Form of Agreement and Plan of Merger

 

Form of Agreement and Plan of Merger

by and among

HEALTH PARTNERSHIP INC.

CAPITAL PARTNERS MERGER SUB, INC.

CAPITAL PARTNERS ACQUISITION SUB, INC.

CAPITAL PARTNERS FOR HEALTH & FITNESS, INC.

RANDALL ROHM

and

THOMAS FLYNN

Dated as of February 13, 2006

 

Table of Contents

		Page
ARTICLE I DEFINITIONS		2
ARTICLE II THE MERGER		9
2.1	The Merger	9
2.2	Effective Time	10
2.3	Effect of the Merger	10
2.4	Articles of Incorporation and Bylaws	10
2.5	Directors and Officers	10
2.6	Conversion of Stock, Etc	11
2.7	Cancellation of Shares	12
2.8	Stock Options; Warrants	12
2.9	Capital Stock of Acquisitionco	12
2.10	Adjustments to the Consideration	12
2.11	Taking of Necessary Action; Further Action	13
ARTICLE III CONSIDERATION; CLOSING		14
3.1	Consideration	14
3.2	Closing	14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND CAPITAL PARTNERS		14
4.1	Organization and Qualification	14
4.2	Subsidiaries and Affiliates	14
4.3	Charter, By-Laws and Corporate Records	15
4.4	Authorization; Enforceability	15
4.5	No Violation or Conflict	15
4.6	Governmental Consents and Approvals	16
4.7	Capital Structure	16
4.8	Financial Statements	17
4.9	Conduct in the Ordinary Course; Absence of Changes	17
4.10	Real Property	17
4.11	Personal Property	18
4.12	Board Approval	19
4.13	Insurance	19
4.14	Permits	20
4.15	Taxes	20
4.16	Labor Matters	21
4.17	Employee Benefit Plans	22
4.18	Environmental Matters	23
4.19	Certain Interests	24

 

 

 

EXHIBITS

 

 

Exhibit 2.2	Articles of Merger
Exhibit 2.5(a)	Directors of Capital Partners Surviving Corporation
Exhibit 2.5(b)	Form of Irrevocable Proxy
Exhibit 11.1	Letter to Transfer Agent
Exhibit 11.1(o)	Opinion of Counsel to Capital Partners

 

SCHEDULES

Schedule 4.1	Organization and Qualification
Schedule 4.2	Subsidiaries and Affiliates
Schedule 4.8	Financial Statements
Schedule 4.10(b)	Leased Real Property
Schedule 4.11	Personal Property
Schedule 4.13	Insurance
Schedule 4.14	Permits
Schedule 4.15	Taxes
Schedule 4.16	Labor Matters
Schedule 4.17	Employee Benefit Plans
Schedule 4.20	Capital Partners Litigation
Schedule 4.30	Contracts
Schedule 5.6	HPI Litigation
Schedule 8.2	Domain Names
Schedule 9.2	Certain Cost Allocations

 

 

 

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (the “ Agreement ”) made and entered into as of February 13, 2006, by and among HEALTH PARTNERSHIP INC., a Colorado corporation (“ HPI ”), CAPITAL PARTNERS MERGER SUB, INC., a North Carolina corporation and wholly owned subsidiary of HPI (“ Capital Partners Mergeco ”); CAPITAL PARTNERS ACQUISITION SUB, INC., a North Carolina corporation and wholly owned subsidiary of HPI (“ Capital Partners Acquisitionco ” and together with Capital Partners Mergeco, each a “ Capital Partners Merger Sub ” and, collectively, the “ Capital Partners Merger Subs ”), CAPITAL PARTNERS FOR HEALTH & FITNESS, INC., a North Carolina corporation (“ Capital Partners ”), Randall Rohm (“ Rohm ”) and Thomas Flynn (“ Flynn ”), each a resident of North Carolina (Rohm and Flynn are hereinafter collectively referred to as the “ Shareholders ”). Capital Partners Mergeco, Capital Partners Acquisitionco, Capital Partners, and the Shareholders are sometimes referred to herein each, individually, as a “ Party ” and, collectively, as the “ Parties .”

WITNESSETH:

WHEREAS, Kapital Engine Investments, Inc., a Nevada corporation (the “ Predecessor Entity ”) was the owner of all of the issued and outstanding equity interests in nine subsidiary entities that operate health clubs in the Raleigh-Durham metropolitan area and in one entity which has signed a lease for a tenth health club, to be opened in the future in Wake Forest, North Carolina;

WHEREAS, Capital Partners acquired all of the issued and outstanding equity interests in the subsidiary entities described in the preceding recital, pursuant to an assignment agreement.

WHEREAS, each of the Boards of Directors of HPI, Capital Partners Mergeco, Capital Partners Acquisitionco and Capital Partners has approved this Agreement, the merger of Capital Partners Mergeco with and into Capital Partners (the “ Reverse Merger ”) and the merger immediately following the Reverse Merger of Capital Partners with and into Capital Partners Acquisitionco (the “ Forward Merger ” and together with the Reverse Merger, the “ Merger ”), in accordance with the laws of the their respective States of incorporation, and the terms and conditions set forth herein; and

WHEREAS, the parties hereto intend the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the Parties hereby agree as follows:

 

 

ARTICLE I

DEFINITIONS

In addition to terms defined elsewhere in this Agreement, the following terms when used in this Agreement shall have the respective meanings set forth below:

“ Action ” means any claim, demand, action, cause of action, chose in action, right of recovery, right of set-off, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.

“ Affiliate ” means, with respect to a specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes, with respect to the specified Person: (a) any other Person which beneficially owns or holds 10% or more of the outstanding voting securities or other securities convertible into voting securities of such Person, (b) any other Person of which the specified Person beneficially owns or holds 10% or more of the outstanding voting securities or other securities convertible into voting securities, or (c) any director, officer or employee of such Person.

“ Approved Liabilities ” means only those liabilities shown on the consolidated balance sheet of the Predecessor Entity dated September 30, 2005, subject only to minor adjustments in liability line items incurred in the ordinary course of the Business between September 30, 2005 and the Closing Date, plus any additional liabilities incurred for the purchase or lease of equipment and improvements to the facilities owned by Capital Partners.

“ Bridge Loan ” means the loan by HPI to Capital Partners, with an outstanding principal balance as of the date hereof of $400,000, plus accrued interest at the rate of 8% per annum, plus such additional loans, if any, made by HPI to Capital Partners from the date hereof through the Closing.

“ Business Day ” means any day other than a Saturday, Sunday or other day on which banks are required or authorized to be closed in the city of Chicago, Illinois.

“ Business Interests ” means the ownership of up to (but not more than) one percent (1%) of any class of securities of an enterprise (but without otherwise participating, directly or indirectly, in the management or operations of such enterprise) if such securities are listed on any national or regional exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934.

“ Capital Partners ” means Capital Partners For Health & Fitness, Inc., a North Carolina corporation.

“ Capital Partners Subsidiaries ” means the corporations and limited liability companies described on Schedule 4.2 , attached hereto.

 

 

 

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended through the date hereof and any regulations promulgated thereunder.

“ Closing ” shall mean the closing of the transactions contemplated by this Agreement.

“ Closing Date ” shall mean the day on which the Closing takes place.

“ COBRA ” means the provisions of Code section 4980B and Part 6 of Subtitle B of title I of ERISA.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Commonly Controlled Entity ” means any entity which is under common control with Capital Partners within the meaning of Section 414(b), (c), (m), (o) or (t) of the Code.

“ Contract ” means any contract, plan, undertaking, understanding, agreement, license, lease, note, mortgage or other binding commitment, whether written or oral, either involving payments of more than $10,000 per year or which are not terminable on 30 days’ written notice or less.

“ Copyrights ” mean all copyrights (registered or otherwise) and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions.

“ Court ” means any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision thereof.

“ Database ” means all data and other information recorded, stored, transmitted and retrieved in electronic form.

“ Documents ” means this Agreement together with the Articles of Merger, the Schedules and Exhibits hereto, the Capital Partners Disclosure Schedule, and the other agreements, documents and instruments required or contemplated to be executed in connection herewith.

“ Earnout Period ” means the first eight (8) full calendar quarters following the Closing Date.

“ EBITDA ” means earnings before interest, taxes, depreciation and amortization, in each case, computed in accordance with GAAP.

 

 

 

“ Employee Plans ” means all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus, stock or other security option, stock or other security purchase, stock or other security appreciation rights, incentive, deferred compensation, retirement or supplemental retirement, severance, golden parachute, vacation, cafeteria, dependent care, medical care, employee assistance program, education or tuition assistance programs, insurance and other similar fringe or employee benefit plans, programs or arrangements, and any current or former employment or executive compensation or severance agreements, written or otherwise, which have ever been sponsored or maintained or entered into for the benefit of, or relating to, any present or former employee or director of Capital Partners, the Predecessor Entity, any Capital Partners Subsidiary or any trade or business (whether or not incorporated) which is a member of a controlled group or which is under common control with Capital Partners, within the meaning of Section 414 of the Code (an “ ERISA Affiliate ”), whether or not such plan is terminated.

“ Environmental Law ” means any Law or Regulation pertaining to: (a) the protection of health, safety and the indoor or outdoor environment; (b) the conservation, management or use of natural resources and wildlife; (c) the protection or use of surface water and ground water; (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, emission, discharge, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Substance; or (e) pollution (including any emission, discharge or release to air, land, surface water and ground water of any material); and includes, without limitation, CERCLA and the Solid Waste Disposal Act, as amended 42 U.S.C. § 6901 et seq.

“ Environmental Permits ” means all Permits required under any Environmental Law.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ GAAP ” means United States generally accepted accounting principles and practices in effect from time to time consistently applied.

“ Governmental Authority ” means any governmental or legislative agency or authority (other than a Court) of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof, and includes any authority having governmental or quasi-governmental powers, including any administrative agency or commission.

“ Hardware ” means all mainframes, midrange computers, personal computers, notebooks, servers, switches, printers, modems, drives, peripherals and any component of any of the foregoing.

“ Hazardous Substance ” means any Hazardous Substance, as defined in CERCLA, and any other chemical, compound, product, solid, gas, liquid, pollutant, contaminant or material which is regulated under any Environmental Law, and includes without limitation, asbestos or any substance containing asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof).

 

 

 

“ Health Clubs ” shall mean the nine (9) Health Clubs currently operated by one of the Capital Partners Subsidiaries and the additional Health Club expected to open for business in approximately 90 to 180 days from the date hereof. The location of each of the ten (10) Health Clubs is described on Schedule 4.10(b) , attached hereto.

“ HIPAA ” means the provisions of the Code and ERISA enacted by the Health Insurance Portability and Accountability Act of 1996.

“ HPI Common Stock ” means Common Stock, $.0001 par value per share, of HPI.

“ HPI Offering ” means the current offering of HPI Common Stock for $1.25 per share.

“ Indebtedness ” means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of Capital Partners, a Capital Partners Subsidiary or a lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss and all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

“ Information System ” means any combination of Hardware, Software and/or Database(s) employed primarily for the creation, manipulation, storage, retrieval, display and use of information in electronic form or media.

 

 

 

“ Intellectual Property ” means (a) inventions, whether or not patentable, whether or not reduced to practice or whether or not yet made the subject of a pending Patent application or applications, (b) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending Patent application or applications, (c) Patents, (d) Trademarks, (e) Copyrights, (f) Software, (g) trade secrets and confidential, technical or business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice), (h) whether or not confidential, technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, Databases, Information Systems, pricing and cost information, business and marketing plans and customer and supplier lists and information, (i) copies and tangible embodiments of all the foregoing, in whatever form or medium, (j) all rights to obtain and rights to apply for Patents, and to register Trademarks and Copyrights, (k) all rights under the License Agreements and any licenses, registered user agreements, technology or materials, transfer agreements, and other agreements or instruments with respect to items in (a) to (j) above; and (l) all rights to sue and recover and retain damages and costs and attorneys’ fees for present and past infringement of any of the Intellectual Property rights hereinabove set out.

“ Inventories ” means all inventories, including, without limitation, merchandise, raw materials, work-in-process, finished goods, replacement parts, packaging, office supplies, maintenance supplies, computer parts and supplies and Hardware related to the Business maintained, held or stored by or for Capital Partners or any Capital Partners Subsidiary at any location whatsoever and any prepaid deposits for any of the same.

“ IRS ” shall mean the United States Internal Revenue Service.

“ Jaynes Separation Agreement ” means that certain Settlement and Release Agreement dated October 2005 among Jeremy Jaynes, Randall Rohm and the Predecessor Entity.

“ Knowledge ” means (a) in the case an individual, knowledge of a particular fact or other matter if such individual is actually aware of such fact or other matter, and (b) in the case of a Person (other than an individual) such Person will be deemed to have Knowledge of a particular fact or other matter if any individual who is serving, or has at any time served, as a director, officer, partner, executor, or trustee of such Person or of a Subsidiary of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter. The knowledge of Jeremy Jaynes shall not be attributed to a Person unless otherwise known to such Person.

“ Law ” means all laws, statutes, ordinances and Regulations of any Governmental Authority including all decisions of Courts having the effect of law in each such jurisdiction.

“ Leased Real Property ” means the real property leased by Capital Partners or a Capital Partners Subsidiary as tenant, together with, to the extent leased by Capital Partners or a Capital Partners Subsidiary all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of Capital Partners or a Capital Partners Subsidiary attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing.

 

 

 

“ Liabilities ” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Order, Liabilities for Taxes and those Liabilities arising under any Contract.

“ Liens ” means any mortgage, pledge, security interest, attachment, encumbrance, lien (statutory or otherwise), option, conditional sale agreement, right of first refusal, first offer, termination, participation or purchase, or charge of any kind (including any agreement to give any of the foregoing), provided, however, that the term “Lien” shall not include: (a) Liens for Taxes, assessments and charges of any Governmental Authority due and being contested in good faith and diligently by appropriate proceedings (and for the payment of which adequate provision has been made); (b) servitudes, easements, restrictions, rights-of-way and other similar rights in real property or any interest therein, provided the same are not of such nature as to materially adversely affect the use of the property subject thereto; (c) Liens for Taxes either not due and payable or due but for which notice of assessments has not been given; (d) undetermined or inchoate Liens, charges and privileges incidental to current construction or current operations and statutory Liens, charges, adverse claims, security interests or encumbrances of any nature whatsoever claimed or held by any Governmental Authority which have not at the time been filed or registered against the title to the asset or served upon Capital Partners or a Capital Partners Subsidiary pursuant to Law or which relate to obligations not due or delinquent; (e) assignments of insurance provided to landlords (or their mortgagees) pursuant to the terms of any lease, and Liens or rights reserved in any lease for rent or for compliance with the terms of such lease; (f) security given in the ordinary course of the Business, as applicable, to any public utility, municipality or Government Authority in connection with the operations of the Business, as applicable, other than security for borrowed money; (g) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance, old age pension or other social security programs mandated under applicable Laws; and (h) restrictions on transfer of securities imposed by applicable state and federal securities Laws.

“ Litigation ” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, inquiry, demand letter, governmental or other administrative proceeding, whether at law or at equity, before or by any Court, Governmental Authority, arbitrator or other tribunal.

“ Material Adverse Effect ” means any circumstance, change in, or effect on, the Business, Capital Partners or a Capital Partners Subsidiary that, individually or in the aggregate with any other circumstances, changes in, or effects on, the Business, Capital Partners or a Capital Partners Subsidiary: (a) is, or could be, materially adverse to the business, operations, assets or Liabilities (including, without limitation, contingent Liabilities), employee relationships, customer or supplier relationships, results of operations or the condition (financial or otherwise) of the Business, or (b) could materially adversely affect the ability of Capital Partners Surviving Corporation or the Capital Partners Subsidiaries to operate or conduct the Business in the manner in which it is currently operated or conducted, or contemplated to be conducted.

“ Members ” means the existing members of any of the Health Clubs.

 

 

 

“ Membership Contracts ” means the agreements evidencing the membership relationship between an individual Member on the one hand, and Capital Partners or a Capital Partners Subsidiary on the other hand.

“ Order ” shall mean any judgment, order, writ, injunction, ruling, stipulation, determination, award or decree of or by, or any settlement under the jurisdiction of, any Court or Governmental Authority.

“ Owned Real Property ” means the real property owned by Capital Partners or a Capital Partners Subsidiary, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of Capital Partners or a Capital Partners Subsidiary attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing.

“ Patents ” mean all national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications, including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations, and all rights therein provided by multinational treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application.

“ Payment to Capital Partners ” means the portion of the Bridge Loan paid to Capital Partners in order to fund a settlement payment to Jeremy Jaynes. The amount of the Payment to Capital Partners is $300,000.

“ Permits ” means any licenses, permits, pending applications, consents, certificates, registrations, approvals and authorizations.

“ Person ” means any natural person, corporation, limited liability company, unincorporated organization, partnership, association, joint stock company, joint venture, trust or any other entity.

“ Real Property ” means the Leased Real Property and the Owned Real Property.

“ Receivables ” means any and all accounts receivable, notes, book debts and other amounts due or accruing due to Capital Partners or a Capital Partners Subsidiary in connection with the Business whether or not in the ordinary course, together with any unpaid financing charges accrued thereon and the benefit of all security for such accounts, notes and debts.

“ Regulation ” means any rule or regulation of any Governmental Authority.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Shareholders ” means Randall Rohm and Thomas Flynn, the sole shareholders of Capital Partners.

 

 

 

“ Software ” means any and all (a) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (d) the technology supporting any Internet site(s) operated by or on behalf of Capital Partners or a Capital Partners Subsidiary and (e) all documentation, including user manuals and training materials, relating to any of the foregoing.

“ Subsidiary” or “Subsidiaries ” of a specified Person means any other Person in which such Person owns, directly or indirectly, more than 50% of the outstanding voting securities or other securities convertible into voting securities, or which may effectively be controlled, directly or indirectly, by such Person.

“ Tax ” or “ Taxes ” means any and all federal, state, local, or foreign taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or other taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, disability, social security, workers’ compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs’ duties, tariffs, and similar charges, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person, together with any interest or penalty, addition to tax or additional amount imposed by any governmental authority.

“ Tax Returns ” means returns, reports and information statements, including any schedule or attachment thereto, with respect to Taxes required to be filed with the IRS or any other Governmental Authority or other taxing authority or agency, domestic or foreign, including consolidated, combined and unitary tax returns.

“ Trademarks ” mean all trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, including all common law rights, and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, the Trademark Offices of the States and Territories of the United States of America, and the Trademark Offices of other nations throughout the world, and all rights therein provided by multinational treaties or conventions.

“ Web Sites ” means all websites, domain names, and associated internet properties, rights, titles and interests in any way directly or indirectly used in or associated with the Business, including but not limited to those certain web sites and domain names set forth on Schedule 8.2 , attached hereto.

 

 

 

“ Working Capital Infusion ” means the portion of the proceeds from the Bridge Loan, if any, used by Capital Partners for working capital. The Working Capital Infusion shall be equal to the total amount of the Bridge Loan, including all accrued and unpaid interest thereon, less the amount of the Payment to Capital Partners.

ARTICLE II

THE MERGER

. At the Effective Time (as hereinafter defined), in accordance with the laws of the State of North Carolina and the terms and conditions of the Documents, Capital Partners Mergeco shall be merged with and into Capital Partners. Pursuant to the Reverse Merger, Capital Partners shall continue to exist as the surviving corporation and the separate corporate existence of Capital Partners Mergeco shall cease. Immediately following the Reverse Merger, in accordance with the laws of the State of North Carolina and the terms and conditions of the Documents, Capital Partners shall be merged with and into Capital Partners Acquisitionco (the “ Forward Merger ” and together with the Reverse Merger, the “ Merger ”). From and after the Effective Time, the separate corporate existence of Capital Partners shall cease and Capital Partners Acquisitionco, as the surviving corporation in the Merger, shall continue its existence under the laws of the State of North Carolina as a wholly owned subsidiary of HPI. Capital Partners Acquisitionco, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the “ Capital Partners Surviving Corporation .” The parties intend the Merger (i.e., the Reverse Merger and the Forward Merger taken together as a single transaction) to be treated as a tax-free reorganization pursuant to Section 368(a)(2)(D) of the Code and Revenue Ruling 2001-46, 2001-2 C. B. 321; provided , however , that if the Merger is held not to qualify as a tax-free reorganization, the parties intend the Reverse Merger and the Forward Merger to be treated as separate transactions for income tax purposes not subject to the “step-transaction doctrine” pursuant to Revenue Ruling 90-95, 1990-2 C.B. 67.

2.2   Effective Time

. Subject to the provisions of this Agreement, on the Closing Date (as hereinafter defined) or as soon thereafter as is practicable the Parties shall cause each of the Forward Merger and the Reverse Merger to become effective by executing and filing with the office of the North Carolina Secretary of State, in accordance with the North Carolina Business Corporation Act, the Articles of Merger, in the forms required pursuant to Section 55-11-05 of the North Carolina Business Corporation Act (the “ North Carolina BCA ”), which forms shall be prepared by counsel to Capital Partners and HPI, and attached hereto as Exhibit 2.2 and made a part hereof (the “ Articles of Merger ”), the date and time of such filings, or such later date and time as may be agreed upon by the Parties and specified therein, being hereinafter referred to as the “ Effective Time .” The parties hereto shall use their best efforts to pre-clear the Forward Merger and the Reverse Merger with the Secretary of State of the State of North Carolina in order that on the Closing Date, the Articles of Merger may be filed with the Secretary of State of the State of North Carolina and become effective upon filing.

2.3   Effect of the Merger

. At the Effective Time, the Merger shall have the effect set forth in the Documents and in the applicable provisions of law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the assets, properties, rights, privileges, immunities, powers and franchises of Capital Partners, Capital Partners Mergeco and Capital Partners Acquisitionco shall vest in the Capital Partners Surviving Corporation, and all of the debts, liabilities and duties of Capital Partners, Capital Partners Mergeco and Capital Partners Acquisitionco shall become the debts, liabilities and duties of the Capital Partners Surviving Corporation.

 

 

 

2.4   Articles of Incorporation and Bylaws

. From and after the Effective Time and without further action on the part of the Parties, the Articles of Incorporation and Bylaws of Capital Partners Acquisitionco immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of Capital Partners Surviving Corporation until amended in accordance with the respective terms thereof.

2.5   Directors and Officers

.

(a)   The directors of Capital Partners Surviving Corporation shall be those persons set forth on Exhibit 2.5(a) each to hold office in accordance with the Articles of Incorporation and the Bylaws of Capital Partners Surviving Corporation, in each case, until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Capital Partners Surviving Corporation’s Articles of Incorporation and Bylaws.

(b)   The directors of HPI immediately following the Closing Date shall consist of Gerard Jacobs, Douglas Stukel and Lee Wiskowski. Each of the Shareholders agrees to deliver on the Closing Date the form of irrevocable proxy attached as Exhibit 2.5(b) to Gerard Jacobs, and HPI agrees to use its best efforts to add the following persons to the board of directors of HPI as soon as permitted under Rule 14f-1 of the Securities & Exchange Act of 1934: Edward Sampson, Vincent Mesolella, Dominic Ragosta and three additional persons designated by Gerard Jacobs in writing. Gerard Jacobs has agreed to accept appointment by the board of directors of HPI as its chairman and chief executive officer and either Mr. Stukel or Mr. Wiskowski is expected to accept appointment by the board of directors as the vice chairman of HPI.

 

 

 

2.6   Conversion of Stock, Etc

. At the Effective Time, by virtue of the Merger and without any action on the part of the Parties or the holders of the following securities: All of the shares of Capital Partners’ common stock (“ Capital Partners Common Stock ”) issued and outstanding immediately prior to the Effective Time and all legal or beneficial rights to participate in any fashion in the economic benefits of ownership of Capital Partners - other than any shares of Capital Partners Common Stock that are to be canceled and retired pursuant to Section 2.7 , and other than any options, warrants and other contractual or other rights to purchase or otherwise acquire or convert into Capital Partners Common Stock that are to be canceled and retired pursuant to Section 2.8 - (“ Capital Partners Shares ”) shall be converted automatically into the right to receive, in the aggregate: (i) Six Million Nine Hundred Ninety-Two Thousand Eight Hundred Fifty-Nine Dollars ($6,992,859) in cash (the “ Cash Consideration ”), and (ii) Three Million Four Hundred Ninety-Six Thousand Four Hundred Thirty (3,496,430) shares of HPI Common Stock (the “ Stock Consideration ”), and (iii) the Earnout defined in Section 9.1 , if earned (the “ Earnout Consideration ” and together with the Cash Consideration and the Stock Consideration, the “ Merger Consideration ”), subject to adjustment as set forth in Section 2.10 . As of the Effective Time, all shares of Capital Partners capital stock shall automatically be redeemed and canceled, and from and after the Effective Time, shall cease to exist, and each holder of a certificate that previously represented any such share of Capital Partners capital stock (collectively, the “ Capital Partners Certificates ”) shall cease to have any rights with respect thereto other than the right to receive, if any, their portion of the Merger Consideration. The foregoing Merger Consideration shall be deemed to have been issued in full satisfaction of all rights pertaining to the Capital Partners Shares, and after the Effective Time, there shall be no further registration or transfers of Capital Partners Shares. If after the Effective Time, any Capital Partners Certificates are presented to Capital Partners Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 2.6 . If any Capital Partners Certificates representing Capital Partners Shares shall have been lost, stolen or destroyed, HPI shall pay the applicable Merger Consideration in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of such loss by the holder thereof. In addition to the affidavit, HPI may in its discretion and as a condition precedent to the payment of the applicable Merger Consideration, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against HPI or Capital Partners Surviving Corporation with respect to the certificates alleged to have been lost, stolen or destroyed. Notwithstanding anything to the contrary contained herein, the parties hereto agree that no portion of the Cash Consideration is required to be paid at the Closing. The parties shall proceed with the mergers contemplated by this Section 2.6 provided that HPI agrees to continue with the HPI Offering following the Closing and provided further that it delivers to each of the Shareholders a promissory note from HPI in the principal amount of such Shareholder’s respective portion of the Cash Consideration, including any cash to be issued in lieu of fractional shares if HPI determines not to issue fractional shares as part of the Stock Consideration (the “ Shareholder Notes ”). The Shareholder Notes shall mature on the earlier of June 30, 2006 or such time as HPI shall have raised capital sufficient to fund the entire amount of the Cash Consideration (the “ Maturity Date ”). The Shareholder Notes shall accrue simple interest at the rate of five percent (5%) per annum for the first sixty (60) days after the Closing Date and after such sixtieth (60 ^th ) day through the Maturity Date, shall accrue simple interest at the rate of ten percent (10%) per annum. The Shareholder Notes shall provide for payment of principal plus all accrued interest on the Maturity Date and shall entitle HPI to offset any claims for indemnification against a Shareholder under this Agreement against payments due to such Shareholder under the Shareholder Notes. Finally, the Shareholder Notes shall provide that in the event Edward Sampson purchases up to $1,000,000 of HPI Common Stock as part of the HPI Offering, the Shareholders shall be entitled to put to HPI, at a put price specified in the Shareholder Notes, up to that number of shares of HPI Common Stock as would cumulatively total the subscription amount received by HPI from Edward Sampson.

 

 

 

2.7   Cancellation of Shares

. Immediately prior to the Effective Time, each share of Capital Partners Common Stock either held in Capital Partners’ treasury or owned by any direct or indirect wholly-owned subsidiary of Capital Partners immediately prior to the Effective Time, shall be canceled and extinguished without any conversion thereof or payment therefor.

2.8   Stock Options; Warrants

. Prior to the Effective Time, Rohm, at Rohm’s sole expense, shall take all actions necessary to cause all capital stock of Capital Partners other than the Capital Partners Common Stock held by the Shareholders and being exchanged for the Merger Consideration in accordance with Section 2.6 , and all options, warrants and other contractual or other rights to purchase or otherwise acquire or convert into Capital Partners Common Stock, to be cancelled, extinguished and terminated.

2.9   Capital Stock of Acquisitionco

. Each share of common stock of Capital Partners Acquisitionco (“ Capital Partners Acquisitionco Common Stock ”) issued and outstanding immediately prior to the Effective Time shall be converted automatically into one fully paid and non-assessable share of common stock of the Capital Partners Surviving Corporation. From and after the Effective Time, each stock certificate of Capital Partners Acquisitionco that previously represented shares of Capital Partners Acquisitionco Common Stock shall evidence ownership of an equal number of shares of common stock of the Capital Partners Surviving Corporation.

2.10   Adjustments to the Consideration

. Without limiting any other provision of this Agreement:

(a)   If and in the event that on the Closing Date any of the following shall have occurred, then the Cash Consideration shall be adjusted downward dollar-for-dollar, by the amount necessary to remedy the following:

(1)   The amount of current assets minus current liabilities of Capital Partners is less at the Closing Date than as set forth on the September 30, 2005 balance sheet of the Predecessor Entity included within the Interim Financial Statements ( i.e. , the Cash Consideration reduction will equal the amount necessary to bring the current assets minus current liabilities differential to be equal as of the Closing Date to that on September 30, 2005);

(2)   The Stockholders’ Deficit of Capital Partners as of the Closing Date is greater than the Stockholders’ Deficit as set forth on the September 30, 2005 balance sheet of the Predecessor Entity included within the Interim Financial Statements ( i.e. , the Cash Consideration reduction will equal the amount of the increase in the Stockholders’ Deficit for such period); and

(3)   Any of the following two entries on the balance sheet of the Predecessor Entity included within the Interim Financial Statements have not been paid in full with cash proceeds provided by Rohm or his designees on behalf of the obligor to the Predecessor Entity or Capital Partners (with no obligation of the Predecessor Entity or Capital Partners to repay any of the funds so provided): Related Party Receivables - $206,700; and Advances to Stockholders: $129,800 ( i.e. , the Cash Consideration reduction in an amount to eliminate the above receivables and advances).

 

To the extent a Cash Consideration reduction per subparagraph (1), (2) or (3) is made, then the value of such reduction shall be credited toward computation of the test in the other subparagraphs.

(b)   Intentionally Omitted.

(c)   The Cash Consideration shall be adjusted downward, dollar-for-dollar, by the amount of any cash or other assets taken out of Capital Partners by the Shareholders after September 30, 2005, other than expense reimbursements or salaries based upon annualized rates of $200,000 for Rohm and $50,000 for Flynn, respectively, or any Payment to Capital Partners.

(d)   The Stock Consideration shall be adjusted, at any time and from time to time prior to the Closing Date, to fully reflect the effect of any stock split, reverse split, stock dividend (including, without limitation, any dividend or distribution of securities convertible into HPI Common Stock), reorganization, recapitalization or other like change with respect to HPI Common Stock effective between the date of this Agreement and the Closing Date.

(e)   The Cash Consideration shall be reduced by the amount of the unpaid balance of the Bridge Loan, including all principal and interest as of the Closing Date.

2.11   Taking of Necessary Action; Further Action

. If, at any time and from time to time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest in the Capital Partners Surviving Corporation full right, title and possession of all properties, assets, rights, privileges, powers and franchises of Capital Partners, Capital Partners Mergeco and Capital Partners Acquisitionco, the officers and directors of Capital Partners and the Capital Partners Surviving Corporation shall be and are fully authorized and directed, in the name of and on behalf of their respective corporations, to take, or cause to be taken, all such lawful and necessary action as is not inconsistent with this Agreement. HPI shall cause the Capital Partners Merger Subs to perform all of their obligations relating to this Agreement and the transactions contemplated hereby.

ARTICLE III

CONSIDERATION; CLOSING

3.1   Consideration.

(a)   As consideration for the Merger, the Shareholders shall be entitled to receive the Merger Consideration as set forth in Section 2.6 attached hereto, as adjusted pursuant to Section 2.10 hereof.

(b)   All certificates representing HPI Common Stock issued pursuant to this Agreement shall bear a legend stating that such HPI Common Stock has not been registered under the Securities Act, and may not be transferred or sold without such registration or an exemption therefrom.

 

 

 

3.2   Closing

. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Shefsky & Froelich Ltd., 111 E. Wacker Drive, Suite 2800, Chicago, Illinois, 60601 at 9:30 A.M. CST on February 13, 2006, or at such other place or time or on such other date as the Parties may agree upon in writing (the day on which the Closing takes place being the “ Closing Date ”).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF

THE SHAREHOLDERS AND CAPITAL PARTNERS

The Capital Partners Disclosure Schedule attached hereto (the “ Disclosure Schedule ”) identifies by Section and Subsection any exception to a representation or warranty in this Article IV . In order to induce HPI and the Capital Partners Merger Subs (together, the “ HPI Entities ”) to enter into this Agreement and to consummate the transactions contemplated hereby, the Shareholders and Capital Partners each hereby jointly and severally represent and warrant to each of the HPI Entities as follows:

4.1   Organization and Qualification

. Capital Partners is a corporation duly organized, validly existing and in good standing under the laws of State of North Carolina, and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed on Schedule 4.1 , such jurisdictions being the only jurisdictions in which the failure to be so licensed or qualified could have a Material Adverse Effect on Capital Partners. Each of the Capital Partners Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the State of North Carolina, and is not required to be licensed or qualified to transact business in any other jurisdiction. All of the issued and outstanding shares of Capital Partners’ capital stock were issued in compliance in all material respects with all applicable federal and state securities laws and are owned solely by the Shareholders.

4.2   Subsidiaries and Affiliates

. Except for the Capital Partners Subsidiaries listed on Schedule 4.2 , Capital Partners does not have any Subsidiaries, and, except as described on Schedule 4.2 , Capital Partners does not own, directly or indirectly, any equity or other ownership interests of any Person. Except under this Agreement, Capital Partners has no obligation to purchase any interest, or make any investment, in any Person. All of the capital stock, membership interests or other equity interests of each Capital Partners Subsidiary were issued in compliance in all material respects with all applicable federal and state securities laws. Capital Partners owns all of the equity interests of each Capital Partners Subsidiary.

4.3   Charter, By-Laws and Corporate Records.

(a)   True, correct and complete copies of each of (i) the Articles of Incorporation of Capital Partners as amended and in effect on the date hereof, (ii) the By-Laws of Capital Partners as amended and in effect on the date hereof, and (iii) the minute books of Capital Partners, have been previously made available to the HPI Entities. Such minute books contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and stockholders of Capital Partners from the date of its incorporation to the date hereof.

 

 

(b)   True, correct and complete copies of each of (i) the Articles of Incorporation, Articles of Organization or similar instrument of each Capital Partners Subsidiary, as amended and in effect on the date hereof, (ii) the By-laws, Operating Agreement or Limited Liability Company Agreement of each Capital Partners Subsidiary, as amended and in effect on the date hereof, and (iii) the minute books of any Capital Partners Subsidiary or any resolutions or other minutes of such Capital Partners Subsidiary, have been previously made available to the HPI Entities. The minute books and resolutions contain complete and accurate records of all meetings and other corporate or limited liability company actions of the board of directors, committees of the board of directors, managers, members, incorporators and stockholders of such Capital Partners Subsidiary from its date of formation to the date hereof.

4.4   Authorization; Enforceability

. Capital Partners and each Capital Partners Subsidiary has the corporate or limited liability company power and authority to own, hold, lease and operate its respective properties and assets and to carry on its respective business as currently conducted. Capital Partners has the corporate power and authority to execute, deliver and perform this Agreement and the other Documents to which it is a party. The execution, delivery and performance of this Agreement and the other Documents to which Capital Partners, or any of the Shareholders is a party and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by Capital Partners, and by each of the Shareholders, and no other action on the part of Capital Partners, or any of the Shareholders is necessary in order to give effect thereto. This Agreement and each of the other Documents to be executed and delivered by Capital Partners, and by each of the Shareholders, have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, Capital Partners and each of the Shareholders, respectively, enforceable against Capital Partners and each of the Shareholders in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.

4.5   No Violation or Conflict

. Except as provided in Schedule 4.5 , none of (a) the execution and delivery by Capital Partners, or any of the Shareholders of this Agreement and the other Documents to be executed and delivered by Capital Partners or any of the Shareholders, (b) the consummation by Capital Partners or any of the Shareholders of the transactions contemplated by this Agreement and the other Documents, or (c) the performance of this Agreement and the other Documents required by this Agreement to be executed and delivered by Capital Partners or any of the Shareholders at the Closing, will (1) conflict with or violate the Articles of Incorporation or By-Laws of Capital Partners or the Articles of Incorporation, Articles of Organization, By-laws, Operating Agreement or similar instrument for any of the Capital Partners Subsidiaries, (2) conflict with or violate any Law, Order or Permit applicable to Capital Partners, the Shareholders or any Capital Partners Subsidiary, or by which Capital Partners’ or any Capital Partners Subsidiary’s properties is bound or affected, or (3) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Capital Partners’ or any Capital Partners Subsidiary’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the properties or assets of Capital Partners or any Capital Partners Subsidiary pursuant to, any Contract, Permit or other instrument or obligation to which Capital Partners or any Capital Partners Subsidiary is a party or by which Capital Partners or any Capital Partners Subsidiary or their respective properties are bound or affected except, in the case of clause (2) or (3) above, for any such conflict, breach, violation, default or other occurrence that would not individually or in the aggregate, have a Material Adverse Effect on Capital Partners or any Capital Partners Subsidiary.

 

 

4.6   Governmental Consents and Approvals

. The execution, delivery and performance of this Agreement and the other Documents by Capital Partners and the Shareholders do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.

4.7   Capital Structure

. The authorized capital stock of Capital Partners consists of 100,000 shares of Capital Partners Common Stock. As of the date hereof, 1,066 shares of Capital Partners Common Stock are issued and outstanding, all of which are owned solely by the Shareholders free and clear of all Liens, and no shares of Capital Partners Common Stock are held in treasury. Except as described above, there will be no shares of voting or non-voting capital stock, equity interests or other securities of Capital Partners authorized, issued, reserved for issuance or otherwise outstanding at the Closing. All of the outstanding shares of Capital Partners Common Stock are duly authorized, validly issued, fully paid and non-assessable, and not subject to, or issued in violation of, any kind of preemptive, subscription or any kind of similar rights. There are no bonds, debentures, notes or other Indebtedness of Capital Partners having the right to vote (or convertible into securities having the right to vote) on any matters on which stockholders of Capital Partners may vote. There are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind (contingent or otherwise) to which Capital Partners or any Capital Partners Subsidiary is a party or bound obligating Capital Partners or such Capital Partners Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of Capital Partners or such Capital Partners Subsidiary or obligating Capital Partners or such Capital Partners Subsidiary to issue, grant, extend or enter into any agreement to issue, grant or extend any security, option, warrant, call, right, commitment, agreement, arrangement or undertaking that will survive the Closing. There are no outstanding contractual obligations of Capital Partners or any Capital Partners Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock (or options to acquire any such shares) or other security or equity interest of Capital Partners or such Capital Partners Subsidiary which will survive the Closing.

4.8   Financial Statements.

(a)   Attached hereto as Schedule 4.8 are copies of the audited consolidated balance sheet of the Predecessor Entity and the Capital Partners Subsidiaries as of December 31, 2003 and December 31, 2004, together with, in each case, the related consolidated statements of operations and the consolidated statements of changes in stockholders equity and the consolidated statements of cash flow, for the year ended on such dates (collectively, the “ Annual Financial Statements ”). The Annual Financial Statements are correct and complete and in accordance with the books and records of the Predecessor Entity and the Capital Partners Subsidiaries and fairly present, in accordance with GAAP, in all material respects the financial condition of the Predecessor Entity and the Capital Partners Subsidiaries as of the dates indicated therein and accurately reflect in the aggregate all material aspects of the Business.

(b)   Also attached hereto as Schedule 4.8 is a copy of the unaudited consolidated balance sheet of the Predecessor Entity and the Capital Partners Subsidiaries for the nine month period ended as of September 30, 2005, together with, in each case, the related consolidated statement of operations (unaudited), the consolidated statement of changes in stockholders’ equity (unaudited) and the consolidated statement of cash flows (unaudited) for the period ended September 30, 2005 (collectively, the “ Interim Financial Statements ” and, together with the Annual Financial Statements, the “ Financial Statements ”). The Interim Financial Statements are correct and complete and in accordance with the books and records of the Predecessor Entity and the Capital Partn