courier, (iii) 48 hours
after being deposited in the United States mail, or (iv) 12 hours after
being telecopied or otherwise transmitted and receipt has been confirmed.
(d) The Partners shall have the right from time to time, and at any
time during the term of this Agreement, to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America by giving to the other parties
at least 30 days written notice thereof, in the manner prescribed in
Section 7.04(b); provided however, that to be effective, any such notice
must be actually received (as evidenced by a return receipt).
(e) All distributions to any Partner shall be made at the address at
which notices are sent unless otherwise specified in writing by any such
Partner.
Section 7.05. Amendments. Amendments and supplements may be made to
or restatements made of this Agreement or the Certificate of Limited
Partnership (or any exhibits or schedules attached to any of them), from
time to time by the General Partner, without the consent of any of the
other Partners, to effect any amendments which amend this Agreement to
reflect adjustments to the Percentage Interests of the Partners following
an Adjusting Event or as otherwise provided in Section 4.02 hereof, to
reflect other transfers, assignments, admissions, withdrawals, conversions,
or other actions authorized by this Agreement, or to effect any
non-material amendments to this Agreement or the Certificate of Limited
Partnership. All other amendments to this Agreement and the Certificate of
Limited Partnership shall require Approval of the Partners; provided,
however, that no material amendment which has an adverse effect on a
Partner's interest in the Partnership shall be made without the consent of
such Partner except as otherwise specifically provided herein.
Section 7.06. Powers of Attorney. Each Limited Partner hereby
constitutes and appoints the General Partner, with full power of
substitution, as his or its true and lawful attorney-in-fact and empowers
and authorizes such attorney, in the name, place, and stead of such Limited
Partner, to make, execute, sign, swear to, acknowledge, and file in all
necessary or appropriate places all documents (and all amendments or
supplements to or restatements of such documents necessitated by valid
amendments to or actions permitted under this Agreement) relating to the
Partnership and its activities, including, without limitation: (a) this
Agreement and any amendments hereto approved as provided herein, (b) the
Certificate of Limited Partnership and any amendments thereto, under the
laws of the State of Delaware or in any other state or jurisdiction in
which such filing is deemed advisable by the General Partner, (c) any
applications, forms, certificates, reports, or other documents, or
amendments thereto which may be requested or required by any federal,
state, or local governmental agency, securities exchange, securities
association, self-regulatory organization, or similar institution and which
are deemed necessary or advisable by the General Partner, (d) any other
instrument which may be required to be filed or recorded in any state or
county or by any governmental agency, or which the General Partner deems
advisable to file or record, including, without limitation, certificates of
assumed name and documents to qualify foreign limited partnership in other
jurisdictions, (e) any documents which may be required to effect the
continuation of the Partnership, the admission of new partners, substituted
partners, the withdrawal of any Partner, or the dissolution and termination
of the Partnership, (f) making certain elections contained in the Code or
state law governing taxation of limited partnership, (g) any and all
reports, schedules, certificates, forms and other documents, including, but
not limited to, Schedules 13D and 13F, Forms 3 and 4, and any other such
forms as may be required to be filed by the Partnership under the
Securities Exchange Act of 1934, Federal Reserve U-1s, notes, drafts,
credit or loan agreements, financing statements, security agreements, bank
resolutions, and any and all other documents and instruments as may be
necessary or desirable in the sole discretion of the attorney so acting,
all in carrying out the purposes of the Partnership, and (h) performing any
and all other ministerial duties or functions necessary for the conduct of
the business of the Partnership. Each Limited Partner hereby ratifies,
confirms, and adopts as his own, all actions that may be taken by such
attorney-in-fact pursuant to this Section 7.06. Each Limited Partner
acknowledges that this Agreement permits certain amendments to be made and
certain other actions to be taken or omitted to be taken by less than all
of the Partners if approved in accordance with the provisions hereof. By
their execution hereof, each Limited Partner also grants the General
Partner a power of attorney to execute any and all documents necessary to
reflect any action that is in accordance with the provisions hereof. This
power of attorney is coupled with an interest and shall continue
notwithstanding the subsequent incapacity or death of the Limited Partner.
Each Limited Partner shall execute and deliver to the General Partner an
executed and appropriately notarized power of attorney in such form
consistent with the provisions of this Section 7.06 as the General Partner
may request.
Section 7.07. GOVERNING LAWS AND VENUE. THIS AGREEMENT IS MADE IN
FORT WORTH, TARRANT COUNTY, TEXAS, AND THE RIGHTS AND OBLIGATIONS OF THE
PARTNERS HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL MATTERS LITIGATED BY,
AMONG, OR BETWEEN ANY OF THE PARTNERS THAT INVOLVE THIS AGREEMENT, THE
RELATIONSHIP OF THE PARTNERS, OR ANY RELATED DOCUMENTS OR MATTERS HEREUNDER
SHALL BE BROUGHT ONLY IN FORT WORTH, TARRANT COUNTY, TEXAS.
Section 7.08. Rule of Construction. The general rule of construction
for interpreting a contract, which provides that the provisions of a
contract should be construed against the party preparing the contract, is
waived by the parties. Each party acknowledges that he or it was
represented by separate legal counsel in this matter who participated in
the preparation of this Agreement or he or it had the opportunity to retain
counsel to participate in the preparation of this Agreement but chose not
to do so.
Section 7.09. Entire Agreement. This Agreement, including all
exhibits to this Agreement and, if any, exhibits to such exhibits, contains
the entire agreement among the parties relative to the matters contained in
this Agreement.
Section 7.10. Waiver. No consent or waiver, express or implied, by
any Partner to or for any breach or default by any other Partner in the
performance by such other Partner of his or its obligations under this
Agreement shall be deemed or construed to be a consent or waiver to or of
any other breach or default in the performance by such other Partner of the
same or any other obligations of such other Partner under this Agreement.
Failure on the part of any Partner to complain of any act or failure to act
of any of the other Partners or to declare any of the other Partners in
default, regardless of how long such failure continues, shall not
constitute a waiver by such Partner of his or its rights hereunder.
Section 7.11. Severability. If any provision of this Agreement or
the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not
be affected thereby, and the intent of this Agreement shall be enforced to
the greatest extent permitted by law.
Section 7.12. Binding Agreement. Subject to the restrictions on
transfers and encumbrances set forth in this Agreement, this Agreement
shall inure to the benefit of and be binding upon the undersigned Partners
and their respective legal representatives, successors, and assigns.
Whenever, in this Agreement, a reference to any party or Partner is made,
such reference shall be deemed to include a reference to the legal
representatives, successors, and assigns of such party or Partner.
Section 7.13. Tense and Gender. Unless the context clearly indicates
otherwise, the singular shall include the plural and vice versa. Whenever
the masculine, feminine, or neuter gender is used inappropriately in this
Agreement, this Agreement shall be read as if the appropriate gender was
used.
Section 7.14. Captions. Captions are included solely for convenience
of reference and if there is any conflict between captions and the text of
this Agreement, the text shall control.
Section 7.15. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original for all
purposes and all of which when taken together shall constitute a single
counterpart instrument. Executed signature pages to any counterpart
instrument may be detached and affixed to a single counterpart, which
single counterpart with multiple executed signature pages affixed thereto
constitutes the original counterpart instrument. All of these counterpart
pages shall be read as though one and they shall have the same force and
effect as if all of the parties had executed a single signature page.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] <PAGE>
Each of the
undersigned has executed and delivered this Agreement to be effective as of
the Effective Date.
GENERAL PARTNER
201 Main Street GROUP 31, INC., a Texas corporation
Suite 3100
Fort Worth, Texas 76102
By:
Title:
LIMITED PARTNERS
201 Main Street KEYSTONE, INC., a Texas corporation
Suite 3100
Fort Worth, Texas 76102
By:
Title:
201 Main Street FW STRATEGIC PARTNERS, L.P., a
Suite 3100 Delaware limited partnership
Fort Worth, Texas 76102
By: FW Strategic Asset Management,
L.P.,
general partner
By: Strategic Genpar, Inc.,
general
partner
By:
Title:
FW INTEGRATED ORTHOPAEDICS
COINVESTMENT PARTNERS, L.P.,
201 Main Street a Delaware limited partnership
Suite 3100
Fort Worth, Texas 76102
By: Group 31, Inc., general partner
By:
Title:
<PAGE>
EXHIBIT A
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
FW INTEGRATED ORTHOPAEDIC INVESTORS, L.P.
INITIAL CAPITAL PERCENTAGE
GENERAL PARTNER CONTRIBUTION INTEREST
Group 31 $ 125,000 1.00%
LIMITED PARTNER
Keystone . $ 5,000,000 40.00%
Strategic $ 6,000,000 48.00%
Coinvestors $ 1,375,000 11.00%
Total $ 12,500,000 100.00%
LIMITED PARTNERSHIP AGREEMENT
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
This Limited Partnership Agreement ("Agreement") is made and entered
into effective as of the 5th day of December, 1997 (the "Effective Date"),
by and among FW Group Genpar, Inc., a Texas corporation ("FW Genpar"), as
the general partner (the "General Partner"), and those persons or entities
(the "Limited Partners") that have executed a counterpart of this Agreement
as limited partners.
WITNESSETH:
For and in consideration of the mutual covenants set forth herein and
for other good and valuable consideration, the adequacy, receipt, and
sufficiency of which are hereby acknowledged, the General Partner and the
Limited Partners (collectively, the "Partners" and individually, a
"Partner") hereby agree as follows:
ARTICLE I
ORGANIZATION AND PURPOSE
Section 1.01. Formation of Limited Partnership. The Partners hereby
agree to become partners and to form a limited partnership (the
"Partnership") pursuant to Article 6132a-1 Tex. Rev. Civ. Stat. Ann., known
as the Texas Revised Limited Partnership Act (the "Act"), which shall be
governed by, and operated pursuant to, the terms and provisions of this
Agreement. FW Genpar shall be the general partner of the Partnership. The
persons or entities identified above as Limited Partners shall be the
limited partners and are hereinafter sometimes referred to individually as
a "Limited Partner" or collectively as the "Limited Partners".
Section 1.02. Name. The name of the Partnership shall be FW
Integrated Orthopaedics Investors II, L.P. All business and affairs of the
Partnership shall be conducted solely under, and all Partnership Assets (as
that term is defined in Section 1.04) shall be held solely in, such name
unless otherwise determined by the General Partner.
Section 1.03. Effective Date and Term. The Partnership shall be in
effect for a term beginning on the Effective Date and shall continue under
this Agreement (as amended from time to time) until dissolved upon the
occurrence of an event that causes the dissolution of the Partnership in
accordance with the provisions of this Agreement, and thereafter to the
extent provided by applicable law, until wound up and terminated as
provided herein.
Section 1.04. Purposes and Scope of Business. The business and
purposes of the Partnership are to buy, sell, exchange or otherwise
acquire, hold, trade, invest in, and deal with the securities of Integrated
Orthopaedics, Inc., a Texas corporation ("Integrated"), including without
limitation, common or preferred stock, bonds, debentures, notes, warrants,
options and all other rights of every kind and description (collectively,
the "Securities"), whether such Securities are acquired directly or
indirectly through partnerships, joint ventures or otherwise, and to
borrow, on margin or otherwise, such funds (in addition to the capital
contributions provided for herein) that the General Partner determines to
be necessary or advisable to conduct the business of the Partnership and to
carry out the foregoing. Subject to the terms and conditions of this
Agreement, the Partnership shall have the power and authority to do all
such other acts and things as may be necessary, desirable, expedient,
convenient for, or incidental to, the furtherance and accomplishment of the
foregoing objectives and purposes and for the protection and benefit of the
Partnership. The assets of the Partnership, whether now or hereafter
owned, are sometimes referred to as the "Partnership Assets."
Section 1.05. Documents. The General Partner, or anyone designated by
the General Partner, is hereby authorized to execute a certificate of
limited partnership of the Partnership ("Certificate of Limited
Partnership") in accordance with the Act and cause the same to be filed in
the office of the Secretary of State of the State of Texas in accordance
with the provisions of the Act. The Partnership shall promptly execute and
duly file with the proper offices in each state in which the Partnership
may conduct the activities hereinafter authorized, one or more certificates
as required by the laws of each such state in order that the Partnership
may lawfully conduct the business, purposes, and activities herein
authorized in each such state, and the Partnership shall take any other
action or measures necessary in such state or states for the Partnership to
conduct such activities.
Section 1.06. Principal Place of Business. The principal place of
business of the Partnership shall be 201 Main Street, Suite 3100, Fort
Worth, Texas 76102 or at such other place or places as may be approved by
the General Partner. The General Partner shall be responsible for
maintaining at the Partnership's principal place of business those records
required by the Act to be maintained there.
Section 1.07. Registered Agent and Office. The Registered Agent (as
defined in the Act) for the Partnership shall be W. R. Cotham. The
Registered Office (as defined in the Act) of the Partnership shall be 201
Main Street, Suite 2600, Fort Worth, Texas 76102.
Section 1.08. Certain Definitions.
(a) "Valuation Date" shall mean any date that the Securities or other
Partnership Assets are valued for any reason.
(b) "Value" shall mean (i) with respect to any Security:
(A) for marketable Securities listed on a national Securities
exchange or authorized for trading on the National Market System
Quotations, the last sales price on the Valuation Date, or in the
absence of a sale on such date, the mean between the "bid" and
"asked" prices on such day, or if no such "bid" and "asked" prices
exist, by such method as the General Partner reasonably determines
will reflect the fair market value, provided, that if a Security is
listed on more than one exchange, the General Partner shall use the
price on the New York Stock Exchange, if available, or, if not, the
price on the exchange selected by the General Partner;
(B) for marketable Securities traded in the over-the-counter
market and reported in the National Association of Securities
Dealers' Automated Quotation System, the closing bid price on the
Valuation Date as reported by such system if held long and its
closing "asked" price if held short, provided, that if such price
is not available, the Securities shall be valued by such method as
the General Partner reasonably determines will reflect their fair
value;
(C) for Securities not specified in (A) or (B) above, and for
which prices are regularly quoted (on a daily basis) by at least
two (2) independent recognized dealers, the most recent market
prices as reported by such dealers;
(D) for exchange-traded options, the closing price on the
Valuation Date on the principal exchange on which the option is
traded, and for non-exchange traded options, the value of the
options as reasonably determined by the General Partner using
standard option pricing models; and
(E) for all other Securities, the cost of or such other value as
reasonably determined by the General Partner.
Foreign Securities listed on a recognized exchange shall be
included in (A) above; those regularly reported on a recognized
automated quotation system shall be included in (B) above; and
those regularly quoted (on a daily basis) by at least two (2)
independent recognized dealers shall be included in (C) above; and
(ii) with respect to any other Partnership Asset the market
value of such Partnership Asset as of the Valuation Date as reasonably
determined by the General Partner.
ARTICLE II
OPERATIONS
Section 2.01. Management of Partnership.
(a) The right to manage, control, and conduct the business and affairs
of the Partnership shall be vested solely in the General Partner. Except
as provided in Sections 2.01(b) and 7.01, the Limited Partners shall not
take part in the management of the affairs of the Partnership and under no
circumstances may the Limited Partners control the Partnership business or
sign for or bind the Partnership. Without limiting the generality of the
foregoing, and notwithstanding anything to the contrary contained in this
Agreement, the General Partner shall have the exclusive authority to act
for and on behalf of the Partnership, including, without limitation,
causing the Partnership to enter into acquisition agreements related to the
acquisition of Integrated, and documents and other instruments related
thereto, and no third party shall ever be required to inquire into the
authority of the General Partner to take such action on behalf of the
Partnership. Except as expressly limited in this Agreement, the General
Partner shall have the rights, authority, and powers of general partners
with respect to the Partnership business and the Partnership Assets as set
forth in the Act as in effect upon the Effective Date of this Agreement.
The General Partner shall not be required to devote its full time and
attention to the business of the Partnership, but only such time as it
deems necessary for the proper conduct of the Partnership's affairs.
(b) No act shall be taken, sum expended or obligation incurred by the
General Partner for or on behalf of the Partnership with respect to a
matter within the scope of any of the following major decisions ("Major
Decisions") affecting, directly or indirectly, the Partnership, or the
Partnership Assets, unless approved as described in subsection 2.01(c):
(i) Financing or refinancing the Partnership or the
Partnership Assets, including, without limitation, the granting
of any mortgages, pledges, or other encumbrances of the
Partnership Assets in connection therewith (other than in the
ordinary course of business);
(ii) Selling, exchanging or otherwise conveying or
disposing of any interest in all or any portion of the Securities
or any other Partnership Asset, including, without limitation, by
merger or consolidation, except for disposition or replacement of
personal property in the ordinary course of business;
(iii)Admitting a New Partner (as defined in Section 5.05) to the
Partnership;
(iv) Seeking or allowing the Partnership to seek protection from
creditors under any state or federal law, code, or statute;
(v) Initiating, settling, or compromising any material litigation
matters involving the Partnership;
(vi) Voting the Securities with respect to material matters,
including, without limitation, the election of directors of Integrated; or
(vii)Dissolving the Partnership pursuant to Article 6.02(d).
(c) No Major Decision may be made or effected by or on behalf of the
Partnership without the approval of the Partners, which shall include
Keystone, Inc., a Texas corporation ("Keystone"), holding at least 75% of
all Percentage Interests (as defined in Section 4.01) in the Partnership.
As used in this Agreement, "Approved by the Partners," "Approval of the
Partners," and other like terms shall mean the approval or consent of the
Partners, which shall include Keystone, holding at least 75% of the
Percentage Interests in the Partnership. The General Partner may at any
time propose an action requiring Approval of the Partners to the Limited
Partners by giving written notice to the Limited Partners. Within ten days
after receipt of such notice, each Partner shall indicate, in writing, to
the General Partner, his or its approval or disapproval of such Major
Decision; provided, that, in the event any Partner does not respond in such
10-day period, such Partner shall be deemed to have disapproved such Major
Decision. If Partners, including Keystone, holding at least 75% of the
Percentage Interests in the Partnership approve of, consent to, or
otherwise take any action contemplated by this Section 2.01, such action
shall neither require any further polling of any other Partners, nor
require any further approval, consent, or action of any other Partners. In
the event Partners holding less than 75% of the Percentage Interests of the
Partners with respect to a Major Decision have approved or consented to
such Major Decision within the aforementioned 10-day period, such action
shall constitute disapproval by the Partners of such Major Decision.
Section 2.02. Affiliates. The General Partner shall have the right
to cause the Partnership to enter into contracts or otherwise deal with any
affiliates of any Partner in any capacity, including, without limitation,
in connection with the financing, management, and development of the
Partnership Assets, except that the terms of any such arrangement shall be
commercially reasonable and competitive with amounts that would be paid to
third parties on an "arms-length" basis.
Section 2.03. Expenses. The Partnership shall pay or reimburse the
General Partner and the Tax Matters Partner (as defined in Section 2.05)
for all direct, out-of-pocket expenses incurred by them with respect to
their respective duties under Section 2.01 and Section 2.05 to the
Partnership, including, without limitation, salaries, accounting expenses,
insurance premiums attributable directly to the Partnership, legal fees,
and other direct costs associated with the formation and operation of the
Partnership.
Section 2.04. Exculpation; Indemnity.
(a) Neither the Partners, their affiliates, nor any of their
respective shareholders, officers, directors, partners, members, managers,
employees, or agents (collectively, the "Actors" and individually, an
"Actor") shall be liable to the Partnership, any Partner, or any other
person for (i) any act or omission taken or suffered by any Actor in
connection with the conduct of the Partnership business, unless such act or
omission constitutes bad faith, willful misconduct, fraud or
misappropriation or conversion of funds by such Actor, (ii) any act or
omission taken or suffered by any Actor in the good faith exercise of
discretion or judgment of the Actor as provided by this Agreement, unless
such act or omission constitutes bad faith, willful misconduct, fraud or
misappropriation or conversion of funds by such Actor, or (iii) any action
or omission taken or suffered by any other Partner.
(b) To the fullest extent allowed or permitted under any provision of
applicable law, including, without limitation, the Act, the Partnership
shall indemnify, defend, and hold harmless each Partner or any officer,
shareholder, director, or agent of such Partners (with such Partner,
officer, shareholder, director, or agent being referred to as an
"Indemnitee") to the extent of the Partnership Assets, from and against any
losses, expenses, judgments, fines, settlements, and damages (collectively,
"Liabilities") incurred by the Partnership or such Indemnitee arising out
of any claim based upon acts (including, without limitation, negligent
acts) performed or omitted to be performed by the Partnership or such
Indemnitee in connection with the business of the Partnership, including,
without limitation, costs, expenses, and attorneys' fees expended in the
settlement or defense of any such Liability, unless, in each case, such
Liability results from such Indemnitee's own bad faith, willful misconduct,
fraud or misappropriation or conversion of funds. All decisions of the
Partnership concerning any action allowed or permitted under applicable law
concerning the indemnity of any person or entity by the Partnership shall
be made as Approved by the Partners.
Section 2.05. Tax Matters Partner. The General Partner shall act as
the "Tax Matters Partner" for federal income tax purposes. The Tax Matters
Partner shall mean the Partner (a) designated as the "tax matters partner"
within the meaning of Section 6231(a)(7) of the Internal Revenue Code of
1986, as amended from time to time (or any corresponding provisions of
succeeding law, collectively the "Code") and (b) whose responsibilities as
Tax Matters Partner include, where appropriate, commencing on behalf of the
Partnership certain judicial proceedings regarding Partnership federal
income tax items and informing all Partners of any administrative or
judicial proceeding involving federal income taxes. In exercising its
responsibilities as Tax Matters Partner, the General Partner shall have the
final decision making authority with respect to all federal income tax
matters involving the Partnership. Any direct out-of-pocket expense
incurred by the Tax Matters Partner in carrying out its responsibilities
and duties under this Agreement shall be allocated to and charged to the
Partnership as an expense of the Partnership for which the Tax Matters
Partner shall be reimbursed.
ARTICLE III
FINANCING
Section 3.01. Capital Contributions.
(a) Each of the Partners agrees to contribute (the "Initial Capital
Contributions") to the capital of the Partnership on the Effective Date the
amount in cash set forth opposite each Partner's name on the attached
Exhibit A which is made a part of this Agreement for all purposes.
(b) If at any time the General Partner determines, in its sole
discretion, that additional funds are needed for (i) any direct
out-of-pocket costs and expenses incurred by the Partnership in connection
with the formation, financing, and operation of the Partnership, including,
without limitation, any amounts required to repay indebtedness of the
Partnership incurred in connection with the acquisition of the Securities,
and (ii) any other sums of money needed, in the sole opinion of the General
Partner, for the normal day-to-day business and affairs of the Partnership,
then from time to time the General Partner may make a written call for such
funds ("Call"). Within 30 days after the General Partner gives written
notice of the Call, the Partners may, but shall not be obligated to, make
such additional capital contributions to the Partnership, pro rata in
accordance with their Percentage Interests (with each such contribution
being referred to as an "Additional Capital Contribution"). If any Partner
elects not to deliver (the "Non-Contributing Partner") to the General
Partner for the use of the Partnership his or its pro rata portion of any
Call (with such portion not being contributed being referred to herein as
the "Defaulted Amount") within the time prescribed above, the other
Partners shall have the right, but not the obligation, without further
notice, to advance for his or its own capital account all or a portion of
the Defaulted Amount (with any Partner contributing a portion of the
Defaulted Amount being referred to as a "Contributing Partner"); provided,
however, that if more than one Partner desires to be a Contributing Partner
and to advance a portion of the Defaulted Amount, each such Contributing
Partner shall only advance his or its pro rata portion of the Defaulted
Amount as among all Contributing Partners. Notwithstanding anything
contained in this Agreement to the contrary, each Partner shall have the
right to contribute his or its pro rata portion of any Additional Capital
Contributions (except to the extent such Additional Capital Contribution is
from a New Partner as part of his or its initial contribution to the
capital of the Partnership) pro rata in accordance with his or its then
existing Percentage Interest in order to maintain such Partner's Percentage
Interest in the Partnership.
Section 3.02. Capital Accounts. The amount of a Partner's capital
account ("Capital Account") in the Partnership shall be determined
according to Regulations Section 1.704-(b)(2)(iv), including by:
(a) crediting to such account (i) all contributions to the
Partnership made by or on behalf of such Partner or his or its predecessor
in interest, including the Value of any property contributed (less any
liabilities assumed by the Partnership or to which any property may be
subject) and (ii) all gains and income of the Partnership allocated to such
Partner or his or its predecessor in interest; and
(b) debiting to such account (i) all distributions from the
Partnership made to or on behalf of such Partner or his or its predecessor
in interest, including the Value of any property distributed (less any
liabilities assumed by the Partner or to which any property may be subject)
and (ii) all losses and deductions of the Partnership allocated to such
Partner or his or its predecessor in interest.
Section 3.03. Limited Liability of the Limited
Partners. Notwithstanding anything contained in this Agreement to the
contrary, the liability of each Limited Partner for any of the debts,
losses, or obligations of the Partnership shall be limited to the amount of
the sum of such Limited Partner's capital contributions pursuant to Section
3.01 hereof. Accordingly, no Limited Partner shall be obligated to provide
additional capital to the Partnership or its creditors by way of
contribution, loan, or otherwise beyond the amount of the capital
contributions required of such Limited Partner pursuant to Section 3.01
hereof. Except as provided in the Act, no Limited Partner shall have any
personal liability whatsoever, whether to the Partnership or any third
party, for the debts of the Partnership or any of its losses beyond the
amount of such Limited Partner's capital contributions.
Section 3.04. Treatment of Capital Contributions. Except as provided
in this Agreement to the contrary, no Partner shall be entitled to interest
on his or its contributions to the capital of the Partnership nor shall any
Partner be entitled to demand the return of all or any part of such
contributions to the capital of the Partnership.
Section 3.05. Benefits of Agreement. Nothing in this Agreement, and,
without limiting the generality of the foregoing, in this Article III,
expressed or implied, is intended or shall be construed to give to any
creditor of the Partnership or to any creditor of any Partner or any other
person or entity whatsoever, other than the Partners and the Partnership,
any legal or equitable right, remedy, or claim under or in respect of this
Agreement or any covenant, condition, or provision herein contained, and
such provisions are and shall be held to be for the sole and exclusive
benefit of the Partners and the Partnership.
ARTICLE IV
ACCOUNTING, ALLOCATIONS, AND CURRENT DISTRIBUTIONS
Section 4.01. Percentage Interests. Except as may be adjusted
pursuant to Section 4.02, for purposes of allocating profits and losses in
accordance with Section 4.03, and for purposes of distributions under
Section 4.08, each Partner shall have the percentage interest in the
Partnership (collectively the "Percentage Interests" and individually a
"Percentage Interest") set forth opposite his or its name on the attached
Exhibit A which is made a part of this Agreement for all purposes.
Section 4.02. Adjustments to Percentage Interests.
(a) If (i) any Partner elects to become a Contributing Partner under
Section 3.01(b) and contributes a share of the Defaulted Amount, (ii) more
than a de minimis Additional Capital Contribution is made other than pro
rata by Percentage Interests, as among the Partners, or (iii) a New Partner
is admitted to the Partnership in accordance with Section 5.05 (with each
such event described in Section 4.02(a)(i), (ii), or (iii) being referred
to as an "Adjusting Event"), then the Percentage Interests of the Partners
shall be immediately adjusted such that the Percentage Interest of each
Partner equals a fraction, expressed as a percentage, in which the
numerator equals the Current Value (as defined in Section 4.02(b)) of such
Partner's interest in the Partnership, and the denominator equals the Net
Value of the Partnership Assets (as defined in Section 4.02(b)). If the
Percentage Interests of any Partners are adjusted pursuant to this Section
4.02(a), no Partner shall have the right to modify, rectify, or undo such
adjustments thereafter, and such adjustments shall be made without the need
for any further act or writing to effect any such adjustment. Each Partner
hereby appoints the General Partner as his or its duly authorized agent and
attorney-in-fact for purposes of preparing and executing any amendments to
this Agreement necessary or desirable to reflect any adjustment of
Percentage Interests under this Section 4.02(a). The rights granted to any
Partner under this Section 4.02 shall be such Partner's sole and exclusive
remedy for seeking relief with respect to any Adjusting Event.
(b) For purposes of this Agreement, the "Net Value of the Partnership
Assets" shall mean the net fair market value of all of the Partnership
Assets at the time the Adjusting Event occurs, as determined by the General
Partner in its sole discretion, and such Net Value of the Partnership
Assets shall include the value of the contributions made in connection with
the Adjusting Event. The Partners agree that because of the difficulty of
valuing an interest in the Partnership due to the unique nature of the
Partnership Assets, the General Partner is granted the sole discretion to
determine such values and shall take into account whatever factors it deems
appropriate to reflect such values, including, without limitation, the
dollar value of all contributions to date and any other reasonable methods
for determining the value of all of the Partnership Assets at the time of
the Adjusting Event. Without limiting the foregoing, the General Partner
may deem the Net Value of the Partnership Assets to equal the historical
net cost of those assets. The "Current Value" of any Partner's interest in
the Partnership shall be a dollar amount equal to the sum of (i) an amount
equal to such Partner's Percentage Interest immediately prior to the
Adjusting Event multiplied by the Net Value of the Partnership Assets
determined above excluding the net fair market value (as determined by the
General Partner) of any contributions associated with the Adjusting Event,
plus, (ii) the net fair market value (as determined by the General Partner)
of any contributions made by such Partner associated with the Adjusting
Event. Each Partner's Percentage Interest shall be immediately adjusted to
reflect such valuation by the General Partner, effective as of the date of
such Adjusting Event.
Section 4.03. Tax Status, Reports, and Allocations.
(a) Notwithstanding any provision contained in this Agreement to the
contrary, solely for federal income tax purposes, each of the Partners
hereby recognizes that the Partnership will be subject to all provisions of
Subchapter K of the Code; provided, however, that the filing of United
States Partnership Returns of Income shall not be construed to extend the
purposes of the Partnership or expand the obligations or liabilities of the
Partners.
(b) The General Partner or, at its discretion, an accountant
("Accountant") selected by the General Partner shall prepare or cause to be
prepared all tax returns and statements, if any, that must be filed on
behalf of the Partnership with any taxing authority and shall timely file
such returns or statements.
(c) For accounting and federal and (if any) state income tax
purposes, all income, deductions, credits, gains and losses shall be
allocated to the Partners pro rata in accordance with their respective
Percentage Interests.
(d) Notwithstanding subsection (c) above, any loss or deductions
attributable to any Partnership recourse liability (as defined in
Regulations 1.752-1(a)(i)) ("Recourse Debt") must be specially allocated to
any Partner who bears the economic risk of loss with respect to the
Recourse Debt to which such loss or deductions are attributable. If any
allocations are made to any Partner pursuant to the foregoing sentence,
then after any allocations required by Sections 4.04 and 4.05 hereof have
been made but prior to allocations pursuant to Section 4.03(c), income
shall be allocated to such Partner until on a cumulative basis an aggregate
amount of income equal to such cumulative deductions and losses has been
allocated to each such Partner.
Section 4.04. Certain Asset Value/Tax Differences. In accordance
with Section 704(c) of the Code and the applicable Regulations thereunder,
income, gain, loss, deduction, and tax depreciation with respect to any
property contributed to the capital of the Partnership, or with respect to
any property which has a Value different than its adjusted tax basis,
shall, solely for income tax purposes, be allocated among the Partners so
as to take into account any variation between the adjusted tax basis of
such property to the Partnership and the Value of such property.
Section 4.05. Minimum Gain and Income Offsets.
(a) Definitions.
(i) "Partner Minimum Gain" shall be "partner nonrecourse debt
minimum gain," as defined in Regulations Section 1.704-2(i)(2) and
determined in accordance with Regulations Sections 1.704-2(i)(3) and
1.704-2(k).
(ii) "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
(iii) "Partner Nonrecourse Deduction" has the meaning set
forth in Regulations Section 1.704-2(i).
(iv) "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(d) and shall be determined in accordance
with the provisions of Regulations Section 1.704-2(k).
(v) "Regulations" means the temporary and permanent Income Tax
Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of
succeeding Regulations).
(b) Minimum Gain.
(i) Notwithstanding any other provision of this Agreement to
the contrary, if the Partnership Minimum Gain on the last day of any
fiscal year is less than the Partnership Minimum Gain on the last day
of the immediately preceding fiscal year, then (before any other
allocation of Partnership items for such year under this Agreement,
other than as provided in paragraph (ii) below) there shall be
specially allocated to each Partner items of Partnership income and
gain for such year (and, if necessary, subsequent fiscal years) in an
amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain (determined in accordance with Regulations
Section 1.704-2(g)). The items to be so allocated shall be determined
in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2)(i) and (iii). This Section 4.05(b)(i) is intended to
comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Subsequent to any allocations under Section
4.05(b)(i) above, other than allocations of gain from the disposition
of property subject to Partner Nonrecourse Debt, if Partner Minimum
Gain on the last day of any fiscal year is less than the Partner
Minimum Gain on the last day of the immediately preceding fiscal year,
then, except as provided herein, each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent fiscal years) in an amount equal to that
Partner's share, if any, (determined in accordance with Regulations
Section 1.704-2(i)(4)) of the net decrease in Partner Minimum Gain
(such net decrease to be determined in a manner consistent with the
provisions of Regulations Section 1.704-2(d) and 1.704-2(g)(3)). The
items to be so allocated shall be determined in accordance with the
provisions of Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii)
and (iii). Notwithstanding the foregoing, no such special allocations
of income and gain shall be made to the extent that the net decrease
in Partner Minimum Gain described above arises because the liability
ceases to be Partner Nonrecourse Debt due to a conversion,
refinancing, or other change in the debt instrument that causes it to
become partially or wholly a nonrecourse liability within the meaning
of Regulations Section 1.752-1(a)(2). This Section 4.05(b)(ii) is
intended to comply with the chargeback and other provisions of
Regulations Section 1.704-2(i) and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. Notwithstanding any other provision of
this Agreement, if during any fiscal year any Partner (i) is allocated
pursuant to Code Section 706(d) or Regulations Section 1.751-1(b)(2)(ii)
any loss, items of loss, deductions, or Code Section 705(a)(2)(B)
expenditures, (ii) is distributed any cash or property from the Partnership
and such distributions exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during such year, or
(iii) receives any other adjustment, allocation, or distribution described
in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6) and, as a
result of such adjustment, allocation, or distribution, such Partner has a
Qualified Income Offset Amount (as hereinafter defined), then items of
income and gain (including gross income) for such fiscal year or other
period (and, if necessary, subsequent fiscal years) shall (prior to any
allocation pursuant to Section 4.03 hereof) be allocated to such Partner in
an amount equal to his Qualified Income Offset Amount; provided, however,
that any allocation of income or gain shall be required under this sentence
only if and to the extent that such Partner would have a Qualified Income
Offset Amount after all other allocations provided for in this Agreement
have been tentatively made as if Sections 4.05(b) and (c) were not
contained herein. As used herein, the term "Qualified Income Offset
Amount" for a Partner means the excess, if any, of (x) the negative balance
a Partner has in its Capital Account following the adjustment, allocation,
or distribution described in the preceding sentence, over (y) the maximum
amount that it is obligated (or is deemed to be obligated) to restore to
the Partnership upon liquidation as determined in accordance with
Regulations Sections 1.704-2(f), (g), and (i). This Section 4.05(c) is
intended to satisfy the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
<PAGE>
Section 4.06. Accounting.
(a) The fiscal year of the Partnership shall end on the last day of
December of each year.
(b) The books of account of the Partnership shall be kept and
maintained at all times at the principal place of business of the
Partnership or at such other place or places approved by the General
Partner. The books of account shall be maintained according to federal
income tax principles using the accrual method of accounting, consistently
applied, and shall show all items of income and expense.
(c) The General Partner shall cause a balance sheet of the
Partnership dated as of the end of the fiscal year and a related statement
of income or loss for the Partnership for such fiscal year to be prepared
by the Accountant and furnished, at the expense of the Partnership, to each
of the Partners on an annual basis, within 90 days after the close of each
fiscal year.
(d) Each Partner shall have the right at all reasonable times during
usual business hours to audit, examine, and make copies of or extracts from
the books of account of the Partnership. Such right may be exercised
through any agent or employee of such Partner designated by it or by an
independent certified public accountant designated by such Partner. Each
Partner shall bear all expenses incurred in any examination made on behalf
of such Partner.
Section 4.07. Bank Accounts. Funds of the Partnership shall be
deposited in a Partnership account or accounts in the bank or banks as
selected by the General Partner. Withdrawals from bank accounts shall only
be made by the General Partner or such other parties as may be approved by
the General Partner.
Section 4.08. Current Distributions to Partners. Except as provided
in Section 6.05 in connection with the termination and liquidation of the
Partnership, the General Partner shall distribute funds at such times and
in such amounts as it may determine, in its sole discretion, provided, that
such funds shall be distributed by the General Partner to the Partners pro
rata in accordance with their respective Percentage Interests at the time
of the distribution. In determining the amount of funds to distribute
pursuant to this Section, the General Partner may consider such factors as
the need to allocate funds to any reserves for Partnership contingencies,
Partnership indebtedness or any other Partnership purposes that the
General Partner deems necessary or appropriate. The General Partner, in
its sole discretion, may distribute undivided interests in Partnership
Assets in-kind, provided, that such distribution shall be pro rata in
accordance with the Partners' relative Percentage Interests.
Section 4.09. Changes in Percentage Interests. If a Partner's
Percentage Interest changes during any fiscal year, the allocations to be
made pursuant to this Agreement shall be made in accordance with Section
706 of the Code, using any convention permitted by Section 706 of the Code
and the Regulations promulgated thereunder and selected by the General
Partner so as to equitably effectuate the allocations of this Article IV.
ARTICLE V
ASSIGNMENT
Section 5.01. Prohibited Transfers. Except as specifically provided
in this Article V and in Section 7.01, no Limited Partner may sell,
transfer, assign, mortgage, hypothecate, or otherwise encumber or permit or
suffer any encumbrance of all or any part of his or its interest in the
Partnership unless prior written consent is obtained from the General
Partner, and no General Partner may sell, transfer, assign, mortgage,
hypothecate, or otherwise encumber or permit or suffer any encumbrance of
all or any part of his or its interest in the Partnership without obtaining
prior written Approval of the Partners. Any attempt so to transfer or
encumber any such interest shall be null and void, ab initio. The Partners
will be excused from accepting the performance of and rendering performance
to any person other than the Partner hereunder (including any trustee or
assignee of or for such Partner) as to whom such prior written consent has
not been rendered.
Section 5.02. Further Restrictions on Transfer.
(a) In the event of any assignment or transfer permitted under this
Article, the interest so assigned or transferred shall remain subject to
all terms and provisions of this Agreement; the assignee or transferee
shall be deemed, by accepting the interest so assigned or transferred, to
have assumed all the obligations hereunder relating to the interests or
rights so assigned or transferred and shall agree in writing to the
foregoing if requested by the General Partner. Any transferee or assignee
of the interest of a Partner shall be entitled only to receive
distributions hereunder until such transferee or assignee has been admitted
as a Substituted Partner; provided, however, that such transferee or
assignee shall be subject to the Additional Capital Contribution provisions
of Article III and that the Percentage Interest of such transferee or
assignee shall be subject to reallocation pursuant to Section 4.02 in the
event of an Adjusting Event. Until such transferee or assignee (other than
an existing Partner) is admitted to the Partnership as a Substituted
Partner, the Partner transferring all or any portion of his or its interest
to such assignee or transferee shall remain primarily and directly liable
for the performance of all his or its obligations under this Agreement.
After the admission of such assignee or transferee as a Substituted
Partner, such transferor Partner shall only be primarily and directly
liable under this Agreement or otherwise for any obligations or liabilities
accruing prior to the effective time of the admission of such Substituted
Partner, unless such transferor Partner is released in writing from such
obligations or liabilities by the General Partner and such release is
Approved by the Partners.
(b) Any Partner making or offering to make a transfer of all or any
part of his or its interest in the Partnership shall indemnify and hold
harmless the Partnership and all other Partners from and against any costs,
damages, claims, suits, or fees suffered or incurred by the Partnership or
any such other Partner arising out of or resulting from any claims by the
transferee of such Partnership interest or any offerees of such Partnership
interest in connection with such transfer or offer.
Section 5.03. Substituted Partner. Except as otherwise provided in
Section 7.01 hereof, an assignee or transferee (other than an existing
Partner) of the interest of a Partner may be admitted as a substitute
partner ("Substituted Partner") only with the written consent of the
General Partner, which such consent shall be granted or denied in the sole
discretion of the General Partner. Unless the assignee is already a
General Partner, any assignee of a Partnership interest to whose admission
such consent is given shall become and shall have only the rights and
duties of a Limited Partner and the assigned Partnership interest shall
thereafter be a Limited Partner's interest. Upon the receipt by the
General Partner of an appropriate supplement to this Agreement pursuant to
which such Substituted Partner agrees to be bound by all the terms and
provisions of this Agreement, the General Partner shall reflect the
admission of a Substituted Partner and the withdrawal of the transferring
Partner, if appropriate, by preparing a supplemental Exhibit, dated as of
the date of such admission and withdrawal, and by filing it with the
records of the Partnership. Any Substituted Partner shall, if required by
the General Partner, prior to such admission, also execute any other
documents requested by the General Partner, including, without limitation,
an irrevocable power of attorney in form satisfactory to the General
Partner appointing the General Partner as such person's attorney-in-fact
with full power to execute, swear to, acknowledge, and file all
certificates and other instruments necessary to carry out the provisions of
this Agreement, including, without limitation, such undertakings as the
General Partner may require for the payment of all fees and costs necessary
to effect any such transfer and admission. At the General Partner's sole
discretion, the transferor and transferee of the transferred interest shall
be responsible for the costs associated with the transfer of the interest,
including, without limitation, reasonable attorney's fees. Upon admission,
such Substituted Partner shall be subject to all provisions of this
Agreement in the place and stead of his assignor as if the Substituted
Partner originally was a party to this Agreement.
Section 5.04. Basis Adjustment. The Tax Matters Partner may cause,
in its sole and absolute discretion, the Partnership to elect pursuant to
Section 754 of the Code and the Regulations thereunder to adjust the basis
of the Partnership Assets as provided by Sections 743 or 734 of the Code
and the Regulations thereunder.
Section 5.05. Admission of Additional Partners.
(a) When Approved by the Partners, a new Partner (each a "New
Partner") may be admitted to the Partnership; provided, however, that such
New Partner shall (i) be admitted for fair value, as determined by the
General Partner in its reasonable discretion and in a manner consistent
with the reallocation of Percentage Interests set forth in Section 4.02,
and (ii) execute an appropriate supplement to this Agreement and to Exhibit
A pursuant to which he agrees to be bound by all the terms and provisions
of this Agreement.
(b) Upon the receipt of the supplement described in Section 5.05(a),
the General Partner shall reflect the admission of the New Partner and the
reallocation of Percentage Interests by preparing a supplemental or
restated Exhibit A, dated as of the date of such admission, and filing it
with the records of the Partnership. The admission of a New Partner shall
not cause the dissolution of the Partnership. Upon the admission of a New
Partner pursuant to Section 5.05(a), the Percentage Interests shall be
reallocated, with the New Partner receiving the Percentage Interest
calculated in accordance with Section 4.02 that reflects, as determined by
the General Partner in its sole discretion, the ratio of the New Partner's
contribution to the Value of the Partnership Assets, which the General
Partner may determine based on the aggregate Capital Contributions to the
Partnership, and with the Percentage Interests of each existing Partner
being adjusted in accordance with Section 4.02(a)(B).
Section 5.06. Other Restricted Transfers. Notwithstanding any other
provision herein to the contrary, unless prior written consent is given by
the General Partner, no transfer of any interest in the Partnership may be
made to any person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender of the Partnership whose loan constitutes
a nonrecourse liability of the Partnership.
ARTICLE VI
WITHDRAWAL, DISSOLUTION, TERMINATION, AND LIQUIDATION
Section 6.01. Withdrawal. No Limited Partner shall at any time
retire or withdraw from the Partnership without obtaining the prior written
consent of the General Partner, and the General Partner shall not at any
time retire or withdraw from the Partnership without obtaining the prior
written Approval of the Partners. Retirement or withdrawal by any Partner
in contravention of this Section 6.01 shall subject such Partner to
liability for all damages caused any other Partner (other than a Partner
who is, at the time of such withdrawal, in default under this Agreement) by
such retirement or withdrawal and the consequential dissolution of the
Partnership.
Section 6.02. Dissolution of the Partnership. The Partnership shall
be dissolved upon the occurrence of any of the following:
(a) The withdrawal, as defined in the Act, of a General Partner,
unless:
(i) the remaining General Partner, if any, elects in
writing within ninety (90) days after such event to reconstitute
the Partnership, to continue as the General Partner, and to
continue the Partnership and its business;
(ii) there is no remaining or Successor General
Partner (as defined in Section 7.01), then within ninety (90)
days after such event, all of the Limited Partners agree to
appoint in writing a successor General Partner, as of the date of
the withdrawal of the General Partner, and agree to reconstitute
the Partnership and continue the business of the Partnership, and
such successor General Partner agrees in writing to accept such
election; or
(iii) the withdrawal of the General Partner results from
its removal by the Limited Partners as provided in Section 7.01 and a
Successor General Partner is appointed by the Limited Partners as
provided in Section 7.01;
(b) The sale or other disposition, not including an exchange, of
substantially all of the assets of the Partnership (except under
circumstances where all or a portion of the purchase price is payable after
the closing of the sale or other disposition);
(c) December 31, 2047; or
(d) Subject to any obligations of the Partnership, when Approved by
the Partners.
Nothing contained in this Section 6.02 is intended to grant to any Partner
the right to dissolve the Partnership at will (by retirement, resignation,
withdrawal, or otherwise) or to exonerate any Partner from liability to the
Partnership and the remaining Partners if he or it dissolves the
Partnership at will.
Section 6.03. Continuation and Reconstitution of Partnership. If the
Partnership is continued as provided in Section 6.02(a)(i) or (ii), then,
as of the date of withdrawal, the General Partner with respect to which an
event of withdrawal under Section 6.02 has occurred (or his or its estate
or successor in interest) (the "Withdrawing General Partner") shall have
none of the powers of a General Partner under this Agreement or applicable
law and shall have only the rights and powers of an assignee of a Partner
hereunder to share in any Partnership profits, losses, gains, and
distributions in accordance with his or its Percentage Interest and shall
have no other rights or powers of a Partner hereunder; provided, however,
that any Withdrawing General Partner shall be subject to the Additional
Capital Contribution provisions of Article III and that the Percentage
Interest of such Withdrawing General Partner shall be subject to
reallocation under Section 4.02 in the event of any Adjusting Event.
Section 6.04. Withdrawal, etc. of a Limited Partner. The withdrawal,
termination (in the case of a Limited Partner that is a partnership or a
trust), dissolution (in the case of a Limited Partner that is a corporation
or limited liability company), retirement, or adjudication as a bankrupt of
a Limited Partner (the "Withdrawing Limited Partner") shall not dissolve
the Partnership, but the rights of such Limited Partner to share in the
profits and losses of the Partnership and to receive distributions of
Partnership funds shall, upon the happening of such an event, pass to the
Limited Partner's successors in interest subject to the Agreement, and the
Partnership shall continue as a limited partnership.
Section 6.05. Termination and Liquidation of the Partnership.
(a) Upon dissolution of the Partnership unless continued pursuant to
Section 6.02, the Partnership shall be terminated as rapidly as business
circumstances will permit. At the direction of the General Partner, or a
Partner approved by the Limited Partners if the dissolution of the
Partnership is caused by the withdrawal of the General Partner (the General
Partner or the other Partner, as the case may be, being herein called the
"Terminating Partner"), a full accounting of the assets and liabilities of
the Partnership shall be taken and a statement of the Partnership Assets
and a statement of each Partner's Capital Account shall be furnished to all
Partners as soon as is reasonably practicable. The Terminating Partner
shall take such action as is necessary so that the Partnership's business
shall be terminated, its liabilities discharged, and its assets distributed
as hereinafter described. The Terminating Partner may sell all of the
Partnership Assets or distribute the Partnership Assets in kind; provided
however, that the Terminating Partner shall ascertain the fair market value
by appraisal or other reasonable means of all Partnership Assets remaining
unsold and each Partner's Capital Account shall be charged or credited, as
the case may be, as if such Partnership Assets had been sold at such fair
market value and the income, gains, losses, deductions, and credits
realized thereby had been allocated to the Partners in accordance with
Article IV hereof. A reasonable period of time shall be allowed for the
orderly termination of the Partnership to minimize the normal losses of a
liquidation process.
(b) After the payment of all expenses of liquidation and of all debts
and liabilities of the Partnership in such order or priority as provided by
law (including any debts or liabilities to Partners, who shall be treated
as secured or unsecured creditors, as may be the case, to the extent
permitted by law, for sums loaned to the Partnership, if any, as
distinguished from capital contributions) and after all resulting items of
Partnership income, gain, credit, loss, or deduction are credited or
debited to the Capital Accounts of the Partners in accordance with Articles
III and IV hereof, all remaining Partnership Assets shall then be
distributed among the Partners in accordance with their relative positive
Capital Account balances. Upon termination, a Partner may not demand and
receive cash in return for such Partner's capital contributions and no
Partner shall have any obligation to restore any deficit that may then
exist in that Partner's Capital Account. Distribution on termination may
be made by the distribution to each Partner of an undivided interest in any
asset of the Partnership that has not been sold at the time of termination
of the Partnership.
Section 6.06. General Partners Not Personally Liable. No General
Partner nor any affiliate of any General Partner shall be personally liable
for the return of the Capital Contributions of any Partner, and such return
shall be made solely from available Partnership Assets, if any, and each
Limited Partner hereby waives any and all claims they may have against any
General Partner or any such affiliate in this regard.
Section 6.07. Provisions Cumulative. All provisions of this
Agreement relating to the dissolution, liquidation, and termination of the
Partnership shall be cumulative to the extent not inconsistent with other
provisions herein; that is, the exercise or use of one of the provisions
hereof shall not preclude the exercise or use of any other provision of
this Agreement to the extent not inconsistent therewith.
<PAGE>
ARTICLE VII
GENERAL
Section 7.01. Removal and Replacement of General Partner.
(a) The General Partner may be removed and replaced at any time by
Limited Partners constituting Approval of the Partners by sending the
General Partner a written notice of such removal. In the event of the
removal of the General Partner, a successor General Partner ("Successor
General Partner") shall be selected by Approval of the Partners. With the
Approval of the Partners, the Limited Partners shall have the right to
transfer a portion of their interests to such Successor General Partner and
such interest shall be converted to that of a general partner. The removal
will not be effective until the Successor General Partner has been admitted
to the Partnership as a General Partner, such admission to be by Approval
of the Partners. After the admission of the Successor General Partner, the
Successor General Partner shall have all the rights, powers, and
obligations of a General Partner under this Agreement and all references in
this Agreement to the "General Partner" shall refer to the Successor
General Partner appointed in this Section 7.01. Third parties shall be
conclusively deemed entitled to rely upon the representation of FW Genpar
that FW Genpar is the General Partner unless such third parties have actual
notice of its replacement.
(b) Following the replacement of the General Partner, the Limited
Partners constituting Approval of the Partners may convert such Partner's
interest into a Limited Partner's interest. The Successor General Partner
shall have the authority to execute and file all documents necessary to
signify such conversion. The General Partner hereby appoints the Successor
General Partner as his or its attorney-in-fact to execute and file all
documents signifying such conversion including, without limitation, an
amendment to the Certificate of Limited Partnership.
Section 7.02. Competing Business. Notwithstanding anything to the
contrary contained in or inferable from this Agreement, the Act, or any
other statute or principle of law, neither the Partners nor any of their
shareholders, directors, officers, employees, partners, agents, family
members, or affiliates (each a "Partner Affiliate") shall be prohibited or
restricted in any way from investing in or conducting, either directly or
indirectly, and may invest in and/or conduct, either directly or
indirectly, businesses of any nature whatsoever, including the ownership
and operation of businesses or properties similar to or in the same
geographical area as those held by the Partnership. Any investment in or
conduct of any such businesses by a Partner or any Partner Affiliate shall
not give rise to any claim for an accounting by the other Partners or the
Partnership or any right to claim any interest therein or the profits
therefrom.
Section 7.03. LIMITED PARTNER REPRESENTATIONS. NOTWITHSTANDING
ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, EACH LIMITED PARTNER
HEREBY REPRESENTS AND WARRANTS TO THE PARTNERSHIP, THE GENERAL PARTNER, AND
TO EACH OFFICER, DIRECTOR, SHAREHOLDER, CONTROLLING PERSON, AND AGENT OF
EACH GENERAL PARTNER THAT: (a) THE INTEREST IN THE PARTNERSHIP OF SUCH
LIMITED PARTNER IS ACQUIRED FOR INVESTMENT PURPOSES ONLY FOR HIS OR ITS OWN
ACCOUNT AND NOT WITH A VIEW TO OR IN CONNECTION WITH ANY DISTRIBUTION,
REOFFER, RESALE, OR OTHER DISPOSITION NOT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER (THE
"1933 ACT") AND APPLICABLE STATE SECURITIES LAWS; (b) SUCH LIMITED PARTNER,
ALONE OR TOGETHER WITH HIS OR ITS REPRESENTATIVES, POSSESSES SUCH
EXPERTISE, KNOWLEDGE, AND SOPHISTICATION IN FINANCIAL AND BUSINESS MATTERS
GENERALLY, AND IN THE TYPE OF TRANSACTIONS IN WHICH THE PARTNERSHIP
PROPOSES TO ENGAGE IN PARTICULAR, THAT HE OR IT IS CAPABLE OF EVALUATING
THE MERITS AND ECONOMIC RISKS OF ACQUIRING AND HOLDING HIS OR ITS
PARTNERSHIP INTEREST, AND HE OR IT IS ABLE TO BEAR ALL SUCH ECONOMIC RISKS
NOW AND IN THE FUTURE; (c) SUCH LIMITED PARTNER HAS HAD ACCESS TO ALL OF
THE INFORMATION WITH RESPECT TO THE INTEREST ACQUIRED BY HIM OR IT UNDER
THIS AGREEMENT THAT HE OR IT DEEMS NECESSARY TO MAKE A COMPLETE EVALUATION
THEREOF AND HAS HAD THE OPPORTUNITY TO QUESTION THE GENERAL PARTNER
CONCERNING SUCH INTEREST; (d) SUCH LIMITED PARTNER'S DECISION TO ACQUIRE
HIS OR ITS INTEREST FOR INVESTMENT HAS BEEN BASED SOLELY UPON THE
EVALUATION MADE BY HIM OR IT; (e) SUCH LIMITED PARTNER IS AWARE THAT HE OR
IT MUST BEAR THE ECONOMIC RISK OF HIS OR ITS INVESTMENT IN THE PARTNERSHIP
FOR AN INDEFINITE PERIOD OF TIME BECAUSE INTERESTS IN THE PARTNERSHIP HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT OR UNDER THE SECURITIES LAWS OF ANY
STATES, AND, THEREFORE, CANNOT BE SOLD UNLESS SUCH INTERESTS ARE
SUBSEQUENTLY REGISTERED UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE; (f) SUCH
LIMITED PARTNER IS AWARE THAT ONLY THE PARTNERSHIP CAN TAKE ACTION TO
REGISTER SUCH INTEREST IN THE PARTNERSHIP AND THE PARTNERSHIP IS UNDER NO
SUCH OBLIGATION AND DOES NOT PROPOSE TO ATTEMPT TO DO SO; AND (g) SUCH
LIMITED PARTNER IS AWARE THAT THIS AGREEMENT PROVIDES RESTRICTIONS ON THE
ABILITY OF A LIMITED PARTNER TO SELL, TRANSFER, ASSIGN, MORTGAGE,
HYPOTHECATE, OR OTHERWISE ENCUMBER HIS OR ITS INTEREST IN THE PARTNERSHIP.
Section 7.04. Notice.
(a) All notices, demands, or requests provided for or permitted to be
given pursuant to this Agreement must be in writing.
(b) All notices, demands, and requests to be sent to a Partner
pursuant to this Agreement shall be deemed to have been properly given or
served if: (i) personally delivered, (ii) deposited prepaid for next day
delivery by Federal Express, or other similar overnight courier services,
addressed to such Partner, (iii) deposited in the United States mail,
addressed to such Partner, prepaid and registered or certified with return
receipt requested, or (iv) transmitted via telecopier or other similar
device to the attention of such Partner.
(c) All notices, demands, and requests so given shall be deemed
received: (i) when personally delivered, (ii) 24 hours after being
deposited for next day delivery with an overnight courier, (iii) 48 hours
after being deposited in the United States mail, or (iv) 12 hours after
being telecopied or otherwise transmitted and receipt has been confirmed.
(d) The Partners shall have the right from time to time, and at any
time during the term of this Agreement, to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America by giving to the other parties
at least 30 days written notice thereof, in the manner prescribed in
Section 7.04(b); provided however, that to be effective, any such notice
must be actually received (as evidenced by a return receipt).
(e) All distributions to any Partner shall be made at the address at
which notices are sent unless otherwise specified in writing by any such
Partner.
Section 7.05. Amendments. Amendments and supplements may be made to
or restatements made of this Agreement or the Certificate of Limited
Partnership (or any exhibits or schedules attached to any of them), from
time to time by the General Partner, without the consent of any of the
other Partners, to effect any amendments which amend this Agreement to
reflect adjustments to the Percentage Interests of the Partners following
an Adjusting Event or as otherwise provided in Section 4.02 hereof, to
reflect other transfers, assignments, admissions, withdrawals, conversions,
or other actions authorized by this Agreement, or to effect any
non-material amendments to this Agreement or the Certificate of Limited
Partnership. All other amendments to this Agreement and the Certificate of
Limited Partnership shall require Approval of the Partners; provided,
however, that no material amendment which has an adverse effect on a
Partner's interest in the Partnership shall be made without the consent of
such Partner except as otherwise specifically provided herein.
Section 7.06. Powers of Attorney. Each Limited Partner hereby
constitutes and appoints the General Partner, with full power of
substitution, as his or its true and lawful attorney-in-fact and empowers
and authorizes such attorney, in the name, place, and stead of such Limited
Partner, to make, execute, sign, swear to, acknowledge, and file in all
necessary or appropriate places all documents (and all amendments or
supplements to or restatements of such documents necessitated by valid
amendments to or actions permitted under this Agreement) relating to the
Partnership and its activities, including, without limitation: (a) this
Agreement and any amendments hereto approved as provided herein, (b) the
Certificate of Limited Partnership and any amendments thereto, under the
laws of the State of Delaware or in any other state or jurisdiction in
which such filing is deemed advisable by the General Partner, (c) any
applications, forms, certificates, reports, or other documents, or
amendments thereto which may be requested or required by any federal,
state, or local governmental agency, securities exchange, securities
association, self-regulatory organization, or similar institution and which
are deemed necessary or advisable by the General Partner, (d) any other
instrument which may be required to be filed or recorded in any state or
county or by any governmental agency, or which the General Partner deems
advisable to file or record, including, without limitation, certificates of
assumed name and documents to qualify foreign limited partnership in other
jurisdictions, (e) any documents which may be required to effect the
continuation of the Partnership, the admission of new partners, substituted
partners, the withdrawal of any Partner, or the dissolution and termination
of the Partnership, (f) making certain elections contained in the Code or
state law governing taxation of limited partnership, (g) any and all
reports, schedules, certificates, forms and other documents, including, but
not limited to, Schedules 13D and 13F, Forms 3 and 4, and any other such
forms as may be required to be filed by the Partnership under the
Securities Exchange Act of 1934, Federal Reserve U-1s, notes, drafts,
credit or loan agreements, financing statements, security agreements, bank
resolutions, and any and all other documents and instruments as may be
necessary or desirable in the sole discretion of the attorney so acting,
all in carrying out the purposes of the Partnership, and (h) performing any
and all other ministerial duties or functions necessary for the conduct of
the business of the Partnership. Each Limited Partner hereby ratifies,
confirms, and adopts as his own, all actions that may be taken by such
attorney-in-fact pursuant to this Section 7.06. Each Limited Partner
acknowledges that this Agreement permits certain amendments to be made and
certain other actions to be taken or omitted to be taken by less than all
of the Partners if approved in accordance with the provisions hereof. By
their execution hereof, each Limited Partner also grants the General
Partner a power of attorney to execute any and all documents necessary to
reflect any action that is in accordance with the provisions hereof. This
power of attorney is coupled with an interest and shall continue
notwithstanding the subsequent incapacity or death of the Limited Partner.
Each Limited Partner shall execute and deliver to the General Partner an
executed and appropriately notarized power of attorney in such form
consistent with the provisions of this Section 7.06 as the General Partner
may request.
Section 7.07. GOVERNING LAWS AND VENUE. THIS AGREEMENT IS MADE IN
FORT WORTH, TARRANT COUNTY, TEXAS, AND THE RIGHTS AND OBLIGATIONS OF THE
PARTNERS HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL MATTERS LITIGATED BY,
AMONG, OR BETWEEN ANY OF THE PARTNERS THAT INVOLVE THIS AGREEMENT, THE
RELATIONSHIP OF THE PARTNERS, OR ANY RELATED DOCUMENTS OR MATTERS HEREUNDER
SHALL BE BROUGHT ONLY IN FORT WORTH, TARRANT COUNTY, TEXAS.
Section 7.08. Rule of Construction. The general rule of construction
for interpreting a contract, which provides that the provisions of a
contract should be construed against the party preparing the contract, is
waived by the parties. Each party acknowledges that he or it was
represented by separate legal counsel in this matter who participated in
the preparation of this Agreement or he or it had the opportunity to retain
counsel to participate in the preparation of this Agreement but chose not
to do so.
Section 7.09. Entire Agreement. This Agreement, including all
exhibits to this Agreement and, if any, exhibits to such exhibits, contains
the entire agreement among the parties relative to the matters contained in
this Agreement.
Section 7.10. Waiver. No consent or waiver, express or implied, by
any Partner to or for any breach or default by any other Partner in the
performance by such other Partner of his or its obligations under this
Agreement shall be deemed or construed to be a consent or waiver to or of
any other breach or default in the performance by such other Partner of the
same or any other obligations of such other Partner under this Agreement.
Failure on the part of any Partner to complain of any act or failure to act
of any of the other Partners or to declare any of the other Partners in
default, regardless of how long such failure continues, shall not
constitute a waiver by such Partner of his or its rights hereunder.
Section 7.11. Severability. If any provision of this Agreement or
the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not
be affected thereby, and the intent of this Agreement shall be enforced to
the greatest extent permitted by law.
Section 7.12. Binding Agreement. Subject to the restrictions on
transfers and encumbrances set forth in this Agreement, this Agreement
shall inure to the benefit of and be binding upon the undersigned Partners
and their respective legal representatives, successors, and assigns.
Whenever, in this Agreement, a reference to any party or Partner is made,
such reference shall be deemed to include a reference to the legal
representatives, successors, and assigns of such party or Partner.
Section 7.13. Tense and Gender. Unless the context clearly indicates
otherwise, the singular shall include the plural and vice versa. Whenever
the masculine, feminine, or neuter gender is used inappropriately in this
Agreement, this Agreement shall be read as if the appropriate gender was
used.
Section 7.14. Captions. Captions are included solely for convenience
of reference and if there is any conflict between captions and the text of
this Agreement, the text shall control.
Section 7.15. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original for all
purposes and all of which when taken together shall constitute a single
counterpart instrument. Executed signature pages to any counterpart
instrument may be detached and affixed to a single counterpart, which
single counterpart with multiple executed signature pages affixed thereto
constitutes the original counterpart instrument. All of these counterpart
pages shall be read as though one and they shall have the same force and
effect as if all of the parties had executed a single signature page.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] <PAGE>
Each of the
undersigned has executed and delivered this Agreement in Fort Worth, Texas, to
be effective as of the Effective Date.
GENERAL PARTNER
201 Main Street FW GROUP GENPAR, INC., a Texas
Suite 3100 corporation
Fort Worth, Texas 76102
By:
W. R. Cotham, Vice President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
LIMITED PARTNER
201 Main Street KEYSTONE, INC., a Texas corporation
Suite 3100
Fort Worth, Texas 76102
By:
W. R. Cotham, Vice President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
LIMITED PARTNER
201 Main Street FW STRATEGIC PARTNERS, L.P., a
Suite 3100 Delaware limited partnership
Fort Worth, Texas 76102
By: FW Strategic Asset Management,
L.P.,
general partner
By: Strategic Genpar, Inc.,
general
partner
By:
W. R. Cotham, Vice
President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
LIMITED PARTNER
FW INTEGRATED ORTHOPAEDICS
COINVESTMENT PARTNERS, L.P.,
201 Main Street a Delaware limited partnership
Suite 3100
Fort Worth, Texas 76102
By: Group 31, Inc., general partner
By:
W. R. Cotham, Vice President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
LIMITED PARTNER
201 Main Street
Suite 3100
Fort Worth, Texas 76102
ROBERT M. BASS
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
OF
FW INTEGRATED ORTHOPAEDICS INVESTORS II, L.P.
LIMITED PARTNER
201 Main Street CAPITAL PARTNERSHIP, a Texas
Suite 2700 partnership
Fort Worth, Texas 76102
By: Margaret Lee Bass 1980 Trust,
managing partner
By: Panther City Investment Co.,
Trustee
By:
W. R. Cotham, President
<PAGE>
EXHIBIT A
TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
FW INTEGRATED ORTHOPAEDIC INVESTORS II, L.P.
INITIAL CAPITAL PERCENTAGE
GENERAL PARTNER CONTRIBUTION INTEREST
FW Group Genpar, Inc. $ 125,000 1.00%
LIMITED PARTNER
Robert M. Bass $ 2,320,000 18.56%
Capital Partnership $ 580,000 4.64%
FW Strategic Partners,L.P. $ 6,000,000 48.00%
FW Integrated Orthopaedics
Coinvestment Partners, L.P. $ 3,475,000 27.80%
Total $ 12,500,000 100.00%
