UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip code) |
| ( | |
| (Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company |
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
As of August 22, 2022, the registrant had shares of common stock outstanding.
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NUTEX HEALTH INC.
FORM 10-Q
TABLE OF CONTENTS
| Introductory Note | ||
| Note About Forward-Looking Statements | ||
| Part I — Financial Information | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 |
| Item 4. | Controls and Procedures | 41 |
| Part II — Other Information | ||
| Item 1. | Legal Proceedings | 42 |
| Item 1A. | Risk Factors | 42 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 67 |
| Item 3. | Defaults upon Senior Securities | 68 |
| Item 4. | Mine Safety Disclosures | 68 |
| Item 5. | Other Information | 68 |
| Item 6. | Exhibits | 69 |
| 2 |
INTRODUCTORY NOTE
Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.), a Delaware corporation, and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”) and “Nutex” refers to Nutex Health Inc.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, changes in laws or regulations, any statements about our business (including the impact of the COVID-19 pandemic on our business), financial condition, operating results, plans, objectives, expectations and intentions, any guidance on, or projections of, earnings, revenue or other financial items, or otherwise, and our future liquidity, including cash flows; any statements of any plans, strategies, and objectives of management for future operations, such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers or acquisitions; or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases, or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.
Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations, and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes, and results to differ materially from those indicated by such statements. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
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NUTEX HEALTH INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable - related parties | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating right-of-use assets | ||||||||
| Financing right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related parties | ||||||||
| Lines of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Financing lease liabilities, current portion | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Operating lease liabilities, net | ||||||||
| Financing lease liabilities, net | ||||||||
| Deferred tax liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Nutex Health Inc. equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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NUTEX HEALTH INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Hospital division | $ | $ | $ | $ | ||||||||||||
| Population health management division | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Payroll | ||||||||||||||||
| Contract services | ||||||||||||||||
| Medical supplies | ||||||||||||||||
| Insurance expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Corporate cost: | ||||||||||||||||
| Acquisition costs | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total corporate cost | ||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||
| Interest expense | ||||||||||||||||
| Other expense (income) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) before taxes | ( | ) | ||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Less: net income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Nutex Health Inc. | $ | ( | ) | $ | $ | $ | ||||||||||
| Earnings (loss) per common share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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NUTEX HEALTH INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-in | Retained | Noncontrolling | Total | |||||||||||||
| Shares | Amount | Capital | Earnings | Interests | Equity | ||||||||||||
| Balance at January 1, 2021 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
| Contributions | - | |
|
| |||||||||||||
| Distributions | - | ( |
( |
( | |||||||||||||
| Net income | - | |
|
| |||||||||||||
| Balance at March 31, 2021 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
| Contributions | - | |
|
| |||||||||||||
| Distributions | - | ( |
( |
( | |||||||||||||
| Net income | - | |
|
| |||||||||||||
| Balance at June 30, 2021 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
| Balance at January 1, 2022 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
| Contributions | - | |
| ||||||||||||||
| Distributions | - | ( |
( |
( | |||||||||||||
| Net income | - | |
|
| |||||||||||||
| Balance at March 31, 2022 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
| Reverse acquisition with Clinigence | |
|
|
|
| ||||||||||||
| Notes payable converted to common stock | |
|
|
| |||||||||||||
| Common stock issued for exercise of warrants | |
|
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| Common stock issued for exercise of options | |
|
|
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| Restricted stock awards issued for compensation | |
|
|
| |||||||||||||
| Deconsolidation of Real Estate Entities | - | ( |
( |
( | |||||||||||||
| Contributions | - | |
| ||||||||||||||
| Distributions | - | ( |
( |
( | |||||||||||||
| Net loss | - | ( |
( |
( | |||||||||||||
| Balance at June 30, 2022 | |
$ | |
$ | |
$ | |
$ | |
$ | | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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NUTEX HEALTH INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustment to reconcile net income to net cash from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Other income - gain on PPP loan forgiveness | ( | ) | ||||||
| Deferred tax expense | ||||||||
| Debt accretion expense | ||||||||
| Non-cash lease expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accounts payable - related party | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Net cash from operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Acquisitions of property and equipment | ( | ) | ( | ) | ||||
| Acquired cash in reverse acquisition with Clinigence | ||||||||
| Cash related to deconsolidation of Real Estates Entities | ( | ) | ||||||
| Net cash from investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from lines of credit | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments of lines of credit | ( | ) | ( | ) | ||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Repayments of finance leases | ( | ) | ( | ) | ||||
| Common stock issued for exercise of warrants | ||||||||
| Common stock issued for exercise of options | ||||||||
| Members' contributions | ||||||||
| Members' distributions | ( | ) | ( | ) | ||||
| Net cash from financing activities | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents - beginning of the period | ||||||||
| Cash and cash equivalents - end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition of financing leases | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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NUTEX HEALTH INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Organization and Operations
Nutex Health Inc. (“Nutex Health” or the “Company”), is a physician-led, technology-enabled healthcare services company with 21 hospital facilities in eight states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates different innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.
We employ approximately 1,500 employees and partner with over 800 physicians. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.
Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. On April 1, 2022, the merger (the “Merger”) of Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) was completed pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) entered on November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex Health Holdco LLC.
In
connection with the Merger Agreement, Nutex Health Holdco LLC entered into certain Contribution Agreements with holders of equity interests
(“Nutex Owners”) of subsidiaries and affiliates (the “Nutex Subsidiaries”) pursuant to which such Nutex Owners
agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex Health Holdco LLC in exchange for specified equity interests
in Nutex Health Holdco LLC (collectively, the “Contribution Transaction”). Nutex owners having ownership interests representing
approximately
Pursuant to the Merger Agreement, each unit representing an equity interest in Nutex Health Holdco LLC issued and outstanding immediately prior to the effective time of the Merger but after the Contribution Transaction (collectively, the “Nutex Membership Interests”) was converted into the right to receive 3.571428575 shares of common stock of Clinigence, or an aggregate of shares of common stock of Clinigence.
Potential
Future Stock Issuances. Under the terms of the Contribution Agreements, contributing owners of the under-development hospitals and
ramping hospitals are eligible to receive a one-time additional issuance of Company common stock based on their trailing twelve months
earnings before interest, taxes, depreciation and amortization as determined on the 24th anniversary of their respective opening, adjusted
for the aggregate amount of such owner’s capital contribution minus such owner’s pro rata share of the aggregate debt of
the applicable hospital outstanding as of the closing of the Merger.
After completing the merger, Clinigence was renamed Nutex Health Inc.
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Lock-up agreements. Also on April 1, 2022, each member of Nutex Health Holdco LLC entered into a Lock-up agreement agreeing not to, without the prior written consent of the Company and except in limited circumstances (i) offer, pledge, sell, contract to sell, sell any option or contract purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of their shares of Company common stock received in the merger or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of such shares.
The lock-up restrictions terminate with respect to one-third of the shares of Company Common Stock issued in connection with the merger immediately following each of (i) six months after the effective time of the merger, (ii) twelve months after the effective time of the merger and (iii) eighteen months after the effective time of the merger.
Registration rights agreement. Pursuant to a registration rights agreement dated as of April 1, 2022 and amended effective as of July 1, 2022, the Company agreed to file a resale registration statement to register the shares of Company common stock issued in the merger as promptly as possible but in no event more than three months following the effective time of the merger with such deadline not to apply if the Company qualifies as a well-known seasoned issuer (as defined in Rule 405 of the Securities Act) and to use its commercially reasonable efforts to have it declared effective no later than six months after the effective time of the merger.
The registration rights agreement terminates on the earlier of (i) the date when there are no shares subject to the agreement or (ii) the dissolution or liquidation of the Company.
Note 2 - Summary of Significant Accounting Policies
Basis of presentation. The merger of Nutex Health Holdco LLC and Clinigence was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer in accordance with ASC 805, Business Combinations, and Clinigence as the accounting acquiree. Our financial statements presented for periods prior to the merger date are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. Subsequent to the merger date, our financial statements are presented on a consolidated basis including Clinigence.
The assets, including identified intangible assets, and liabilities of Clinigence were recorded at their fair values with the excess purchase price recorded as goodwill. The financial statements reflect the merger as the equivalent of the issuance of common stock for the net monetary assets of Clinigence. The accounting for the merger did not affect the carrying values of the assets and liabilities of Nutex Health Holdco LLC.
Equity of the accounting acquirer, Nutex Health Holdco LLC, has been retroactively restated for the equivalent number of shares issued to the accounting acquirer. Similarly, shares outstanding and earnings per share have been also retroactively restated based on the equivalent number of shares issued to the accounting acquirer.
These financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.
The hospital division includes our healthcare billing and collections company and hospital entities. In addition, we have financial and operating relationships with multiple professional entities (the “Physician LLCs”) and real estate entities (the “Real Estate Entities”). The Physician LLCs employ the doctors who work in our hospitals. These entities are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to the Physician LLCs in the event of cash shortages and received the benefit of their cash surpluses.
The Real Estate Entities own the land and hospital buildings which are leased to our hospital entities. The consolidated Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. The Real Estate Entities are consolidated by the Company as VIEs because they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. During the second quarter of 2022, we deconsolidated 17 Real Estate Entities.
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The
Company has no direct or indirect ownership interest in the Physician LLCs or Real Estate Entities, so
The population health management division includes our management services organizations and a healthcare information technology company providing a cloud-based platform for healthcare organizations. In addition, Associated Hispanic Physicians of So. California (“AHISP”), an IPA entity that is not owned by us, but is consolidated as a VIE of our wholly-owned subsidiary of AHP Management Health Services Inc. (“AHP”) since AHP is the primary beneficiary of its operations and has 100% control of AHISP’s operations through its management services agreement with AHISP.
All significant intercompany balances and transactions have been eliminated in consolidation.
Interim financial statements. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated financial statements include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods presented. These interim financial statements should be read together with the consolidated financial statements and notes thereto included in our audited financial statements for the years ended December 31, 2021 and 2020.
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include (i) estimates of net revenue and accounts receivable and (ii) impairment of long-lived assets and goodwill. Actual results could differ from those estimates.
Revenue recognition.
Hospital division – Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid). The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Net patient service revenues are recorded at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient care. These amounts are net of appropriate discounts giving recognition to differences between the Company’s charges and reimbursement rates from third party payors.
Patient service net revenues earned by the Company are recognized at a point in time when the services are provided, net of adjustments and discounts. Because all the Company’s performance obligations relate to contracts with a duration of less than one-year, certain disclosures are limited.
The transaction price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors, discounts and implicit price concessions provided primarily to uninsured patients in accordance with the Company’s policy. For uninsured patients, the Company recognizes revenue based on established rates, subject to certain discounts and implicit price concessions. The Company is reimbursed from third party payors under various methodologies based on the level of care provided. We are considered “out-of-network” with commercial health plans. As there are no contractual rates established with insurance entities, revenues are estimated based on the “usual and customary” charges allowed by insurance payors using historical collection experience, historical trends of refunds and payor payment adjustments (retractions). Revenue from the Medicare program is based on reimbursement rates set by governmental authorities.
| 10 |
Patients who have health care insurance may also have discounts applied related to their copayment or deductible. Estimates of contractual adjustments and discounts are determined by major payor classes for outpatient revenues based on historical experience. The Company estimates implicit price concessions based on its historical collection experience with these classes of patients using a portfolio approach. The portfolios consist of major payor classes for outpatient revenue. Based on historical collection trends and other analyses, the Company concluded that revenue for a given portfolio would not be materially different than if accounting for revenue on a contract-by-contract basis.
Customer payments are due upon receipt of an explanation of benefits for insured patients or it is due upon receipt of the bill from the Company for uninsured payments. There is no financing component associated with payments due from insurers or patients.
Population health management division – The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology.
Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements are made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs.
We receive management fees that are received based on gross capitation revenues of the IPAs or physician groups we manage. Revenue is recognized and received monthly for our services. In addition, we provide consultant services that are charged as a flat fixed rate and recognized as revenue when the service is performed. Consultant services revenues represent a small portion of our total revenue.
Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis. Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.
SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.
Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations are reported as deferred revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties.
Cash
and cash equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be
cash and cash equivalents. The Federal Deposit Insurance Corporation generally insures deposit accounts up to $
Inventories. Inventories, which consist primarily of medical supplies and pharmaceuticals, are valued at the lower of cost or net realizable value. Cost is determined using first-in, first-out method.
Property and equipment. Property and equipment are recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets or the remaining lease terms of the leased assets, if shorter. Expenditures for additions, major renewal, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income. Depreciation is not recorded for assets under construction until the asset is placed in service.
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Intangible assets. Intangible assets include hospital operating licenses having indefinite lives; and acquired technology, relationships and trademark intangibles each having definite lives. Indefinite lived intangible assets are not amortized but instead are assessed for impairment at least annually, or when certain indicators of impairment exist on an interim basis. Definite lived intangible assets are amortized using the straight-line method over the estimated lives of the respective assets.
Goodwill. Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is not amortized but instead is evaluated for impairment at the same time every year and when an event occurs or circumstances change such that it is more likely than not that impairment may exist. The Company performs its annual testing of impairment for goodwill in the fourth quarter of each year.
Long-lived assets. The Company assesses the valuation of components of its property and equipment and other long-lived assets whenever events or circumstances indicate that the carrying value might not be recoverable. The Company bases its evaluation on indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, the Company determines whether an impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for which identifiable cash flows exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset is less than the carrying value of the asset, the Company recognizes a loss for the difference between the carrying value of the asset and its estimated fair value, generally measured by the present value of the estimated cash flows.
The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock options and warrants. The Black-Scholes option pricing model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock, the risk-free interest rate at the date of grant, the expected vesting term of the grant, expected dividends, and an assumption related to forfeitures of such grants. Changes in these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options and warrants.
Leases. Leases are capitalized on the Company’s balance sheet through recognition of a liability for the discounted present value of future fixed lease payments and a corresponding right-of-use (“ROU”) asset. The ROU asset recorded at commencement of the lease represents the right to use the underlying asset over the lease term in exchange for the lease payments. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company’s incremental borrowing rate is utilized. The Company calculates its incremental borrowing rate on a quarterly basis using a third-party financial model that estimates the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Short-term leases which have an initial term of 12 months or less and do not have an option to purchase the underlying asset that is deemed reasonably certain to be exercised, are not recorded on the balance sheet. Rent expense for these short-term leases is recognized on a straight-line basis over the lease term, or when incurred if a month-to-month lease.
Convertible instruments. The Company bifurcates conversion options from their host instruments and account for them as free-standing derivative financial instruments when (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
| 12 |
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Noncontrolling interests. Noncontrolling interests (“NCI”) represent the portion of net assets in consolidated entities that are not owned by the Company. NCI is presented as a component of total equity in the consolidated balance sheets and the share of net income or loss attributable to non-controlling interests is shown as a component of net income in the consolidated statements of operations.
Fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We classify fair value balances based on the classification of the inputs used to calculate the fair value of a transaction. The three levels related to fair value measurements are as follows:
Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The estimated fair value of accounts receivable, accounts payable, accrued expenses and notes payable approximate the carrying amount due to the relatively short maturity or time to maturity of these instruments. Accounts receivable and payable with related parties may not be arms-length transactions and therefore, may not reflect fair value.
Advertising and marketing expense. The company advertising and marketing expense consists of expense associated with marketing the company's brand and services via media outlets such as social medias and billboard signs publications.
Income taxes. We account for income taxes under the asset and liability method, in which deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statements of operations during the period in which the tax rate change becomes law. A valuation allowance against deferred tax assets is established if it is more likely than not that the related tax benefits will not be realized. In determining the appropriate valuation allowance, we consider the projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.
Each of the VIEs and other entities that are not wholly-owned are pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes is provided in the consolidated statements of operations for the noncontrolling interests associated with these entities.
| 13 |
We file tax returns in the U.S. and various state jurisdictions. With few exceptions, our returns for periods prior to 2017 are no longer subject to examination by tax authorities in these jurisdictions. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. If a tax position meets the “more likely than not” recognition criteria, accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement. We record income tax related interest and penalties, if any, as a component in the provision for income tax expense.
Business combinations. The Company accounts for business combinations under the acquisition method of accounting. Under this method, identifiable assets acquired, the liabilities assumed, and any noncontrolling interest are recognized at their estimated fair values at the acquisition date. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Transaction costs are expensed as incurred.
Segment reporting. A public company is required to report descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet established criteria. The Company operates three reportable segments – the hospital division, the population health management division and the real estate division. The real estate division is comprised of the Real Estate Entities.
Variable interest entities. On an ongoing basis, as circumstances indicate the need for reconsideration, the Company evaluates each legal entity that is not wholly-owned by the Company in accordance with the consolidation guidance. The evaluation considers all of the Company’s variable interests, including equity ownership, as well as management services agreements. A legal entity is determined to be a VIE if it (i) does not have sufficient equity to finance its activities without additional subordinated financial support; (ii) the entity is established with non-substantive voting rights; or (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest. If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary.
The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company – that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.
Refer to Note 18 – “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the Company’s consolidated VIEs. If there are variable interests in a VIE but the Company is not the primary beneficiary, the Company may account for the investment using the equity method of accounting.
| 14 |
Reclassifications. Financial statements presented for prior periods include reclassifications that were made to conform to the current year presentation.
Recent accounting pronouncements. There are no new accounting pronouncements that are expected to have a material impact on the condensed consolidated financial statements.
Note 3 - Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc.
The merger of Nutex Health Holdco LLC and Clinigence was completed pursuant to the Merger Agreement on April 1, 2022. As discussed above, the merger was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer and Clinigence as the accounting acquiree.
The fair value of purchase consideration transferred on the closing date includes the value of the shares of the combined company owned by Clinigence shareholders at closing of the merger and the fair value of Clinigence’s outstanding and exercisable common stock options and warrants as determined using a Black-Scholes valuation model. The fair value per share of Clinigence’s common stock was $6.40; its traded closing price on April 1, 2022. Total consideration in the merger is shown below:
| Fair value of Clinigence common shares at $6.40 per share | $ | |||
| Fair value of Clinigence outstanding common stock options and warrants | ||||
| Total consideration | $ |
The following is a preliminary estimate of the allocation of the total purchase consideration to acquired assets and assumed liabilities including the fair value of identified intangible assets as determined by independent valuation (a level 3 measurement):
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment, net | ||||
| Right of use asset, net | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Convertible notes payable, net | ( | ) | ||
| Term note payable | ( | ) | ||
| Lease liability | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Assets acquired | $ |
The
intangible assets denoted above each have definite lives. These intangible assets are being amortized over their estimated useful lives
of
The
results of operations of Clinigence have been included in the Company’s consolidated financial statements since the April 1, 2022
merger date. We expensed $
Supplemental Pro Forma Information – The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the merger with Clinigence had been completed on the date indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.
| 15 |
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2021, to give effect to certain events that management believes to be directly attributable to the acquisition. These pro forma adjustments primarily include an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets.
The supplemental pro forma financial information for the periods presented is as follows:
| Three months ended June 30 | Six months ended June 30 | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenue | $ | |
$ | |
$ | |
$ | | ||||
| Net income (loss) attributable to Nutex Health Inc. | ( |
|
( |
| ||||||||
The
pro forma adjustment included in the pro forma loss above for the six months ended June 30, 2022 included $
Note 4 – Revenue
We disaggregate revenue from contracts with customers into types of services or products, consistent with our reportable segments, as follows:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Hospital Division: | ||||||||||||||||
| Net patient service revenue | $ | $ | $ | $ | ||||||||||||
| Management fees | ||||||||||||||||
| Total Hospital Division revenue | ||||||||||||||||
| Population Health Management Division: | ||||||||||||||||
| Capitation revenue, net | ||||||||||||||||
| SaaS revenue | ||||||||||||||||
| Management fees | ||||||||||||||||
| Total Population Health Management Division revenue | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
Net patient service revenue. We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 90% of our net patient service revenue is paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. The following tables present the allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Insurance | % | % | % | % | ||||||||||||
| Self pay | % | % | % | % | ||||||||||||
| Workers compensation | % | % | % | % | ||||||||||||
| Medicare/Medicaid | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
| 16 |
Contract
balances. Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations as deferred
revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual
performance obligations through providing its customers access to specified data through subscriptions for a service period, and training
on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds,
rights of return, or warranties. Deferred revenue is presented as current liabilities and totaled $
Note 5 - Property and Equipment
The principal categories of property and equipment are summarized as follows:
| Useful lives (yrs) | June 30, 2022 | December 31, 2021 | ||||||||||
| Buildings and improvements | $ | $ | ||||||||||
| Land | — | |||||||||||
| Leasehold improvements | ||||||||||||
| Construction in progress | — | |||||||||||
| Medical equipment | ||||||||||||
| Office furniture and equipment | ||||||||||||
| Computer hardware and software | ||||||||||||
| Vehicles | ||||||||||||
| Signage | ||||||||||||
| Total cost | ||||||||||||
| Less: accumulated depreciation | ||||||||||||
| Total property and equipment, net | $ | 67,822,682 | $ | |||||||||
In the second quarter of 2022, we deconsolidated 17 Real Estate Entities. Refer to note 18.
Note 6 – Intangible Assets
The following tables provide detail of the Company’s intangible assets:
| As of June 30, 2022 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Useful Life (in years) | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Member relationships | $ | $ | ( | ) | $ | |||||||||||
| Management contracts | ( | ) | ||||||||||||||
| Customer contracts | ( | ) | ||||||||||||||
| Trademarks | ( | ) | ||||||||||||||
| PHP technology | ( | ) | ||||||||||||||
| Indefinite life intangible - license | — | |||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Indefinite life intangible - license | $ | $ | $ | — | ||||||||||||
Amortization
expense for the three months ended June 30, 2022 and 2021 totaled $
| 17 |
Note 7 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Accrued wages and benefits | $ | $ | ||||||
| Current taxes payable | ||||||||
| Accrued other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
Note 8 – Debt
The Company’s outstanding debt is shown in the following table:
| Maturity dates | Interest rates | June 30, 2022 | December 31, 2021 | |||||||||||||
| Term loans secured by all assets | $ | $ | ||||||||||||||
| Term loans secured by property and equipment | ||||||||||||||||
| Line of credit secured by all assets | ||||||||||||||||
| Notes payable convertible into Nutex common shares at $1.55 per share | % | |||||||||||||||
| Term loans of consolidated Real Estate Entities | ||||||||||||||||
| Total | ||||||||||||||||
| Less: unamortized debt issuance costs | ||||||||||||||||
| Less: short-term lines of credit | ||||||||||||||||
| Less: current portion of long-term debt | ||||||||||||||||
| Total debt reflected as long-term | $ | $ | ||||||||||||||
Term loans and lines of credit. We have entered into private debt arrangements with banking institutions for the purchase of equipment and to provide working capital and liquidity through cash and lines of credit. Unless otherwise delineated above, these debt arrangements are obligations of Nutex and/or its wholly-owned subsidiaries. Consolidated Real Estate Entities have entered into private debt arrangements with banking institutions for purposes of purchasing land, constructing new emergency room facilities and building out leasehold improvements which are leased to our hospital entities. Nutex was a guarantor or, in limited cases, a co-borrower on the debt arrangements of the Real Estate Entities for the periods shown. We have been working with the third-party lenders to remove our guarantees. In the second quarter of 2022, we deconsolidated 17 Real Estate Entities.
Certain
outstanding debt arrangements require minimum debt service coverage ratios and other financial covenants. A revolving line of credit
was not in compliance with the debt service coverage ratio as of June 30, 2022, and the balance has been included in current liabilities.
At June 30, 2022, we had remaining availability of $
Convertible
notes payable. We assumed $
| 18 |
Note 9 – Leases
The hospital facilities have entered into hospital property and equipment rental agreements with various lessors. The hospital facilities (“ER Entities”) have related party lease agreements with consolidated Real Estate Entities, which are eliminated and not shown in the tables below. Nutex has provided a corporate guarantee of these leases. Other facility leases with related parties are presented in our consolidated balance sheets and shown below when the associated Real Estate Entity is not consolidated. Third party leases include hospital facilities and medical equipment leases. The discount rate used in determining the present value of lease payment at commencement was 5% and 15%, respectively, for building and equipment leases.
The following tables disclose information about our leases of property and equipment:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | ||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
| Operating Leases | Finance Leases | ||||||||||||||||
| Minimum lease payments for the next five years: | Third-parties | Related parties | Third-parties | Related parties | |||||||||||||
| 2022 | $ | $ | $ | $ | |||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| 2027 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total minimum lease payments | |||||||||||||||||
| Less interest | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Total lease liabilities | $ | $ | $ | $ | |||||||||||||
Note 10 – Commitments and Contingencies
Litigation. The Company or its consolidated subsidiaries or VIEs may be named in various claims and legal actions in the normal course of business. Based upon counsel and management’s opinion, the outcome of such matters is not expected to have a material adverse effect on the Company’s consolidated financial statements.
Note 11 – Employee Benefit Plans
The
Company’s employees are eligible to participate in the 401(k) Savings Plan. There are no restrictions in eligibility to contribute
to the 401(k) Savings Plan. Salary deferrals are allowed in amounts up to 100% of an eligible employee’s salary, not to exceed
the maximum allowed by law. Texarkana Emergency Center & Hospital, LLC (“Texarkana”) is the only entity which may
contribute a discretionary match up to
| 19 |
Obligations for under-development and ramping hospitals. Under the terms of the Merger Agreement, contributing owners of the under-development hospitals and ramping hospitals are eligible to receive a one-time additional issuance of Company common stock based on their trailing twelve months earnings before interest, taxes, depreciation and amortization as determined on the 24th anniversary of their respective opening, adjusted for the aggregate amount of such owner’s capital contribution minus such owner’s pro rata share of the aggregate debt of the applicable hospital outstanding as of the closing of the Merger. Such additional shares will be issued at the greater of (a) the price of the Company’s common stock at the time of determination or (b) $2.80. We have not recognized any expense for this stock-based compensation based on our current estimates of future obligations to the contributing owners.
Restricted stock. On May 9, 2022, the Company issued 83,547 restricted common stock awards, valued at $324,998 to the board of directors. We recognized stock-based compensation expense of $54,083 during the three months ended June 30, 2022 for these awards. Remaining compensation expense of $270,915 will be recognized over the one year vesting term.
Options. In 2022, the Company adopted the Amended and Restated Nutex Health Inc. 2022 Equity Incentive Plan (the "2022 Plan"). Awards granted under the 2022 Plan have a ten-year term and may be incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units or performance shares. The awards are granted at an exercise price equal to the fair market value on the date of grant and generally vest over a four-year period.
Clinigence had 6,500,010 options for the purchase of our common stock outstanding as of the merger date, all of which were fully vested and exercisable. The following table summarizes stock-based awards activity:
| Weighted Average | ||||||||||||
| Options | Weighted | Remaining Contractual | ||||||||||
| Outstanding | Average | Life (Years) | ||||||||||
| Options outstanding at April 1, 2022 merger date | $ | |||||||||||
| Options exercised | ( | ) | ||||||||||
| Options outstanding at June 30, 2022 | $ | |||||||||||
Options outstanding as of June 30, 2022 consist of:
| Expiration | Number | Number | Exercise | ||||||||||
| Date | Outstanding | Exercisable | Price | ||||||||||
| $ | |||||||||||||
| Total | |||||||||||||
| 20 |
Warrants. Clinigence had 12,401,240 common stock warrants outstanding as of the merger date. Warrant activity follows:
| Warrants | Weighted Average | Average Remaining Contractual Life | ||||||||||
| Outstanding | Exercise Price | (Years) | ||||||||||
| Warrants outstanding at April 1, 2022 merger date | $ | |||||||||||
| Warrants exercised | ( | ) | ||||||||||
| Warrants outstanding at June 30, 2022 | $ | |||||||||||
Warrants outstanding as of June 30, 2022 consisted of:
| Expiration | Number | Number | Exercise | ||||||
| Date | Outstanding | Exercisable | Price | ||||||
| |
|
$ | | ||||||
| |
|
| |||||||
| |
|
| |||||||
| |
|
| |||||||
| |
|
| |||||||
| |
|
| |||||||
| |
|
| |||||||
| |
|
| |||||||
| Total | |
|
|||||||
Note 13 – Equity
Common
Stock Issued. During the three months ended June 30, 2022, various noteholders converted principal balances totaling $
In
the second quarter of 2022, we issued common shares for the exercise of warrants for total proceeds of $
| 21 |
Note 14 – Income Taxes
Income tax provisions for interim quarterly periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. The income tax impact of discrete items are recognized in the period these occur.
The Company’s income tax expense for the periods presented and reconciliation of this amount to amounts calculated based on statutory tax rates follows:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Income taxes computed at the federal statutory rate | $ | ( | ) | $ | $ | $ | ||||||||||
| Effect of: | ||||||||||||||||
| State taxes, net of federal benefits | ||||||||||||||||
| Income of flow-through entities | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in tax status of Nutex Health Holdco LLC | ||||||||||||||||
| Reversal of acquired Clinigence valuation allowance | ( | ) | ( | ) | ||||||||||||
| Other permanent items, net | ||||||||||||||||
| Total income tax expense | $ | $ | $ | $ | ||||||||||||
In
periods before the merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships
for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations
of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and will
be included in its future consolidated corporate tax filings. We recognized a non-cash charge of $
At
the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. During the three months
ended June 30, 2022, we recorded a non-cash benefit of $
Each
of the discrete items above are one-time, non-cash items. Excluding the discrete items above, our effective tax rate for the three months
ended June 30, 2022 was
| 22 |
The following is the computation of earnings (loss) per basic and diluted share:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Amounts attributable to Nutex Health Inc.: | ||||||||||||||||
| Numerator- | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | $ | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares used to compute basic EPS | ||||||||||||||||
| Dilutive effect of convertible note | ||||||||||||||||
| Dilutive effect of common stock options | ||||||||||||||||
| Dilutive effect of common stock warrants | ||||||||||||||||
| Weighted average shares used to compute diluted EPS | ||||||||||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
The computation of diluted earnings per common share excludes the assumed conversion of outstanding convertible notes and exercise of common stock options and warrants in periods when we report a loss. The dilutive effect of the assumed exercise of outstanding options and warrants was calculated using the treasury stock method.
| 23 |
Note 16 – Segment Information
We report the results of our operations as three segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (ii) the real estate division. The determination of our reporting segments was made on the basis of our strategic priorities, which corresponds to the manner in which our Chief Executive Officer, as our chief operating decision maker, reviews and evaluates operating performance to make decisions about resources to be allocated. We evaluate the performance of our reportable segments based on, among other measures, operating income, which is defined as income before interest expense, other income (expense), and taxes. Corporate costs primarily include expenses for support functions and salaries and benefits for corporate employees and are excluded from segment operating results.
Reportable segment information, including intercompany transactions, is presented below:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues from external customers | ||||||||||||||||
| Hospital division | $ | $ | $ | $ | ||||||||||||
| Population health management division | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Segment operating income: | ||||||||||||||||
| Hospital division | ||||||||||||||||
| Population health management division | ( | ) | ( | ) | ||||||||||||
| Total segment operating income | $ | $ | $ | $ | ||||||||||||
| Capital expenditures: | ||||||||||||||||
| Hospital division | $ | $ | $ | $ | ||||||||||||
| Real estate division | ||||||||||||||||
| Total capital expenditures | $ | $ | $ | $ | ||||||||||||
| Revenue from inter-segment activities: | ||||||||||||||||
| Real estate division | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization: | ||||||||||||||||
| Hospital division | $ | $ | $ | $ | ||||||||||||
| Population health management division | ||||||||||||||||
| Real estate division | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| As of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Assets: | ||||||||
| Hospital division | $ | $ | ||||||
| Population health management division | ||||||||
| Real estate division | ||||||||
| Total Assets | $ | $ | ||||||
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Note 17 – Related Party Transactions
Related party transactions included the following:
| • | The
Physician LLCs employ the doctors who work in our hospitals. We have no direct ownership
interest in these entities but they are owned and, in some instances, controlled by related
parties including our CEO, Dr. Thomas Vo. The Physician LLCs are consolidated by the Company
as VIEs because they do not have significant equity at risk, and we have historically provided
support to them in the event of cash shortages and received the benefit of their cash surpluses.
Amounts due from Physician LLCs totaled $ |
In connection with the merger with Clinigence, we forgave certain amounts due from Physician LLCs for past advances made by us in support
of their operations. We recognized net expense of $
The
Physician LLCs had outstanding obligations to their member owners, who are also Company stockholders, totaling $
| 25 |
| • | Most
of our hospital division facilities are leased from Real Estate Entities which own the land
and hospital buildings. These leases are typically on a triple net basis where our hospital
division is responsible for all operating costs, repairs and taxes on the facilities. Our
obligations under these leases are presented in Note 9. During the three and six months ended
June 30, 2022, we made cash payments for these lease obligations totaling $ |
We
received $
The consolidated Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. We have no direct ownership interest in these entities but they are owned and, in some instances, controlled by related parties including our CEO. The Real Estate Entities are consolidated by the Company as VIEs when they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. During the second quarter of 2022, we deconsolidated 17 Real Estate Entities. At June 30, 2022, three Real Estate Entities continue to be consolidated in our financial statements.
In
connection with the merger with Clinigence, we forgave certain amounts due from Real Estate Entities for past advances made by us. We
recognized net expense totaling $
| • | We
made advances to unconsolidated entities owned by related parties that we lease facilities
from. These advances totaled $ |
| • | Accounts
receivable – related party included $ |
| • | Our
CEO made advances to one of our hospital facilities, SE Texas ER. These advances totaled
$ |
| • | Accounts
payable – related party in our consolidated balance sheets included $ |
| • | We
provide managerial services to emergency centers owned and, in some instances, controlled
by related parties including our CEO. We recognized $ |
| • | Two
of our ER Entities, Coppell and West Plano, are obligated under managerial services agreements
with related parties commencing in 2022. Payments under these agreements totaled $ |
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Note 18 – Variable Interest Entities
The following tables provide the balance sheet amounts for consolidated VIEs:
| June 30, 2022 | ||||||||||||
| Real Estate | Physician | AHP | ||||||||||
| Entities | LLCs | IPA | ||||||||||
| Current assets | $ | $ | $ | |||||||||
| Property and equipment, net | ||||||||||||
| Other long-term assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| Current liabilities | ||||||||||||
| Long-term liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Equity | ||||||||||||
| Total liabilities and equity | $ | $ | $ | |||||||||
| December 31, 2021 | ||||||||
| Real Estate | Physician | |||||||
| Entities | LLCs | |||||||
| Current assets | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The assets of each of the ER Entities may only be used to settle the liabilities of that entity or its consolidated VIEs and may not be required to be used to settle the liabilities of any of the other ER Entities, other VIEs, or corporate entity. Additionally, the assets of corporate entities cannot be used to settle the liabilities of VIEs. The Company has aggregated all of the Physician LLCs and Real Estate Entities into two categories above, because they have similar risk characteristics, and presenting distinct financial information for each VIE would not add more useful information.
Real Estate Entities are consolidated by the Company as VIEs because they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. In the second quarter of 2022, we deconsolidated 17 Real Estate Entities. There was no gain or loss on the deconsolidation of these entities.
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At
the date we deconsolidated these Real Estate Entities, they had $
Note 19 - Subsequent Events
The Company has evaluated subsequent events through the filing of this report and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transaction described below.
Since June 30, 2022 through the date of the report, the remaining principal of convertible notes payable was converted to shares of the Company’s common stock, at an exercise price of $ per share.
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
Explanatory Note
On April 1, 2022 (the “Merger Date”), Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) completed the merger (the “Merger”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) dated as of November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex. Immediately following the completion of the Merger, Clinigence amended its certificate of incorporation and bylaws to change its name to “Nutex Health Inc.” In connection with the Merger, each outstanding equity interest of Nutex Health Holdco LLC was exchanged for 3.571428575 shares of Clinigence common stock. The Merger is accounted for as a reverse acquisition under U.S. GAAP. Therefore, Nutex Health Holdco LLC is treated as the accounting acquirer in the Merger. Our financial statements presented for periods prior to the Merger Date are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. Beginning with the second quarter of 2022, our financial statements are presented on a consolidated basis and include Clinigence.
Except where the context indicates otherwise, (i) references to “we,” “us,” “our,” or the “Company” refer, for periods prior to the completion of the Merger, to Nutex Health Holdco LLC and its subsidiaries, (ii) references the “Nutex Health” for periods following the completion of the Merger, refer to Nutex Health Inc. and its subsidiaries and (ii) references to “Clinigence” refer to Clinigence Holdings, Inc. and its subsidiaries prior to the completion of the Merger.
Overview
Nutex Health Inc. is a physician-led, technology-enabled healthcare services company with 21 hospital facilities in eight states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates different innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.
We employ approximately 1,500 employees and partner with over 800 physicians. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.
Basis of presentation. The merger of Nutex Health Holdco LLC and Clinigence was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer in accordance with ASC 805, Business Combinations, and Clinigence as the accounting acquiree. Our financial statements presented for periods prior to April 1, 2022, the date of the merger are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. Beginning with the second quarter of 2022, our financial statements are presented on a consolidated basis including Clinigence.
Our financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.
The hospital division includes our healthcare billing and collections company and hospital entities. In addition, we have financial and operating relationships with multiple professional entities (the “Physician LLCs”) and real estate entities (the “Real Estate Entities”). The Physician LLCs employ the doctors who work in our hospitals. These entities are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to the Physician LLCs in the event of cash shortages and received the benefit of their cash surpluses.
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The Real Estate Entities own the land and hospital buildings which are leased to our hospital entities. The consolidated Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. The Real Estate Entities are consolidated by the Company as VIEs because they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated.
The Company has no direct or indirect ownership interest in the Physician LLCs or Real Estate Entities, so 100% of the equity for these entities is shown as noncontrolling interest in the consolidated balance sheets and statements of operations.
The population health management division includes our management services organizations and a healthcare information technology company providing a cloud-based platform for healthcare organizations. In addition, AHP IPA, a physician-affiliated entity that is not owned by us—is consolidated since we are the primary beneficiary of their operations under our management services contracts with them.
Sources of revenue. Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid).
We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 90% of our net patient service revenue are paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. The following tables present the allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Insurance | 92 | % | 97 | % | 92 | % | 96 | % | ||||||||
| Self pay | 8 | % | 2 | % | 8 | % | 3 | % | ||||||||
| Workers compensation | 0 | % | 1 | % | 0 | % | 1 | % | ||||||||
| Medicare/Medicaid | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology. Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs. We receive management fees that are received based on gross capitation revenues of the IPAs or physician groups we manage.
Our growth plans. We plan to expand our operations by entering new market areas either through development of new hospitals, formation of new IPAs or by making acquisitions.
We identify new market areas for hospitals based on the area’s need for access to emergency health services and growth expectations. We identify and partner with local physicians who will operate and manage the new location. When developing new hospitals, we have a turn-key process for location selection, real estate acquisition, design, and development of the facility to staffing, training and operations. We extend our existing comprehensive suite of centralized services to operating hospitals, including executive management, billing, collections, recruiting and marketing.
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COVID-19 Pandemic
A novel strain of coronavirus causing the disease known as COVID-19 was first identified in December 2019, and has spread throughout the world. While vaccines and booster shots for the COVID-19 virus became widely available in the United States during 2021, COVID-19 continued to result in a significant number of hospitalizations.
As a provider of healthcare services, we have been significantly affected by the public health and economic effects of the COVID-19 pandemic. Our hospitals, medical personnel, and employees have been actively caring for COVID-19 patients. We implemented considerable safety measures for treatment of COVID-19 patients and have incurred, and may continue to incur, certain increased expenses arising from the COVID-19 pandemic, including additional labor, supply chain, capital and other expenditures. Moreover, in recent months, the COVID-19 pandemic has resulted in general inflationary pressures and has resulted in significant disruptions to global supply networks. In this regard, we have experienced disruptions in connection with the provision of equipment, construction services, as well as inflationary pressures in connection with labor, supply chain, capital and other expenditures. We have also experienced a delay in billing and collection of patient claims during this period.
The COVID-19 pandemic has affected, and may continue to affect, our service mix, revenue mix, payor mix and/or patient volumes, as well as our ability to collect outstanding receivables. Pandemic-related factors may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered.
While we are not able to fully quantify the impact that the COVID-19 pandemic will have on our future financial results, we expect developments related to COVID-19 to continue to affect our financial performance. Moreover, the COVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows if economic and/or public health conditions in the United States deteriorate.
Overview of Legislative Developments
The U.S. Congress and many state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms. There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law’s implementation and its interpretation by government agencies and courts. There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels.
In response to the COVID-19 pandemic, federal and state governments passed legislation, promulgated regulations, and have taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. Among these, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) had the most impact on our business.
The CARES Act included a waiver of insurance copayments, coinsurance, and annual deductibles for laboratory tests to diagnose COVID-19 and visits to diagnose COVID-19 at an emergency department of a hospital. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix. The larger number and acuity of patient claims for COVID-19 also resulted in higher revenue.
No Surprises Act
The No Surprises Act (“NSA”) was enacted on December 27, 2020 to address “surprise medical bills”, and took effect on January 1, 2022. With respect to the Company, the NSA limits the amount an insured patient will pay for emergency services furnished by an out-of-network provider. The NSA addresses the payment of these out-of-network providers by group health plans or health insurance issuers (collectively, “insurers”). In particular, the NSA requires insurers to reimburse out-of-network providers at a statutorily calculated “out-of-network rate.” In states without an all-payor model agreement or specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network provider or an amount determined through an independent dispute resolution (“IDR”) process.
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Under the NSA, insurers must issue an initial payment or notice of denial of payment to a provider within thirty days after the provider submits a bill for an out-of-network service. If the provider disagrees with the insurer’s determination, the provider may initiate a thirty-day period of open negotiation with the insurer over the claim. If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR arbitration.
Independent Dispute Resolution. The provider and insurer each submits a proposed payment amount and explanation to the arbitrator. The arbitrator must select one of the two proposed payment amounts taking into account the “qualifying payment amount” and additional circumstances including among other things the level of training, outcomes measurements of the facility, the acuity of the individual treated, and the case mix and scope of services of the facility providing the service. The NSA prohibits the arbitrator from considering the provider’s usual and customary charges for an item or service, or the amount the provider would have billed for the item or service in the absence of the NSA.
Qualifying Payment Amount. The “qualifying payment amount” is generally “the median of the contracted rates recognized by the plan or issuer . . . under such plans or coverage, respectively, on January 31, 2019, for the same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the geographic region in which the item[s] or service is furnished,” with annual increases based on the consumer price index. In other words, the qualifying payment amount is typically the median rate the insurer would have paid for the service if provided by an in-network provider or facility.
HHS Interim Final Rule. As required by the NSA, the United States Department of Health and Human Services (“HHS”) has established an independent dispute resolution (IDR) process under which a certified IDR entity determines the ultimate amount of payment. On September 30, 2021, the HHS issued an interim final rule. The rule effectively creates a rebuttable presumption that the amount closest to the qualifying payment amount is the proper payment amount. While the NSA instructs arbitrators to consider both the qualifying payment amount and the other factors enumerated in the NSA, the HHS interim final rule requires arbitrators to “select the offer closest to the [qualifying payment amount]” and deviate from that amount only if credible information clearly demonstrates that the qualifying payment amount is different from the appropriate out-of-network rate.
The HHS interim final rule is currently subject to several legal challenges, and it is difficult to predict the outcome of efforts to challenge or modify the rule. The legal challenges take issue with the rule’s requirement that independent dispute resolution entities presume the qualifying payment amount—the insurer or plan’s median in-network rate—is the appropriate out-of-network payment amount. A court decision has only been reached in one of the eight cases pending as of June 2022.
In Texas Medical Association and Adam Corley v. United States Department of Health and Human Services, Case No. 6:21-cv-425-JDK (E.D. Tex.), the United States District Court on February 23, 2022 held that the HHS rule conflicts with the unambiguous terms of the NSA and vacated the applicable provisions of the rule which require arbitrators to presume the correctness of the qualifying payment amount and then imposing a heightened burden on the remaining statutory factors to overcome that presumption.
The HHS initially appealed the court’s judgement but has asked the court to hold the appeal pending issuance of the final rule later this summer.
Since the NSA and the associated HHS interim final rule became effective on January 1, 2022, we have experienced a significant decline in collections of patient claims for emergency services. We are working within the established processes for IDR under the interim final rule and have only had limited success at achieving collections higher than the established qualifying payment amount.
There can be no assurance that third-party payors will not attempt to further reduce the rates they pay for our services.
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Results of Operations
We report the results of our operations as three segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (ii) the real estate division. Activity within our business segments is significantly impacted by demand for healthcare services we provide, competition for these services in each of the market areas we serve, and the legislative changes discussed above.
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Hospital division | $ | 51,604,679 | $ | 62,814,672 | $ | 130,731,921 | $ | 150,157,914 | ||||||||
| Population health management division | 6,443,254 | — | 6,443,254 | — | ||||||||||||
| Total revenue | 58,047,933 | 62,814,672 | 137,175,175 | 150,157,914 | ||||||||||||
| Segment operating income: | ||||||||||||||||
| Hospital division | 5,249,528 | 29,137,332 | 39,647,506 | 83,787,175 | ||||||||||||
| Population health management division | (257,002 | ) | — | (257,002 | ) | — | ||||||||||
| Total segment operating income | 4,992,526 | 29,137,332 | 39,390,504 | 83,787,175 | ||||||||||||
| Corporate and other | 6,371,003 | 1,533,002 | 11,530,008 | 3,522,040 | ||||||||||||
| Interest expense | 3,849,629 | 1,504,933 | 5,705,603 | 2,991,090 | ||||||||||||
| Other expense (income) | (1,403,222 | ) | (4,060,149 | ) | 977,323 | (3,921,356 | ) | |||||||||
| Income before taxes | (3,824,884 | ) | 30,159,546 | 21,177,570 | 81,195,401 | |||||||||||
| Income tax expense | 19,653,286 | 481,501 | 19,829,609 | 638,354 | ||||||||||||
| Net income (loss) | (23,478,170 | ) | 29,678,045 | 1,347,961 | 80,557,047 | |||||||||||
| Less: net income (loss) attributable to noncontrolling interests | (4,082,418 | ) | 2,618,644 | (786,589 | ) | 15,735,510 | ||||||||||
| Net income (loss) attributable to Nutex Health Inc. | $ | (19,395,752 | ) | $ | 27,059,401 | $ | 2,134,550 | $ | 64,821,537 | |||||||
| Adjusted EBITDA | $ | 9,354,218 | $ | 30,014,704 | $ | 33,617,452 | $ | 69,748,692 | ||||||||
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
We reported a net loss attributable to Nutex Health Inc. of $19.4 million, or a loss of $0.03 per diluted share, for the three months ended June 30, 2022 as compared with net income attributable to Nutex Health Inc. of $27.0 million, or $0.05 per diluted share, for same period of 2021. Our 2022 results were principally affected by:
| • | Lower Lower amounts of revenue caused by legislative changes reducing our charges for patient services to median in-network rates; |
| • | Start-up costs associated with five new facilities opened since April 2021 which are experiencing favorable market acceptance but not yet fully achieving break-even profitability; |
| • | Significant, non-cash income tax expense totaling $18.4 million, net, for the one-time change in our tax status and release of the acquired valuation allowance of Clinigence; and |
| • | Acquisition-related costs related to the Clinigence merger transaction and higher levels of general and administrative expenses related to our operations as a public company. |
| • | Higher overall cost of employees and independent contractors. |
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Adjusted EBITDA for the three months ended June 30, 2022 totaled $9.4 million as compared to $30.0 million for he comparable period of 2021. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA. The items affecting revenue and start-up costs contributed significantly to the decline in Adjusted EBITDA in the 2022 period.
A discussion of our segment results is included below.
Hospital Division. Our revenue for the three months ended June 30, 2022 totaled $51.6 million as compared to $62.8 million for the same period of 2021, a decrease of 18%. We have experienced a significant decline in collections of patient claims for emergency services as a result of the median of the contracted rates that are offered within the same insurance market, as mandated by the NSA. This decrease was partially offset by an increase in the number of patient visits in the 2022 period as compared with the 2021 period.
The following table shows the number of patient visits during the periods:
| Three months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| Patient visits: | ||||||||
| Hospital | 33,175 | 28,470 | ||||||
Total patient visits increased 17% during the three months ended June 30, 2022 as compared with the same period of 2021. We opened three facilities between April and August of 2021. In 2022, we opened two additional facilities in February. Having these facilities operational during the entirety of the 2022 period contributed substantially to the increased number of patient visits. That said, we have noted a reduction in the severity of these cases which has resulted in lower claims amounts and net revenue. We are not able to estimate the number or severity of future patient visits.
The hospital division’s operating income was $5.2 million during the three months ended June 30, 2022, down 82% from $29.1 million during the same period of 2021. Our operating income for the second quarter of 2022 was adversely affected by the reduction in net revenue discussed above. As mentioned above, we have opened five new facilities since April 2021. Start-up costs for these facilities include complete staffing for 24/7 operations, lease costs, in-market advertising and other operating expenses. These costs often exceed our revenue at these facilities until they achieve sustaining volumes of patient visits. In general, we expect new facilities to reach break-even profitability within 12 to 15 months. In this time, we also made staffing additions to manage higher volumes of medical claims billing and collection administration.
Population Health Management Division. We started the population health management division in April 2022 upon completion of the merger with Clinigence. Our total revenue for the three months ended June 30, 2022 was $6.4 million consisting of capitation revenue of $5.2 million, management fees of $1.0 million and SaaS revenue of $290 thousand. Capitation revenue is recognized by our consolidated VIE, AHP IPA. We do not have an equity interest in this VIE but consolidate it since we are the primary beneficiary of its operations under our management services contract with them. Instead, we earn management fees for our services to them which are reported as revenue.
The population health management division incurred an operating loss of $0.3 million during the three months ended June 30, 2022. Strategically, we are focused on growth of this division principally through the addition of new independent physician associations and have staffed our organization to manage larger numbers of such organizations.
Real Estate Division. This division reports the operations of consolidated Real Estate Entities where we provide guarantees of their indebtedness or are co-borrowers. We have been working with the third-party lenders to remove our guarantees of the outstanding mortgage loans of consolidated Real Estate Entities. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. In the second quarter of 2022, we deconsolidated 17 Real Estate Entities.
Revenue and operating expenses of consolidated Real Estate Entities are not significant since the extent of these entities’ operations is to own facilities leased to our hospital division entities which are financed by a combination of contributed equity by related parties and third-party mortgage indebtedness. Such leases are typically on a triple net basis where our hospital division is responsible for all operating costs, repairs and taxes on the facilities. Finance lease income is recognized outside of segment operating income as other income by the Real Estate Entities. However, these amounts are largely eliminated in the consolidation of these entities into our financial statements.
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At June 30, 2022, three Real Estate Entities continue to be consolidated in our financial statements. We expect that hospitals we open in the future may be leased from new Real Estate Entities which may be owned in whole or part by related parties. Third-party lenders to these entities may require that we provide a guarantee or become co-borrowers under mortgage indebtedness financings for such facilities. In such instances, we may be required to consolidate these new Real Estate Entities in our financial statements as VIEs.
Corporate and other expenses. Total corporate costs in the three months ended June 30, 2022 were $6.4 million including general and administrative expenses of $2.5 million and acquisition-related costs associated with the merger with Clinigence totaling $3.9 million. Our corporate costs for the three months ended June 30, 2021 totaled $1.5 million and consisted of general and administrative expenses. General and administrative costs include our executive management, accounting, human resources, corporate technology, insurance and professional fees. We have incurred higher levels of professional fees as we prepared for our public listing, made staffing additions commensurate with our operational growth and made key additions to our executive management team.
As a public company, we must comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the continued listing requirements of the NASDAQ, with which we were not required to comply with as a private company. We expect to incur additional annual expenses related to these matters and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.
Nonoperating items
Interest expense. Interest expense totaled $3.9 million in the three months ended June 30, 2022 as compared with $1.5 million for the same period of 2021. This includes interest expense associated with the mortgage indebtedness of consolidated Real Estate Entities, interest expense on outstanding term notes and lines of credit for financing operating equipment and working capital needs, and the accretion costs related to the conversion of notes from the Clinigence transaction. Interest expense is expected to decline in future periods as a result of the deconsolidation of 17 Real Estate Entities and their associated mortgage indebtedness during the second quarter of 2022 as well as due to the elimination of accretion costs related to the conversion of notes payable from the Clinigence transaction.
Other expense (income). Other expense for the three months ended June 30, 2021 includes $4 million for the forgiveness of SBA Paycheck Protection Program loans we obtained. These loans were fully forgiven by the SBA after the Company met the program requirements for expenditure of the loan proceeds. We do not expect other expense (income) to be significant in future periods.
Income tax expense. Income tax provisions for interim quarterly periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. The income tax impact of discrete items are recognized in the period these occur.
In periods before the merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and will be included in its future consolidated corporate tax filings. We recognized a non-cash charge of $20.8 million to income tax expense during the three months ended June 30, 2022 for the change in tax status of Nutex Health Holdco LLC.
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At the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. During the three months ended June 30, 2022, we recorded a non-cash benefit of $2.4 million to income tax expense to remove the acquired valuation allowance after we concluded that the associated deferred tax assets would be realizable.
Each of the discrete items above are one-time, non-cash items. Excluding the discrete items above, our effective tax rate for the three months ended June 30, 2022 was 25.2%. The primary difference from the federal statutory rate of 21% is related to state taxes, income of noncontrolling interests in flow-through entities and permanent differences for non-deductible expenses.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
We reported net income attributable to Nutex Health Inc. of $2.1 million, or $0.00 per diluted share, for the six months ended June 30, 2022 as compared with $64.7 million, or $0.11 per diluted share, for same period of 2021. The special items affecting revenue and our costs and expenses discussed above impacted the 2022 reporting period as well.
Adjusted EBITDA for the six months ended June 30, 2022 totaled $33.6 million as compared with $69.7 million for the same period of 2021 with the special items affecting revenue and start-up costs causing the decline during the 2022 period.
A discussion of our segment results is included below.
Hospital Division. Revenue totaling $130.7 million for the six months ended June 30, 2022 decreased 13% from $150.2 million for the same period of 2021. As noted, our revenue has been adversely impacted in the 2022 period as a result of the NSA. This decrease was partially offset by an increase in the number of patient visits in the 2022 period.
The following table shows the number of patient visits during the periods:
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| Patient visits: | ||||||||
| Hospital | 84,931 | 74,554 | ||||||
Total patient visits during the six months ended June 30, 2022 increased 14% as compared with the same period of 2021. Five newly opened facilities, most opened in 2021 periods after June, contributed substantially to the increased number of patient visits in 2022.
As noted, we have seen a reduction in the severity of these cases which has resulting in lower claims and net revenue. We are not able to estimate the number or severity of future patient visits.
Typically, we experience some seasonality in the number of patient visits and revenue during the year usually corresponding with the late-fall and winter months when flu and other seasonal infirmities peak. As an emergency care provider, we are not able to predict the number of patient visits or the severity of patient healthcare needs. We operate our facilities 24 hours daily in order to be responsive to our communities’ needs.
The hospital division’s segment operating income was $39.6 million during the six months ended June 30, 2022, down 53% from the same period of 2021. Our operating income for the second quarter of 2022 was adversely affected by the reduction in net revenue discussed above. As mentioned above, we opened five new facilities since April 2021. Start-up costs at newly facilities often exceed our revenue at these facilities for the first 12 to 15 months after their opening. In addition, in late-2021 and through the second quarter of 2022, we made several staffing additions to manage higher volumes of medical claims billing and collection administration.
Population Health Management Division. Total revenue and segment operating loss for the three and six months ended June 30, 2022 were the same amounts since the Clinigence merger was completed on April 1, 2022.
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Real Estate Division. This division reports the operations of consolidated Real Estate Entities which are partially owned by related parties. As noted, we have no equity interest in these entities but consolidate these as VIEs when Nutex is a co-borrower or provides a guarantee of the Real Estate Entities mortgage indebtedness. In the second quarter of 2022, we deconsolidated 17 Real Estate Entities.
Revenue and operating expenses for the real estate division are not significant since finance lease income is recognized outside of segment operating income as other income by the Real Estate Entities. Such amounts are generally eliminated in the consolidation of these entities into our financial statements.
Corporate and other expenses. Total corporate costs in the six months ended June 30, 2022 were $11.5 million including general and administrative expenses of $7.6 million and acquisition-related costs associated with the merger with Clinigence totaling $3.9 million. Corporate costs for the six months ended June 30, 2021 totaled $3.5 and consisted of general and administrative expenses. In the 2022 period, we incurred higher levels of professional fees as we prepared for our public listing, made staffing additions commensurate with our operational growth and made key additions to our executive management team.
Nonoperating items
Interest expense. Interest expense for the six months ended June 30, 2022 totaled $5.7 million as compared with $3.0 million for the same period of 2021. This increase in interest expense was principally a result of higher mortgage indebtedness of consolidated Real Estate Entities, interest expense on outstanding term notes and lines of credit for financing operating equipment, accretion costs related to the conversion of notes payable from the Clinigence transaction and working capital needs. Interest expense is expected to decline in future periods as a result of the deconsolidation of 17 Real Estate Entities and their associated mortgage indebtedness during the second quarter of 2022 as well as the elimination of the accretion costs related to the conversion of notes payable from the Clinigence transaction.
Other expense (income). Other expense for the six months ended June 30, 2021 include $4 million for the forgiveness of SBA Paycheck Protection Program loans we obtained.
Income tax expense. As discussed above, our tax status was changed as a result of the merger with Clinigence. Previously, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. We recognized a non-cash charge of $20.8 million to income tax expense during the six months ended June 30, 2022 for this change in tax status. Secondly, we recorded an offsetting non-cash benefit during the six months ended June 30, 2022 of $2.4 million to income tax expense to remove the acquired valuation allowance Clinigence had against its deferred tax assets.
Each of the discrete items above are one-time, non-cash items. Our effective tax rate for the six months ended June 30, 2022, excluding the discrete items above, was 25.2%. The primary difference from the federal statutory rate of 21% is related to state taxes, income of noncontrolling interests in flow-through entities and permanent differences for non-deductible expenses.
Liquidity and Capital Resources
As of June 30, 2022, we had $47.6 million of cash and equivalents, compared to $36.1 million of cash and equivalents at December 31, 2021.
Significant sources and uses of cash during the first six months of 2022.
Sources of cash:
| • | Cash from operating activities was $53.4 million, which included $33.6 million from the primary components of our working capital (receivables, inventories, accounts payable and expenses). |
| • | Clinigence’s balance sheet at the merger date included $12.7 million of cash. |
| • | We received net proceeds of $3.0 million from borrowings under notes payable and lines of credit. |
| • | We received net proceeds of $4.7 million from the exercise of common stock warrants and options. |
| • | We made distributions to our owners related to operations prior to the merger with Clinigence and to non-controlling interest owners totaling $47.8 million. |
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Uses of cash:
| • | Capital expenditures were $16.6 million. |
| • | Cash associated with the 17 deconsolidated Real Estate Entities totaled $2.4 million. |
Future sources and uses of cash. Our operating activities are financed with cash on hand which is generated from revenues. Many of our hospital facilities are leased from Real Estate Entities. These leases are presented in our consolidated balance sheets when the associated Real Estate Entity is not consolidated. If the Real Estate Entity is consolidated, the lease is not presented. Instead, in these instances, the facility and any associated debt owed by the Real Estate Entity is presented. Our growth plans include the development of new hospital locations. We expect that in many of these locations we will lease facilities from newly established Real Estate Entities partially owned by related parties.
We routinely enter into equipment lease agreements to procure new or replacement equipment and may also finance these purchases with term debt. We have smaller lines of credits available for working capital purposes and are presently working to supplement or replace these with larger financing commitments. These larger financing commitments are subject to market conditions and we may not be able to obtain such larger financing commitments at favorable economic terms or at all.
Indebtedness. The Company’s indebtedness at June 30, 2022 is presented in Item I, “Financial Statements – Note 8 – Debt” and our lease obligations are presented in Item I, “Financial Statements—Note 9 – Leases.”
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no material off-balance sheet arrangements.
Non-GAAP Financial Measures
Adjusted EBITDA. Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.
We define Adjusted EBITDA as net income (loss) attributable to Nutex Health Inc.plus net interest expense, depreciation and amortization, further adjusted for stock-based compensation and any acquisition related costs. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Reconciliation of Net income (loss) attributable to Nutex Health Inc. to Adjusted EBITDA: | ||||||||||||||||
| Net income (loss) attributable to Nutex Health Inc. | $ | (19,395,752 | ) | $ | 27,059,401 | $ | 2,134,550 | $ | 64,821,537 | |||||||
| Depreciation and amortization | 3,132,485 | 2,223,461 | 5,529,346 | 4,001,640 | ||||||||||||
| Interest expense, net | 3,849,629 | 1,504,933 | 5,705,603 | 2,991,090 | ||||||||||||
| Income tax expense | 19,653,286 | 481,501 | 19,829,609 | 638,354 | ||||||||||||
| Allocation to noncontrolling interests | (1,825,262 | ) | (1,254,592 | ) | (3,521,488 | ) | (2,703,929 | ) | ||||||||
| EBITDA | 5,414,386 | 30,014,704 | 29,677,620 | 69,748,692 | ||||||||||||
| Stock-based compensation expense | 54,166 | — | 54,166 | — | ||||||||||||
| Acquisition costs | 3,885,666 | — | 3,885,666 | — | ||||||||||||
| Adjusted EBITDA | $ | 9,354,218 | $ | 30,014,704 | $ | 33,617,452 | $ | 69,748,692 | ||||||||
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Significant Accounting Policies
Revenue recognition.
Hospital division – Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid). The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Net patient service revenues are recorded at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient care. These amounts are net of appropriate discounts giving recognition to differences between the Company’s charges and reimbursement rates from third party payors.
Patient service net revenues earned by the Company are recognized at a point in time when the services are provided, net of adjustments and discounts. Because all the Company’s performance obligations relate to contracts with a duration of less than one-year, certain disclosures are limited.
The transaction price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors, discounts and implicit price concessions provided primarily to uninsured patients in accordance with the Company’s policy. For uninsured patients, the Company recognizes revenue based on established rates, subject to certain discounts and implicit price concessions. The Company is reimbursed from third party payors under various methodologies based on the level of care provided. We are considered “out-of-network” with commercial health plans. As there are no contractual rates established with insurance entities, revenues are estimated based on the “usual and customary” charges allowed by insurance payors using historical collection experience, historical trends of refunds and payor payment adjustments (retractions). Revenue from the Medicare program is based on reimbursement rates set by governmental authorities.
Patients who have health care insurance may also have discounts applied related to their copayment or deductible. Estimates of contractual adjustments and discounts are determined by major payor classes for outpatient revenues based on historical experience. The Company estimates implicit price concessions based on its historical collection experience with these classes of patients using a portfolio approach. The portfolios consist of major payor classes for outpatient revenue. Based on historical collection trends and other analyses, the Company concluded that revenue for a given portfolio would not be materially different than if accounting for revenue on a contract-by-contract basis.
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Customer payments are due upon receipt of an explanation of benefits for insured patients or it is due upon receipt of the bill from the Company for uninsured payments. There is no financing component associated with payments due from insurers or patients.
Population health management division – The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology.
Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs.
We receive management fees that are received based on gross capitation revenues of the IPAs or physician groups we manage. Revenue is recognized and received monthly for our services. In addition, we provide consultant services that are charged as a flat fixed rate and recognized as revenue when the service is performed. Consultant services revenues represent a small portion of our total revenue.
Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis. Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.
SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.
Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations as deferred revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties.
Construction in Progress. The Company regularly is in the process of constructing new facilities. Generally, our ER Entities are responsible for the leasehold buildout and equipment while the associated Real Estate Entity procures the land, if any, and constructs a new or remodeled facility. Costs incurred to construct assets which will ultimately be classified as fixed assets are capitalized and classified in our financial statements as construction in progress until construction is completed and the asset is available for use. Once the asset is available for use, it is reclassified as another category of fixed assets and depreciated across its useful life.
Recent accounting pronouncements. There are no new accounting pronouncements that are expected to have a material impact on the consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision of our CEO and our CFO, the effectiveness of disclosure controls and procedures as of June 30, 2022. Based on this evaluation, the Company concluded that our disclosure controls and procedures were ineffective as of June 30, 2022 due to the material weakness previously identified as described below.
Previously Reported Revisions and Material Weakness. We previously reported certain immaterial revisions to previously reported amounts in our combined and consolidated financial statements as of and for the year ended December 31, 2020 and interim periods presented as of and for the nine months ended September 30, 2021. These revisions corrected the classification of net income and equity attributable to noncontrolling interests and corrected the presentation of items within the statement of cash flows. As a result, we identified a material weakness in our internal control over financial reporting. Based on our assessment for the year ended December 31, 2021, we identified material weaknesses in internal control over financial reporting related to our revenue estimation process, recordation of leases in accordance with newly adopted accounting standards and other matters caused by having inadequate accounting close processes.
Remediation Plans. These material weaknesses did not result in material misstatement of the Company’s consolidated financial statements for the periods presented. The Company has started the process of designing and implementing effective internal control measures to remediate the material weakness. The Company’s efforts include the employment of our new chief financial officer, engagement of an accounting specialist to assist in our accounting close and reporting processes, process documentation and supervisory reviews of our revenue estimate and accounting close processes. We plan to employ additional experienced personnel in our accounting and financial reporting teams as well.
While we believe that these efforts will improve our internal control over financial reporting, our remediation efforts are ongoing and will require validation and testing of the design and operating effectiveness of internal controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the remaining material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting. We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Disclosure Controls and Procedures. Our senior members of management do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period ended June 30, 2022.
Item 1A. Risk Factors.
Our business, financial condition, and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry, as well as risks that affect businesses in general. The risks disclosed in this Quarterly Report could materially adversely affect our business, financial condition, cash flows, or results of operations and thus our stock price. These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Our operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, which could harm our business, reputation, financial condition, and operating results.
We have identified material weaknesses in our internal control over financial reporting. If our internal control over financial reporting is not effective, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause adverse effects on our business and may cause investors to lose confidence in our reported financial information and may lead to a decline in the price of our Common Stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the audits of our financial statements for the years ended December 31, 2021 and 2020, we concluded that there were material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses related to our revenue estimation process, recordation of leases in accordance with newly adopted accounting standards and other matters caused by having inadequate accounting close processes.
The Company has started the process of designing and implementing effective internal control measures to remediate these material weaknesses. The Company’s efforts include the employment of our new chief financial officer, engagement of an accounting specialist to assist in our accounting close and reporting processes, process documentation and supervisory reviews of our revenue estimate and accounting close processes. We plan to employ additional experienced personnel in our accounting and financial reporting teams as well.
While we believe that these efforts will improve our internal control over financial reporting, our remediation efforts are ongoing and will require validation and testing of the design and operating effectiveness of internal controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the remaining material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting.
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If we are unable to successfully remediate the material weaknesses or identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, a material misstatement in our financial statements could occur, and we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, which may adversely affect our business and the price of our Common Stock may decline as a result.
In addition, even if we remediate the material weaknesses, we will be required to expend significant time and resources to further improve our internal controls over financial reporting, including by further expanding our finance and accounting staff to meet the demands that placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act. If we fail to adequately staff our accounting and finance function to remediate our material weaknesses or fail to maintain adequate internal control over financial reporting, any new or recurring material weaknesses could prevent our management from concluding that our internal control over financial reporting is effective and impair our ability to prevent material misstatements in our financial statements, which could cause our business to suffer.
We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
We may be forced to write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses. Even though these charges may be non-cash items and not have an immediate impact on liquidity, any report of charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges such as write-downs or impairments may make future financing difficult to obtain on favorable terms or at all. From time to time, our intangible assets are subject to impairment testing. Under current accounting standards, our goodwill, including acquired goodwill, is tested for impairment on an annual basis and may be subject to impairment losses as circumstances change (e.g., after an acquisition).
For example, in connection with the Merger, we recorded goodwill in the amount of $424.2 million. The combined company may have to record a significant goodwill impairment in the future, which could materially adversely affect its reported financial results and negatively impact the trading value of its Common Stock.
The laws and regulations applicable to public companies are complex and may require an increasing amount of our management’s time and increase staffing and compliance costs.
We face significant challenges in managing the transition of Nutex’ legacy private held operations to a publicly traded company, which is subject to significant and increasing regulatory oversight and reporting obligations under federal securities laws. Laws pertaining to public companies, including new regulations proposed by the SEC, are increasingly complex and could force management to devote increasing amounts of time to the compliance with such laws and potentially impact time available to the management of our business. The combined company will be required to continue to expand its employee base and hire additional employees to support its operations as a public company, which will increase operating costs in future periods.
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Our business and the markets in which we operate are new and rapidly evolving, which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Our business and the markets in which we operate are new and rapidly evolving which make it difficult to evaluate and assess the success of our business to date, our future prospects and the risks and challenges that we may encounter. These risks and challenges include our ability to:
| • | attract new partner physicians; |
| • | retain our current physician partners; |
| • | comply with existing and new laws and regulations applicable to our business and in our industry; |
| • | anticipate and respond to changes in reimbursement rates and the markets in which we operate; |
| • | react to challenges from existing and new competitors; |
| • | maintain
and continually enhance our reputation; |
| • | effectively manage our growth and business operations, including new geographies; |
| • | forecast our revenue, which includes reimbursements, and budget for, and manage, our expenses, including our medical expense amounts, and capital expenditures; |
| • | hire and retain talented individuals at all levels of our organization; |
| • | maintain and continually improve our infrastructure to adjust for the growth of the company, including our data protection, intellectual property and cybersecurity; and |
| • | successfully execute our ambitious growth strategy. |
If we fail to understand fully or adequately address these challenges that we may encounter in the future, including those challenges described here and elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could be adversely affected. If the risks and uncertainties that we plan for when operating our business are incorrect or change, or if we fail to manage these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.
Our limited operating history as a combined company makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.
We completed our merger on April 1, 2022 and we are continuing to grow our management capabilities. Consequently, predictions about our future success may not be as accurate as they could be if we had a longer combined operating history. If our growth strategy is not successful, we may not be able to continue to grow our revenue or operations. Our limited combined operating history, evolving business and anticipated rapid growth make it difficult to evaluate our future prospects and the risks and challenges we may encounter, and we may not continue to grow at or near anticipated rates.
In addition, as a business with a limited combined operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges.
We may need to raise additional capital to fund our existing operations or expand our operations.
We may need to spend significant amounts to expand our existing operations, including expansion into new geographies. Based upon our current operating plan, we believe that our existing cash, cash equivalents and restricted cash will be sufficient to fund our operating and capital needs for at least the next twelve months. This estimate and our expectation regarding the sufficiency of funds are based on assumptions that may prove to be incorrect, and the revenue we generate may not be sufficient to support our growth strategy. We also may finance our cash needs through a combination of equity offerings and debt financings or other sources, pending market conditions.
Our present and future funding requirements will depend on many factors, including:
| • | our ability to achieve revenue growth; |
| • | our ability to effectively manage medical expense amounts; |
| • | the cost of expanding our operations, including our geographic scope, and our offerings, including our marketing efforts; |
| • | our rate of progress in launching, commercializing and establishing adoption of our services; and |
| • | the effect of competing technological and market developments. |
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To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a securityholder. In addition, debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate development efforts.
We may experience difficulties in managing our growth and expanding our operations.
We are targeting significant growth in the scope of our operations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, compliance programs and reporting systems. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in existing controls, programs, systems and procedures, which could have an adverse effect on our business, reputation and financial results. Additionally, rapid growth in our business may place a strain on our human and capital resources.
Risks Related to Our Business and Industry
Reimbursement for our medical services is subject to change, and the reimbursement that we receive for emergency services could be subject to a significant and sustained decline.
Because we provide emergency medicine services, we do not have extensive relationships with large commercial payors and are generally out-of-network. Although some licensed facilities are in-network with payors, the Company’s general payor contracting/government enrollment strategy is to remain out of network. Since we do not have any contractual arrangements with insurance companies, we cannot predict the timing and amount of the payments we ultimately receive for our services and estimates and assumptions, which are based on historical insurance payment amounts and timing.
In addition, as a result of the NSA and the associated HHS interim final rule becoming effective on January 1, 2022, through the second quarter of 2022, we experienced a significant decline in collections of patient claims for emergency services and have had only limited success at achieving collections higher than the established qualifying payment amount, which is the median in-network contracted rate for the same insurance market. Any sustained decline in the collections we receive for our emergency services could have a material adverse effect on our operations and financial performance and may negatively affect the trading value of our common stock.
The estimates and assumptions we are or Nutex Health Holdco was required to make in connection with the preparation of our financial statements may prove to be inaccurate
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We apply ASC 606 – Revenue from Contracts with Customers in making estimates of its earned revenue and accounts receivable at each reporting date. This estimation process for variable consideration is highly subjective. The Company regularly conducts a comparative analysis of its actual results to its previously estimated results in order to evaluate whether changes to its estimation process are required. The estimation of variable consideration is particularly complex at Nutex Health Holdco in particular and within the healthcare industry generally because of the broad range of services provided, the range of reimbursements by patient insurance companies and collectability of patient responsible amounts. In addition, the Company’s subsidiary Nutex Health Holdco operates as an out-of-network provider and, as such, does not have negotiated reimbursement rates with any insurance companies, adding to the complexity and potential uncertainty of the estimation process.
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Our estimates with respect to the claims processing by insurance companies and our resulting cash collections may differ from previous estimated results and we may be required to make periodic adjustments to our estimation process for new facts or circumstances.
Ultimate amounts collected may differ from anticipated collections, and, as a result, may impact our ability to generate revenue at expected levels.
The continuing COVID-19 global pandemic could negatively affect our operations, business and financial condition, and our ability to generate revenue could be negatively impacted if the U.S. economy remains unstable for a significant amount of time.
The continuing COVID-19 crisis is still rapidly evolving and much of its impact remains unknown and difficult to predict. It could potentially negatively impact our financial performance in 2022 and beyond.
We experienced, and in the future could experience, supply chain disruptions, including shortages and delays, and could experience significant price increases, in equipment and medical supplies, particularly personal protective equipment or PPE. Staffing, equipment, and medical supplies shortages may also impact our ability to serve patients at our centers.
In addition, our results and financial condition may be adversely affected by future federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic or the U.S. health care system, which, if adopted, could result in direct or indirect restrictions to its business, financial condition, results of operations and cash flow.
Disruptions to our business as a result of the continuing COVID-19 pandemic (including the potential resurgences of COVID-19) could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on our management team and key employees and our business, financial condition, cash flows and results of operations could be harmed if we are unable to retain qualified personnel.
Our success depends largely upon the continued services of key members of senior management, including our chief executive officer. We also rely on our leadership team in the areas of operations and general and administrative functions. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives. Our business would also be adversely affected if we fail to adequately plan for succession of our executives and senior management; or if we fail to effectively recruit, integrate, retain and develop key talent and/or align our talent with our business needs, in light of the current rapidly changing environment. While we have succession plans in place and we have employment arrangements with our key executives, these do not guarantee that the services of these or suitable successor executives will continue to be available to us.
Competition for qualified personnel in our field is intense due to the limited number of individuals who possess the skills and experience required by our industry. As a result, as we enter new geographies, it may be difficult for us to hire additional qualified personnel with the necessary skills to work in such geographies. If our hiring efforts in new or existing geographies are not successful, our business will be harmed. In addition, we have experienced employee turnover and expect to continue to experience employee turnover in the future. New hires require significant training and, in most cases, take significant time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. If our retention efforts are not successful or our employee turnover rate increases in the future, our business, financial condition, cash flows and results of operations will be harmed.
In addition, in making employment decisions, job candidates often consider the value of the stock options or other equity instruments they are to receive in connection with their employment. Volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain highly skilled personnel. Further, the requirement to expense stock options and other equity instruments may discourage us from granting the size or type of stock option or equity awards that job candidates require to join our company. Failure to attract new personnel or failure to retain and motivate our current personnel, could have a material adverse effect on our business, financial condition and results of operations.
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Our growth depends in part on our ability to identify and develop successful new geographies, physician partners and patients. If we are not able to successfully execute upon our growth strategies, there may be a material adverse effect on our business, financial condition, cash flows and results of operations.
Our business depends on our ability to identify and develop successful geographies and relationships with physician partners and healthcare professionals, and to successfully execute upon our growth initiatives to increase the profitability of our physician partners and healthcare professionals. In order to pursue our strategy successfully, we must effectively implement our partnership model, including identifying suitable candidates and successfully building relationships with and managing integration of new physician partners. We contract with a limited number of physician partners and rely on such physicians within each geography. Our growth initiatives in our existing geographies depend, in part, on our physician partners’ ability to increase their capacity and to effectively meet increased patient demand. We may encounter difficulties in recruiting additional physicians to work at our hospitals due to many factors, including significant competition in their geographies. Accordingly, the loss or dissatisfaction of any physician partners, our inability to recruit, or the failure of our hospitals to recruit additional physicians or manage and scale capacity to timely meet patient demand, could substantially harm our reputation, impact our competitiveness, and impair our ability to attract new physician partners and maintain existing physician partnerships, both in new geographies and in geographies in which we currently operate, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Further, our growth strategy depends, in part, on securing and integrating new high-caliber physician partners and expanding into new geographies in which we have little or no operating experience. Integration and other risks can be more pronounced for larger and more complicated relationships or relationships outside of our core business space, or if we pursue multiple relationships simultaneously. New geographies into which we seek to expand may have laws and regulations that differ from those applicable to our current operations. As a rapidly growing company, we may be unfamiliar with the regulatory requirements in each geography that we enter, and we may be forced to incur significant expenditures to ensure compliance with requirements to which we are subject. If we are unable or unwilling to incur such costs, our growth in new geographies may be less successful than in our current geographies.
Further, our growth to date has increased the significant demands on our management, operational and financial systems, infrastructure and other resources. We must continue to improve our existing systems for operational and financial management, including our reporting systems, procedures and controls. These improvements could require significant capital expenditures and place increasing demands on our management. We may not be successful in managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do not successfully manage these processes, our business, financial condition, cash flows and results of operations could be harmed.
In his capacity as the co-owner of the real estate entities that lease the land and buildings to our hospital facilities, Dr. Vo, our Chairman, CEO and major stockholder, may have conflicts of interest with the Company and its public stockholders.
The majority of our hospital facilities have contractual relationships with separately owned real estate entities (the “Real Estate Entities”) and each hospital has contractual relationships with separately owned professional entities (the “Physician LLCs”).
The Physician LLCs, which are owned by the doctors providing services to the corresponding hospital, provide physician and provider services to the hospitals, and employ the doctors and other providers.
The Real Estate Entities, also partially owned by the doctors providing services to the corresponding hospital, own the land and/or buildings that are leased to the our hospitals. The Real Estate Entities incur debt to purchase or construct the hospital facility. Lease payments received from our hospitals are used by the Real Estate Entities to make payments on their debt. Each hospital facility’s lease payments are guaranteed by the Company.
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In addition to its doctor owners, each Real Estate Entity is partially owned or controlled by Dr. Vo, our Chairman, CEO and major stockholder holding approximately 41% of our outstanding common stock. As a result, the interests of Dr. Vo, in his capacity as part owner of the Real Estate Entities, may differ from the interests of the Company and its public shareholders, both in the re-negotiation of existing contractual relationships between the Company-owned hospital facilities and the Real Estate Entities and in the establishment of new hospital entities and their respective Real Estate Entities.
If the estimates and assumptions we use to project the size, revenue or medical expense amounts of our target geographies are inaccurate or the cost of providing services exceeds the amounts received by us, our future growth prospects may be impacted, and we may generate losses or fail to attain financial performance targets.
We often do not have access to reliable historical data regarding the size, revenue or medical expense levels of our target geographies or potential physician partners. As a result, our market opportunity estimates and financial forecasts developed as we enter into a new geography, are subject to significant uncertainty, and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this prospectus relating to the size and expected growth of the market for our services and the estimates of our market opportunity may prove to be inaccurate.
Changes in our anticipated ratio of medical expense to revenue can significantly impact our financial results. Accordingly, the failure to adequately predict and control medical costs and expenses could have a material adverse effect on our business, results of operations, financial condition and cash flows. Additionally, the medical expenses of patients may be outside of our physician partners’ control in the event that patients take certain actions that increase such expenses, such as unnecessary hospital visits. If we underestimate or do not correctly predict the cost of the care our partner physicians furnish to patients, we might be underpaid for the care that must be provided to patients, which could have a negative impact on our results of operations and financial condition.
We primarily depend on reimbursement by third-party payors, as well as payments by individuals, which could lead to delays and uncertainties in the timing and process of reimbursement, including any changes or reductions in Medicare reimbursement rates or rules.
The reimbursement process is complex and can involve lengthy delays. Although we recognize revenue when we provide services to patients, we may from time-to-time experience delays in receiving reimbursement for the service provided. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that the patient is not eligible for coverage, certain amounts are not reimbursable under plan coverage, were for services provided that were not medically necessary, or additional supporting documentation is necessary. Retroactive adjustments may change amounts realized from third-party payors. As described below, we are subject to audits by such payors, including governmental audits of our Medicare claims, and may be required to repay these payors if a finding is made that we were incorrectly reimbursed. Delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional borrowing costs. Third-party payors are also increasingly focused on controlling healthcare costs, and such efforts, including any revisions to reimbursement policies, may further reduce, complicate or delay our reimbursement claims.
In addition, certain of our patients are covered under health plans that require the patient to cover a portion of their own healthcare expenses through the payment of copayments or deductibles. We may not be able to collect the full amounts due with respect to these payments that are the patient’s financial responsibility, or in those instances where physicians provide services to uninsured individuals. To the extent permitted by law, amounts not covered by third-party payors are the obligations of individual patients for which we may not receive whole or partial payment. Any increase in cost shifting from third-party payors to individual patients, including as a result of high deductible plans for patients, increases our collection costs and reduces overall collections, which we may not be able to offset with sufficient revenue.
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Nutex has, and may in the future become, subject to medical liability claims, which could cause significant expenses and may require Nutex to pay significant damages if not covered by insurance, and could harm its business, operating results, and financial condition.
Nutex’s business entails the risk of medical liability claims, including class actions, against the clinicians employed by the physician practice entity (an “Affiliated Practice Entity”), and the Nutex facilities. Although Nutex and the Affiliated Practice Entities carry insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our and their respective businesses, successful medical liability claims could result in substantial damage awards that exceed the limits of our and the Affiliated Practice Entities’ insurance coverage. Professional liability insurance is expensive and insurance premiums may increase significantly in the future.
Any claims made against Nutex that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against and divert the attention of management from operations, which could have a material adverse effect on the business, operating results, and financial condition. In addition, any claims may adversely affect Nutex’ business and reputation.
Our business and growth strategy depend on our ability to maintain and expand facilities staffed with qualified physicians. If we are unable to do so, future growth would be limited and our business, operating results and financial condition would be harmed.
Our success is dependent upon a continued ability to maintain an adequate staff of qualified providers to staff the facilities. If we are unable to recruit and retain physicians and other healthcare professionals, it would have a material adverse effect on its business and ability to grow and would adversely affect the results of operations. In any particular market, providers could demand higher payments or take other actions that could result in higher medical costs, less attractive service for our customers or difficulty meeting applicable regulatory or accreditation requirements. Our ability to develop and maintain satisfactory relationships with providers also may be negatively impacted by other factors not associated with us, such as changes in reimbursement levels and consolidation activity among hospitals, physician groups and healthcare providers, the continued private equity investment in physician practice management platforms and other market and operating pressures on healthcare providers. The failure to maintain or to secure new cost-effective provider contracts may result in a loss of or inability to staff existing or new facilities, higher costs, less attractive service for patients and/or difficulty in meeting applicable regulatory requirements, any of which could have a material adverse effect on our business, financial condition and results of operations.
If any of our physician partners lose their regulatory licenses, permits and/or accreditation status, or become ineligible to receive reimbursement under Medicare or Medicaid or from other third-party payors, there may be a material adverse effect on our business, financial condition, cash flows, or results of operations.
The operations of our hospitals through our physician partners are subject to extensive federal, state and local regulation relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures, fire prevention, rate-setting and compliance with building codes and environmental protection. Our hospitals and their affiliated professional entities are also subject to extensive laws and regulation relating to facility and professional licensure, conduct of operations, including financial relationships among healthcare providers, Medicare and Medicaid fraud and abuse and physician self-referrals, and maintaining updates to the hospital’s affiliated professional entities’ enrollment in the Medicare and Medicaid programs, including the addition of new clinic locations, providers and other enrollment information. Our hospitals and their affiliated professional entities are subject to periodic inspection by licensing authorities and accreditation organizations to assure their continued compliance with these various standards. There can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time. Should any of our hospitals or their affiliated professional entities be found to be noncompliant with these requirements, we could be assessed fines and penalties, could be required to refund reimbursement amounts or could lose our licensure or Medicare and/or Medicaid certification or accreditation so that we or our hospitals are unable to receive reimbursement from third-party payors, which could materially adversely affect our business, financial condition, cash flows or results of operations.
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We are dependent on our physicians and other healthcare professionals to effectively manage the quality and cost of care.
Our success depends upon our continued ability to collaborate with and expand the number of highly qualified physicians and other healthcare professionals, which are key drivers of our profitability.
We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition and results of operations will be harmed.
Our industry is competitive and we expect it to attract increased competition. We currently face competition in various aspects of our business, including from a range of companies that provide similar services, including hospitals, managed service organizations and provider networks and data analysis consultants.
Our primary competitors include numerous local provider networks, hospitals and health systems. We may face a more competitive environment and increased challenges to grow at the rates we have projected. We expect that competition will continue to increase as a result of consolidation in the healthcare industry and increased demand for its services.
Some of our competitors may have greater name recognition, particularly in local geographies, longer operating histories, superior products or services and significantly greater resources than we do. Further, our current or potential competitors may be acquired by or partner with third parties with greater resources than we have. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand premium competition. In addition, current and potential competitors have established, and may in the future establish, cooperative relationships with providers of complementary services, technologies or services to increase the attractiveness of their services.
Accordingly, new competitors or alliances may emerge which could put us at a competitive disadvantage. If we are unable to successfully compete, our business, financial condition, cash flows and results of operations could be materially adversely affected.
Developments affecting spending by the healthcare industry could adversely affect our business.
The U.S. healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. General reductions in expenditures by healthcare industry participants could result from, among other things:
| • | government regulations or private initiatives that affect the manner in which healthcare providers interact with patients, payors or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services; |
| • | consolidation of healthcare industry participants; |
| • | federal amendments to, lack of enforcement or development of applicable regulations for, or repeal of the ACA; |
| • | reductions in government funding for healthcare; and |
| • | adverse changes in business or economic conditions affecting healthcare payors or providers or other healthcare industry participants. |
Any of these changes in healthcare spending could adversely affect our revenue. Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future. However, the timing and impact of developments in the healthcare industry are difficult to predict. Demand for our services may not continue at current levels and we may not have adequate technical, financial, and marketing resources to react to changes in the healthcare industry.
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We and our physician partners and other healthcare professionals may become subject to medical liability claims, which could cause us to incur significant expenses and may require us to pay significant damages if the claims are not covered by insurance.
Our overall business entails the risk of medical liability claims. Although we and our partner professionals carry insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to the services rendered, successful medical liability claims could result in substantial damage awards that exceed the limits of our and those partner professionals’ insurance coverage. We carry or will carry professional liability insurance for us and each of our healthcare professionals. Professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result, adequate professional liability insurance may not be available to us and our partner professionals in the future at acceptable costs or at all, which may negatively impact our and our partner professionals’ ability to provide services to our hospitals, and thereby adversely affect our overall business and operations.
Any claims made against us or our partner professionals that are not fully covered by insurance could be costly to defend against, result in substantial damage awards, and divert the attention of our management and our partner professional entities from our operations, which could have a material adverse effect on our business, financial condition and results of operations. In addition, any claims may adversely affect our business or reputation.
If we or our partner physicians or other healthcare providers fail to comply with applicable data interoperability and information blocking rules, our consolidated results of operations could be adversely affected.
The 21st Century Cures Act, or the Cures Act, which was passed and signed into law in December 2016, includes provisions related to data interoperability, information blocking and patient access. In March 2020, the U.S. Department of Health and Human Services, or HHS, Office of the National Coordinator for Health Information Technology, or ONC, and CMS finalized and issued complementary rules that are intended to clarify provisions of the Cures Act regarding interoperability and information blocking, and include, among other things, requirements surrounding information blocking, changes to ONC’s health IT certification program and requirements that CMS regulated payors make relevant claims/care data and provider directory information available through standardized patient access and provider directory application programming interfaces that connect to provider electronic health record systems. The companion rules will transform the way in which healthcare providers, health IT developers, health information exchanges/health information networks, or HIEs/HINs, and health plans share patient information, and create significant new requirements for healthcare industry participants. For example, the ONC rule, which went into effect on April 5, 2021, prohibits healthcare providers, health IT developers of certified health IT, and HIEs/HINs from engaging in practices that are likely to interfere with, prevent, materially discourage, or otherwise inhibit the access, exchange or use of electronic health information, or EHI, also known as “information blocking.” To further support access and exchange of EHI, the ONC rule identifies eight “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met. Any failure to comply with these rules could have a material adverse effect on our business, results of operations and financial condition.
Our business and operations would suffer in the event of information technology system failures, security breaches, or other deficiencies in cybersecurity.
Our information technology systems facilitate our ability to conduct our business. While we have disaster recovery systems and business continuity plans in place, any disruptions in our disaster recovery systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations. Despite our implementation of a variety of security measures, our information technology systems could be subject to physical or electronic break-ins, and similar disruptions from unauthorized tampering or any weather-related disruptions where our headquarters is located. In addition, in the event that a significant number of our management personnel were unavailable in the event of a disaster, our ability to effectively conduct business could be adversely affected.
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In the ordinary course of our business, we, our partner physicians or other physician partners collect and store sensitive data, including personally identifiable information, protected health information, or PHI, intellectual property and proprietary business information owned or controlled by us or our employees, members and other parties. We manage and maintain our applications and data utilizing a combination of on-site systems and cloud-based data centers. We utilize external security and infrastructure vendors to provide and manage parts of our information technology systems, including our data centers. These applications and data encompass a wide variety of business-critical information, including research and development information, customer information, commercial information and business and financial information. We face a number of risks with respect to the protection of this information, including loss of access, inappropriate use or disclosure, unauthorized access, inappropriate modification and the risk of being unable to adequately monitor and audit and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data or otherwise process it on our behalf. A breach or failure of our or our third-party vendors’ or subcontractors’ network, hosted service providers or vendor systems could result from a variety of circumstances and events, including third-party action, employee negligence or error, malfeasance, computer viruses, cyber-attacks by computer hackers such as denial-of-service and phishing attacks, failures during the process of upgrading or replacing software and databases, power outages, hardware failures, telecommunication failures, user errors, or catastrophic events. If these third-party vendors or subcontractors fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage.
The secure processing, storage, maintenance and transmission of information are vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take reasonable measures to protect sensitive data from unauthorized access, use or disclosure, our information technology and infrastructure may still be vulnerable to, and we have in the past experienced, low-threat attacks by hackers or breaches due to employee error, malfeasance or other malicious or inadvertent disruptions. Further, attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Our information systems must also be continually updated, patched and upgraded to protect against known vulnerabilities. The volume of new vulnerabilities has increased markedly, as has the criticality of patches and other remedial measures. In addition to remediating newly identified vulnerabilities, previously identified vulnerabilities must also be continuously addressed. Accordingly, we are at risk that cyber-attackers exploit these known vulnerabilities before they have been addressed.
Any access, breach, or other loss of information could result in legal claims or proceedings, and liability under federal or state laws that protect the privacy of personal information, and corresponding regulatory penalties. In addition, we could face criminal liability, damages for contract breach and incur significant costs for remedial measures to prevent future occurrences and mitigate past violations. Notice of breaches may be required to be made to affected individuals or other state or federal regulators, and for extensive breaches, notice may need to be made to the media or State Attorneys General. Such a notice could harm our reputation and our ability to compete. Although we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident. Despite our implementation of security measures to prevent unauthorized access, our data is currently accessible through multiple channels, and there is no guarantee we can protect our data from breach. Unauthorized access, loss or dissemination could also disrupt our operations and damage our reputation, any of which could adversely affect our business.
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Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, financial condition and results of operations.
Numerous state and federal laws, regulations, standards and other legal obligations, including consumer protection laws and regulations, which govern the collection, dissemination, use, access to, confidentiality, security and processing of personal information, including health-related information, could apply to our operations or the operations of our partners. For example, the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and regulations implemented thereunder, or collectively HIPAA, imposes privacy, security and breach notification obligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors. HIPAA requires covered entities, such as physician partners, and business associates, such as us, to develop and maintain policies with respect to the protection of, use and disclosure of PHI, including the adoption of administrative, physical and technical safeguards to protect such information, and certain notification requirements in the event of a breach of unsecured PHI.
Additionally, under HIPAA, covered entities must report breaches of unsecured PHI to affected individuals without unreasonable delay, not to exceed 60 days following discovery of the breach by a covered entity or its agents. Notification also must be made to the HHS Office for Civil Rights and, in certain circumstances involving large breaches, to the media. Business associates must report breaches of unsecured PHI to covered entities within 60 days of discovery of the breach by the business associate or its agents. A non-permitted use or disclosure of PHI is presumed to be a breach under HIPAA unless the covered entity or business associate establishes that there is a low probability the information has been compromised consistent with requirements enumerated in HIPAA.
Entities that are found to be in violation of HIPAA as the result of a breach of unsecured PHI, a complaint about privacy practices or an audit by HHS may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. HIPAA also authorizes state Attorneys General to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.
Even when HIPAA does not apply, according to the Federal Trade Commission, or the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair and/or deceptive acts or practices in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Further, certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the state of Nevada enacted a law that went into force on October 1, 2019 and requires companies to honor consumers’ requests to no longer sell their data. In addition, the California Consumer Privacy Act of 2018, or the CCPA, went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. Further, the California Privacy Rights Act, or the CPRA, recently passed in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. In addition, California’s Confidentiality of Medical Information Act, or the CMIA, places restrictions on the use and disclosure of health information, including PHI, and other personally identifying information, and can impose a significant compliance obligation. Violations of the CMIA can result in criminal, civil and administrative sanctions, and the CMIA also provides individuals a private right of action with respect to disclosures of their health information that violate CMIA. In the event that we are subject to these domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
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Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject, from time to time, to legal proceedings, federal and state audits, government investigations, and payor audits, investigations, overpayments, and claims that arise in the ordinary course of business such as claims brought by our clients in connection with commercial disputes or employment claims made by our current or former associates. Litigation and audits may result in substantial costs and may divert management’s attention and resources, which may substantially harm our business, financial condition and results of operations. Insurance may not cover such claims, may not provide sufficient payments to cover all of the costs to resolve one or more such claims and may not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our earnings and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the market price of our Common Stock or publicly traded warrants.
Changes in U.S. tax laws, and the adoption of tax reform policies could adversely affect our operating results and financial condition.
We are subject to federal and state income and non-income taxes in the United States. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating these taxes. Our effective tax rates could be affected by numerous factors, such as entry into new businesses and geographies, changes to our existing business and operations, acquisitions and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles and interpretations. We are required to take positions regarding the interpretation of complex statutory and regulatory tax rules and on valuation matters that are subject to uncertainty, and tax authorities may challenge the positions that we take.
Our quarterly results may fluctuate significantly, which could adversely impact the value of our Common Stock.
Our quarterly results of operations, including our revenue, net loss and cash flows, has varied and may vary significantly in the future, and period-to-period comparisons of our results of operations may not be meaningful. Accordingly, our quarterly results should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, including, without limitation, the following:
| • | the timing of recognition of revenue, including possible delays in the recognition of revenue due to sometimes unpredictable implementation timelines; |
| • | the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; |
| • | our ability to respond to competitive developments; |
| • | security or data privacy breaches and associated remediation costs; and |
| • | the timing of expenses related to the development or acquisition of additional hospitals or businesses. |
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Any fluctuation in our quarterly results may not accurately reflect the underlying performance of our business and could cause a decline in the trading price of our Common Stock.
Obligations under the term loans of our Hospital Subsidiaries, and our related loan and leases guarantees could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions. An event of default under the term loans could harm our business, and creditors having security interests over the hospital assets as well as the leased real estate would be able to foreclose on such assets.
Each of our Hospital Subsidiaries is a party to term loans and lines of credit guaranteed by Nutex Health Holdco to finance hospital equipment and related assets, for aggregate borrowings of approximately $20.4 million as of June 30, 2022.
In addition, Nutex Health Holdco has assumed in the Merger and subsequently entered into guarantees of (i) finance lease obligations of each of the Hospital Subsidiaries and (ii) mortgage debt of Real Estate Entities affiliated with Dr. Vo, the Company’s chairman and Chief Executive Officer.
The term loans and lease and mortgage loan guarantees require us to comply with a number of financial and other obligations, which include maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and may impose significant operating and financial restrictions on us, including restrictions on our ability to take actions that may be in our interests. These obligations may limit our flexibility in our operations, and breaches of these obligations could result in defaults under the term loans or guarantees, even if we had satisfied our payment obligations. Moreover, if we defaulted on these obligations, creditors having security interests over the hospital assets or real estate assets could exercise various remedies, including foreclosing on and selling our assets or the real estate assets underlying our hospitals. Unless waived by creditors, for which no assurance can be given, defaulting on these obligations could result in a material adverse effect on our financial condition and ability to continue our operations.
The arrangements we have with our VIEs are not as secure as direct ownership of such entities.
Because of corporate practice of medicine laws, we entered into contractual arrangements to manage certain affiliated physician practice groups or independent physician associations, which allow us to consolidate those groups for financial reporting purposes. We do not have direct ownership interests in any of our VIEs and are not able to exercise rights as an equity holder to directly change the members of the boards of directors of these entities so as to affect changes at the management and operational level. Under our arrangements with our VIEs, we must rely on their equity holders to exercise our control over the entities. If our affiliated entities or their equity holders fail to perform as expected, we may have to incur substantial costs and expend additional resources to enforce such arrangements.
Any failure by our affiliated entities or their owners to perform their obligations under their agreements with us would have a material adverse effect on our business, results of operations and financial condition.
Our affiliated physician practice groups are owned by individual physicians who could die, become incapacitated, or become no longer affiliated with us. Although our Management Services Agreements (MSAs) with these affiliates provide that they will be binding on successors of current owners, as the successors are not parties to the MSAs, it is uncertain in case of the death, bankruptcy, or divorce of a current owner whether their successors would be subject to such MSAs.
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If there is a change in accounting principles or the interpretation thereof affecting consolidation of VIEs, it could impact our consolidation of total revenues derived from our affiliated physician groups.
Our financial statements are consolidated and include the accounts of our majority-wholly owned AHP subsidiary, non-owned affiliated physician groups and real estate entities that each is a VIE, which consolidation is effectuated in accordance with applicable accounting rules promulgated by the Financial Accounting Standards Board (“FASB”). Such accounting rules require that, under some circumstances, the VIE consolidation model be applied when a reporting enterprise holds a variable interest (e.g., equity interests, debt obligations, certain management, and service contracts) in a legal entity. Under this model, an enterprise must assess the entity in which it holds a variable interest to determine whether it meets the criteria to be consolidated as a VIE. If the entity is a VIE, the consolidation framework next identifies the party, if one exists, that possesses a controlling financial interest in the VIE, and then requires that party to consolidate as the primary beneficiary. An enterprise’s determination of whether it has a controlling financial interest in a VIE requires that a qualitative determination be made and is not solely based on voting rights. If an enterprise determines the entity in which it holds a variable interest is not subject to the VIE consolidation model, the enterprise should apply the traditional voting control model which focuses on voting rights.
In our case, the VIE consolidation model applies to our controlled, but not owned, physician-affiliated entities including our IPA and PLLCs. Our determination regarding the consolidation of our affiliates, however, could be challenged, which could have a material adverse effect on our operations. In addition, in the event of a change in accounting rules or FASB’s interpretations thereof, or if there were an adverse determination by a regulatory agency or a court or a change in state or federal law relating to the ability to maintain present agreements or arrangements with our affiliated physician group, we may not be permitted to continue to consolidate the revenues of our VIE.
Risk related to our Population Health Management Division
New physicians and other providers must be properly enrolled in governmental healthcare programs before we can receive reimbursement for their services, and there may be delays in the enrollment process.
Each time a new physician joins us or our affiliated IPA groups, we must enroll the physician under our applicable group identification number for Medicare and Medicaid programs and for certain managed care and private insurance programs before we can receive reimbursement for services the physician renders to beneficiaries of those programs. The estimated time to receive approval for the enrollment is sometimes difficult to predict and, in recent years, the Medicare program carriers often have not issued these numbers to our affiliated physicians in a timely manner. These practices result in delayed reimbursement that may adversely affect our cash flows.
We may have difficulty collecting payments from third-party payors in a timely manner.
We derive significant revenue from third-party payors, and delays in payment or refunds to payors may adversely impact our net revenue. We assume the financial risks relating to uncollectible and delayed payments. In particular, we rely on some key governmental payors. Governmental payors typically pay on a more extended payment cycle, which could require us to incur substantial expenses prior to receiving corresponding payments. In the current healthcare environment, as payors continue to control expenditures for healthcare services, including through revising their coverage and reimbursement policies, we may continue to experience difficulties in collecting payments from payors that may seek to reduce or delay such payments. If we are not timely paid in full or if we need to refund some payments, our revenues, cash flows, and financial condition could be adversely affected.
Decreases in payor rates could adversely affect us.
Decreases in payor rates, either prospectively or retroactively, could have a significant adverse effect on our revenues, cash flows, and results of operations.
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Federal and state laws may limit our ability to collect monies owed by patients.
We use third-party collection agencies whom we do not control to collect from patients any co-payments and other payments for services that our physicians provide. The federal Fair Debt Collection Practices Act of 1977 (the “FDCPA”) restricts the methods that third-party collection companies may use to contact and seek payment from consumer debtors regarding past due accounts. State laws vary with respect to debt collection practices, although most state requirements are similar to those under the FDCPA. Therefore, such agencies may not be successful in collecting payments owed to us and our affiliated physician groups. If practices of collection agencies utilized by us are inconsistent with these standards, we may be subject to actual damages and penalties. These factors and events could have a material adverse effect on our business, results of operations, and financial condition.
We have established reserves for our potential medical claim losses, which are subject to inherent uncertainties, and a deficiency in the established reserves may lead to a reduction in our assets or net incomes.
We establish reserves for estimated Insured but Not Reported (IBNR) claims. IBNR estimates are developed using actuarial methods and are based on many variables, including the utilization of healthcare services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation methods and the resulting reserves are periodically reviewed and updated.
Many of our contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various services. Such interpretations may not come to light until a substantial period of time has passed. The inherent difficulty in interpreting contracts and estimating necessary reserves could result in significant fluctuations in our estimates from period to period. Our actual losses and related expenses therefore may differ, even substantially, from the reserve estimates reflected in our financial statements. If actual claims exceed our estimated reserves, we may be required to increase reserves, which would lead to a reduction in our assets or net income.
We do not have a Knox-Keene license.
The Knox-Keene Health Care Service Plan Act of 1975 was passed by the California State Legislature to regulate California managed care plans and is currently administered by the California Department of Managed Healthcare (DMHC). A Knox-Keene Act license is required to operate a healthcare service plan, e.g., an HMO, or an organization that accepts global risk, i.e., accepts full risk for a patient population, including risk related to institutional services, e.g., hospital, and professional services. Applying for and obtaining such a license is a time consuming and detail-oriented undertaking. We currently do not hold any Knox-Keene license. If the DMHC were to determine that we have been inappropriately taking risk for institutional and professional services as a result of our various hospital and physician arrangements without having any Knox-Keene license or applicable regulatory exemption, we may be required to obtain a Knox-Keene license and could be subject to civil and criminal liability, any of which could have a material adverse effect on our business, results of operations, and financial condition.
A Knox-Keene Act license or exemption from licensure, where applicable, is required to operate a healthcare service plan, e.g., an HMO, or an organization that accepts global risk, i.e., accepts full risk for a patient population, including risk related to institutional services, e.g., hospital, and professional services.
If our affiliated physician group is not able to satisfy California financial solvency regulations, they could become subject to sanctions and their ability to do business in California could be limited or terminated.
The DMHC has instituted financial solvency regulations. The regulations are intended to provide a formal mechanism for monitoring the financial solvency of a RBO in California, including capitated physician groups. Under current DMHC regulations, our affiliated physician groups, as applicable, are required to, among other things:
| • | Maintain, at all times, a minimum “cash-to-claims ratio” (which means the organization’s cash, marketable securities, and certain qualified receivables, divided by the organization’s total unpaid claims liability) of 0.75; and |
| • | Submit periodic reports to the DMHC containing various data and attestations regarding their performance and financial solvency, including IBNR calculations and documentation and attestations as to whether or not the organization (i) was in compliance with the “Knox-Keene Act” requirements related to claims payment timeliness, (ii) had maintained positive tangible net equity (“TNE”), and (iii) had maintained positive working capital. |
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In the event that a physician group is not in compliance with any of the above criteria, it would be required to describe in a report submitted to the DMHC the reasons for non-compliance and actions to be taken to bring it into compliance. Under such regulations, the DMHC can also make some of the information contained in the reports, public, including, but not limited to, whether or not a particular physician organization met each of the criteria. In the event any of our affiliated physician groups are not able to meet certain of the financial solvency requirements, and fail to meet subsequent corrective action plans, it could be subject to sanctions, or limitations on, or removal of, its ability to do business in California. There can be no assurance that our affiliated physician group, such as our IPA, will remain in compliance with DMHC requirements or be able to timely and adequately rectify non-compliance. To the extent that we need to provide additional capital to our affiliated physician group in the future in order to comply with DMHC regulations, we would have less cash available for other parts of our operations.
Primary care physicians may seek to affiliate with our and our competitors’ IPAs at the same time.
It is common in the medical services industry for primary care physicians to be affiliated with multiple IPAs. Our affiliated IPA therefore may enter into agreements with physicians who are also affiliated with our competitors. However, some of our competitors at times have agreements with physicians that require the physician to provide exclusive services. Our affiliated IPA often has no knowledge, and no way of knowing, whether a physician is subject to an exclusivity agreement without being informed by the physician. Competitors could initiate lawsuits against us alleging in part interference with such exclusivity arrangements. An adverse outcome from any such lawsuit could adversely affect our business, cash flows and financial condition.
If we inadvertently employ or contract with an excluded person, we may face government sanctions.
Individuals and entities can be excluded from participating in the Medicare and Medicaid programs for violating certain laws and regulations, or for other reasons such as the loss of a license in any state, even if the person retains other licensure. This means that the excluded person and others are prohibited from receiving payments for such person’s services rendered to Medicare or Medicaid beneficiaries, and if the excluded person is a physician, all services ordered (not just provided) by such physician are also non-covered and non-payable. Entities that employ or contract with excluded individuals are prohibited from billing the Medicare or Medicaid programs for the excluded individual’s services and are subject to civil penalties if it does. The U.S. Department of Health and Human Services Office of the Inspector General maintains a list of excluded persons. Although we have instituted policies and procedures to minimize such risks, there can be no assurance that we will not inadvertently hire or contract with an excluded person, or that our employees or contracts will not become excluded in the future without our knowledge. If this occurs, we may be subject to substantial repayments and civil penalties which could adversely affect our business, cash flows, and financial condition.
We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property could adversely affect our business, results of operations and financial condition.
Our success depends, in part, on our ability to protect our brand and the proprietary methods and our Population Health Management Platform and other technologies that we develop under patent and other intellectual property laws of the United States and foreign jurisdictions so that we can prevent others from using our inventions and proprietary information. The particular forms of intellectual property protection that we seek, or our business decisions about when to file patent applications and trademark applications, may not be adequate to protect our business. We could be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights, determine the validity and scope of our proprietary rights or those of others, or defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of significant resources, lead to the narrowing or invalidation of portions of our intellectual property and have an adverse effect on our business, results of operations and financial condition. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant’s own intellectual property. Any of our patents, patent applications, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation.
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We expect to also rely, in part, on confidentiality agreements with our business partners, employees, consultants, advisors, customers and others in our efforts to protect our proprietary technology, processes and methods. These agreements may not effectively prevent disclosure of our confidential information, and it may be possible for unauthorized parties to copy our software or other proprietary technology or information, or to develop similar software independently without our having an adequate remedy for unauthorized use or disclosure of our confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in these cases, we would not be able to assert any trade secret rights against those parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
In addition, the laws of some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase.
Our means of protecting our intellectual property and proprietary rights may not be adequate or our competitors could independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights, our business, results of operations and financial condition could be adversely affected.
Assertions by third parties of infringement or other violations by us of their intellectual property rights could result in significant costs and harm our business and operating results.
Our success depends upon our ability to refrain from infringing upon the intellectual property rights of others. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. As we grow and enter new markets, we will face a growing number of competitors. As the number of competitors in our industry grows and the functionality of products in different industry segments overlaps, we expect that software and other solutions in our industry may be subject to such claims by third parties. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. We cannot assure you that infringement claims will not be asserted against us in the future, or that, if asserted, any infringement claim will be successfully defended. A successful claim against us could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
The information that we expect to provide to our clients could be inaccurate or incomplete, which could harm our business reputation, financial condition, and results of operations.
We expect to aggregate, process, and analyze healthcare-related data and information for use by our clients. Because data in the healthcare industry is fragmented in origin, inconsistent in format, and often incomplete, the overall quality of data received or accessed in the healthcare industry is often poor, the degree or amount of data which is knowingly or unknowingly absent or omitted can be material, and we frequently discover data issues and errors during our data integrity checks. If the analytical data that we expect to provide to our clients are based on incorrect or incomplete data or if we make mistakes in the capture, input, or analysis of these data, our reputation may suffer and our ability to attract and retain clients may be materially harmed.
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In addition, we expect to assist our clients with the management and submission of data to governmental entities, including CMS. These processes and submissions are governed by complex data processing and validation policies and regulations. If we fail to abide by such policies or submit incorrect or incomplete data, we may be exposed to liability to a client, court, or government agency that concludes that our storage, handling, submission, delivery, or display of health information or other data was wrongful or erroneous.
Our proprietary applications may not operate properly, which could damage our reputation, give rise to a variety of claims against us, or divert our resources from other purposes, any of which could harm our business and operating results.
Proprietary software and application development is time-consuming, expensive, and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we discover additional problems that prevent our proprietary applications from operating properly. If our applications and services do not function reliably or fail to achieve client expectations in terms of performance, clients could assert liability claims against us and attempt to cancel their contracts with us. Moreover, material performance problems, defects, or errors in our existing or new applications and services may arise in the future and may result from, among other things, the lack of interoperability of our applications with systems and data that we did not develop and the function of which is outside of our control or undetected in our testing. Defects or errors in our applications might discourage existing or potential clients from purchasing services from us. Correction of defects or errors could prove to be time consuming, costly, impossible, or impracticable. The existence of errors or defects in our applications and the correction of such errors could divert our resources from other matters relating to our business, damage our reputation, increase our costs, and have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Legal and Regulatory Environment
We conduct business in a heavily regulated industry and if we fail to adhere to all of the complex government laws and regulations that apply to our business, we could incur fines or penalties or be required to make changes to our operations or experience adverse publicity, any or all of which could have a material adverse effect on our business, results of operations, financial condition, cash flows, and reputation.
The U.S. healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services and collect reimbursement from governmental programs and private payors, our contractual relationships and arrangements with healthcare providers and vendors, our marketing activities and other aspects of our operations. Of particular importance are:
| • | the federal Anti-Kickback Statute, or the AKS, which prohibits the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate or other remuneration for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly. By way of example, the AKS safe harbor for value-based arrangements requires, among other things, that the arrangement does not induce a person or entity to reduce or limit medically necessary items or services furnished to any patient. Failure to meet the requirements of a safe harbor, however, does not render an arrangement illegal, although such arrangements may be subject to greater scrutiny by government authorities. Further, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; |
| • | the federal physician self-referral law, or the Stark Law, which, subject to limited exceptions, prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision of certain designated health services, or DHS, if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibits the entity from billing Medicare or Medicaid for such DHS; |
| • | the federal False Claims Act, or the FCA, which imposes civil and criminal liability on individuals or entities that knowingly submit false or fraudulent claims for payment to the government or knowingly make, or cause to be made, a false statement in order to have a false claim paid, including qui tam or whistleblower suits. There are many potential bases for liability under the FCA. The government has used the FCA to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, and providing care that is not medically necessary or that is substandard in quality. In addition, we could be held liable under the FCA if we are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing, coding or risk adjustment information to our physician partners through Provider Portal and Analytic Management Tools, respectively. The government may also assert that a claim including items or services resulting from a violation of the AKS or Stark Law constitutes a false or fraudulent claim for purposes of the FCA; |
| • | the Civil Monetary Penalties Statute, which prohibits, among other things, an individual or entity from offering remuneration to a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services from a particular provider; |
| • | the criminal healthcare fraud provisions of HIPAA and related rules that prohibit knowingly and willfully executing a scheme or artifice to defraud any healthcare benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; |
| • | reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs; |
| • | similar state law provisions pertaining to anti-kickback, self-referral and false claims issues, some of which may apply to items or services reimbursed by any payor, including patients and commercial insurers; |
| • | laws that regulate debt collection practices; |
| • | a provision of the Social Security Act that imposes criminal penalties on healthcare providers who fail to disclose, or refund known overpayments; |
| • | federal and state laws that prohibit providers from billing and receiving payment from Medicare and Medicaid for services unless the services are medically necessary, adequately and accurately documented, and billed using codes that accurately reflect the type and level of services rendered; and |
| • | federal and state laws pertaining to the provision of services by nurse practitioners and physician assistants in certain settings, physician supervision of those services, and reimbursement requirements that depend on the types of services provided and documented and relationships between physician supervisors and nurse practitioners and physician assistants. |
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The laws and regulations in these areas are complex, changing and often subject to varying interpretations. As a result, there is no guarantee that a government authority will find that we or our partner physicians or other healthcare professionals are in compliance with all such laws and regulations that apply to our business. Further, because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of the business activities undertaken by us or our partner physicians or other healthcare professionals could be subject to challenge under one or more of these laws, including, without limitation, our patient assistance programs that waive or reduce the patient’s obligation to pay copayments, coinsurance or deductible amounts owed for the services we provide to them if they meet certain financial need criteria. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to significant penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment. In addition, any action against us or our partner physicians or other physician partners for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and result in adverse publicity, or otherwise experience a material adverse impact on our business, results of operations, financial condition, cash flows, reputation as a result.
If any of our hospitals lose their regulatory licenses, permits and/or registrations, as applicable, or become ineligible to receive reimbursement from third-party payors, there may be a material adverse effect on our business, financial condition, cash flows, or results of operations.
The operations of our hospitals through partner physicians and other healthcare professionals are subject to extensive federal, state and local regulation relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures and proof of financial ability to operate. Our hospitals and partner physicians and other healthcare professionals are also subject to extensive laws and regulation relating to facility and professional licensure, conduct of operations, including financial relationships among healthcare providers, Medicare, Medicaid and state fraud and abuse and physician self-referrals, and maintaining updates to our and our partner physicians’ and other healthcare professionals’ enrollment in the Medicare and Medicaid programs, including addition of new hospital locations, providers and other enrollment information. Our hospitals are subject to periodic inspection by licensing authorities to assure their continued compliance with these various standards. There can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time. Should any of our hospitals be found to be noncompliant with these requirements, we could be assessed fines and penalties, could be required to refund reimbursement amounts or could lose our licensure or Medicare and/or Medicaid certification so that we or our partner physicians and other healthcare professionals are unable to receive reimbursement from such programs and possibly from other third-party payors, any of which could materially adversely affect our business, financial condition, cash flows or results of operations.
If our arrangements with our partner physicians and other physician partners are found to constitute the improper rendering of medical services or fee splitting under applicable state laws, our business, financial condition and our ability to operate in those states could be adversely impacted.
Our contractual relationships with our partner physicians may implicate certain state laws that generally prohibit non-professional entities from providing licensed medical services or exercising control over licensed physicians or other healthcare professionals (such activities generally referred to as the “corporate practice of medicine”) or engaging in certain practices such as fee-splitting with such licensed professionals. The interpretation and enforcement of these laws vary significantly from state to state. There can be no assurance that these laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the future that could have a material and adverse effect on our business, financial condition and results of operations. Regulatory authorities, state boards of medicine, state attorneys general and other parties may assert that, despite the agreements through which we operate, we are engaged in the provision of medical services and/or that our arrangements with our physician partners constitute unlawful fee-splitting. If a jurisdiction’s prohibition on the corporate practice of medicine or fee-splitting is interpreted in a manner that is inconsistent with our practices, we would be required to restructure or terminate our arrangements with our physician partners to bring our activities into compliance with such laws. A determination of non-compliance, or the termination of or failure to successfully restructure these relationships could result in disciplinary action, penalties, damages, fines, and/or a loss of revenue, any of which could have a material and adverse effect on our business, financial condition and results of operations. State corporate practice and fee-splitting prohibitions also often impose penalties on healthcare professionals for aiding in the improper rendering of professional services, which could discourage physicians and other healthcare professionals from providing clinical services to our hospitals.
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We face inspections, reviews, audits and investigations under federal and state government programs and contracts. These audits could have adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition and reputation.
As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. Other third-party payors may also reserve the right to conduct audits. We also periodically conduct internal audits and reviews of our regulatory compliance. An adverse inspection, review, audit or investigation could result in:
| • | refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from payors; |
| • | state or federal agencies imposing fines, penalties and other sanctions on us; |
| • | temporary suspension of payment for new patients to the facility or agency; |
| • | decertification or exclusion from participation in the Medicare or Medicaid programs or one or more payor networks; |
| • | self-disclosure of violations to applicable regulatory authorities; |
| • | damage to our reputation; |
| • | the revocation of a facility’s or agency’s license; |
| • | criminal penalties; |
| • | a corporate integrity agreement with HHS’ Office of Inspector General; and |
| • | loss of certain rights under, or termination of, our contracts with payors. |
If adverse inspections, reviews, audits or investigations occur and any of the results noted above occur, it could have a material adverse effect on our business and operating results. Furthermore, the legal, document production and other costs associated with complying with these inspections, reviews, audits or investigations could be significant.
The impact on us of recent healthcare legislation and other changes in the healthcare industry and in healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of operations.
The impact on us of healthcare reform legislation and other changes in the healthcare industry and in healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of operations. Our revenue is dependent on the healthcare industry and could be affected by changes in healthcare spending, reimbursement and policy. The healthcare industry is subject to changing political, regulatory and other influences.
On January 1, 2022, the NSA and the associated HHS interim final rule becoming effective. As a result, through the second quarter of 2022, we experienced a significant decline in collections of patient claims for emergency services and have had only limited success at achieving collections higher than the established qualifying payment amount, which is the median in-network contracted rate for the same insurance market. Since we cannot predict the outcome of numerous legal challenges and whether the final rule to be adopted by HHS will make the independent dispute resolution process more favorable to us, any sustained decline in the collections we receive for our emergency services could have a material adverse effect on our operations and financial performance and may negatively affect the trading value of our common stock.
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In addition, the ACA, which was enacted in 2010, made major changes in how healthcare is delivered and reimbursed, and it increased access to health insurance benefits to the uninsured and underinsured populations of the United States. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order initiating a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare. It is unclear how other healthcare reform measures enacted by Congress or implemented by the Biden administration or other challenges to the ACA, if any, will impact the ACA or our business.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year, which began in 2013 and will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021, unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect consumer demand and affordability for our products and services and, accordingly, the results of our financial operations. Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which first affected physician payment in 2019. At this time, it is unclear how the introduction of the Medicare quality payment program will impact overall physician reimbursement.
Such changes in the regulatory environment may also result in changes to our payer mix that may affect our operations and revenue. In addition, certain provisions of the ACA authorize voluntary demonstration projects, which include the development of bundling payments for acute, inpatient hospital services, physician services and post-acute services for episodes of hospital care. Further, the ACA may adversely affect payors by increasing medical costs generally, which could have an effect on the industry and potentially impact our business and revenue as payors seek to offset these increases by reducing costs in other areas.
Uncertainty regarding future amendments to the ACA as well as new legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could result in reduced demand and prices for our services. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments and other third-party payers will pay for healthcare products and services, which could adversely affect our business, financial condition and results of operations.
Risks Related to Our Common Stock
Anti-takeover provisions under Delaware law could make an acquisition of the Company, which may be beneficial to the stockholders of the Company, more difficult and may prevent attempts by the stockholders to replace or remove management.
We are subject to the anti-takeover provisions of the Delaware General Corporation Law (“DGCL”), including Section 203. Under these provisions, if anyone becomes an “interested stockholder,” the combined company may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, “interested stockholder” means, generally, someone owning 15% or more of the combined company’s outstanding voting stock or an affiliate of the combined company that owned 15% or more of the combined company’s outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203 of the DGCL. As such, Section 203 of the DGCL could prohibit or delay mergers or a change in control and may discourage attempts by other companies to acquire the combined company.
Additionally, certain provisions in our Charter, such as advance notice provisions for matters to be included in the proxy statement for annual meetings, could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to our stockholders.
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An active, liquid trading market for the combined company’s Common Stock may not be sustained.
The combined company may not be able to maintain an active trading market for its Common Stock on NASDAQ or any other exchange in the future. If an active market for the Common Stock is not maintained after the Merger, or if the combined company fails to satisfy the continued listing standards of NASDAQ for any reason and its securities are delisted, it may be difficult for the combined company’s securityholders to sell their securities without depressing the market price for the securities or at all. An inactive trading market may also impair the combined company’s ability to both raise capital by selling shares of capital stock, attract and motivate employees through equity incentive awards and acquire other companies, products, or technologies by using shares of capital stock as consideration.
There may be future sales of a substantial amount of our Common Stock by our stockholders, and these sales could cause the price of our Common Stock to fall.
As of August 22, 2022, there were approximately 649.8 million shares of Common Stock outstanding, including approximately 267 million shares of Common Stock held by Thomas T. Vo, M.D., our Chairman and Chief Executive Officer. An additional approximately 325 million shares of Common Stock are held by the Legacy Nutex Holders, other than Mr. Vo, all of which are subject to certain lock-up arrangements, which expire, with respect to 1/3 of those shares, on October 1, 2022, with the lockup of an additional 1/3 expiring on April 1, 2023 and the lockup with respect to the remainder of such shares expiring on October 1, 2023.
Except for shares held by our “affiliates,” as defined in Rule 144 under the Securities Act, and shares subject to lock-up arrangements, our issued and outstanding shares of Common Stock are freely transferable. As of August 22, 2022, approximately 50.8% of the outstanding shares of Common Stock were held by our executive officers and directors and their affiliated entities. As of August 22, 2022, approximately 592 million shares were subject to lockup restrictions.
In addition, pursuant to the Registration Rights Agreement and the Lock-Up Agreements that we entered into with the Legacy Nutex Holders, we are obligated to register the resale of shares of Common Stock held by such stockholders. In addition, these stockholders are entitled to demand the registration of such shares of Common Stock subject to certain minimum requirements and also have certain “piggyback” registration rights with respect to registration statements we file.
Upon effectiveness of any registration statement we file for the resale of shares held by such stockholders, and upon the expiration of the lock-up periods applicable to such stockholders, these stockholders may sell large amounts of our Common Stock in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in the share price of our Common Stock or putting significant downward pressure on the price of our Common Stock.
Sales of substantial amounts of our Common Stock in the public market, or the perception that such sales will occur, could adversely affect the market price of our Common Stock and make it difficult for us to raise funds through securities offerings in the future.
There can be no assurance that will be able to comply with the continued listing standards of Nasdaq.
If Nasdaq delists our Common Stock from trading on its exchange for failure to meet the listing standards, we could face significant material adverse consequences including:
| • | a limited availability of market quotations for our securities; |
| • | reduced liquidity for our securities; |
| • | a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| • | a limited amount of news and analyst coverage; and |
| • | a decreased ability to issue additional securities or obtain additional financing in the future. |
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General Risk Factors
Because we have no current plans to pay cash dividends on our Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your Common Stock for a price greater than that which you paid for it.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to declare dividends may be limited by restrictive covenants contained in any existing or future indebtedness. As a result, you may not receive any return on an investment in our Common Stock unless you sell your Common Stock for a price greater than that which you paid for it.
The market price and trading volume of our Common Stock may be volatile and could decline significantly.
Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions, could reduce the market price of our Common Stock in spite of our operating performance, which may limit or prevent investors from readily selling their Common Stock and may otherwise negatively affect the liquidity of the Common Stock. There can be no assurance that the market price of Common Stock will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:
| • | actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; |
| • | changes in the market’s expectations about our operating results; |
| • | success of competitors; |
| • | our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
| • | changes in financial estimates and recommendations by securities analysts concerning us or the health population management industry in general; |
| • | operating and stock price performance of other companies that investors deem comparable to us; |
| • | our ability to market new and enhanced products on a timely basis; |
| • | changes in laws and regulations affecting our business; |
| • | our ability to meet compliance requirements; |
| • | commencement of, or involvement in, litigation involving us; |
| • | changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
| • | the volume of shares of our Common Stock available for public sale; |
| • | any major change in our board of directors or management; |
| • | sales of substantial amounts of Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and |
| • | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
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The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial condition or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price and trading volume of our securities could decline.
The trading market for our securities depends in part on the research and reports that securities or industry analysts publish about us or our business. We will not control these analysts, and the analysts who publish information about us may have relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If few or no securities or industry analysts cover us, the trading price for our securities would be negatively impacted. If one or more of the analysts who covers us downgrades our securities, publishes incorrect or unfavorable research about us, ceases coverage of us, or fails to publish reports on us regularly, demand for and visibility of our securities could decrease, which could cause the price or trading volumes of our securities to decline.
We will continue to incur significantly increased costs and devote substantial management time as a result of operating as a public company.
As a public company, we will continue to incur significant legal, accounting and other expenses. For example, we are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations of the SEC and Nasdaq, including the establishment and maintenance of effective disclosure and financial controls, corporate governance requirements and required filings of annual, quarterly and current reports with respect to our business and results of operations. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations. We expect that continued compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company. We are in the process of hiring additional legal and accounting personnel and may in future need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function.
We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. This could also make it more difficult for us to attract and retain qualified people to serve on our board of directors, board committees or as executive officers.
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We are obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, adversely affect the value of our Common Stock.
We are required by Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in our annual report. The process of designing and implementing internal control over financial reporting required to comply with this requirement will be time-consuming, costly and complicated. If during the evaluation and testing process we identify one or more other material weaknesses in our internal control over financial reporting or determine that existing material weaknesses have not been remediated, our management will be unable to assert that our internal control over financial reporting is effective. See “—We have identified material weaknesses in our internal control over financial reporting. If our internal control over financial reporting is not effective, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause adverse effects on our business and may cause investors to lose confidence in our reported financial information and may lead to a decline in the price of our Common Stock.” In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may issue a report that is qualified if it is not satisfied with the our controls or the level at which our controls are documented, designed, operated or reviewed.
We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities; use of proceeds from registered securities.
Restricted stock. On May 9, 2022, the Company issued an aggregate of 83,547 unregistered and restricted shares of Company common stock, valued at an aggregate of $324,998, to the non-employee members of the board of directors. The restricted shares have a vesting term of one year. The issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Common Stock Issued. During the three months ended June 30, 2022, various holders of convertible notes converted principal balances totaling $4,065,375 into 2,622,819 shares of Company common stock, at an exercise price of $1.55 per share, in accordance with the terms of such convertible notes.
Also, during the second quarter of 2022, we issued 2,147,252 shares of Company common stock as a result of the exercise of warrants in accordance with their terms, receiving total proceeds of $4,119,141, and issued 312,019 shares of Company common stock in exchange for exercised options, receiving total proceeds of $644,974.
Since June 30, 2022 through the date of this report, noteholders converted $1,320,000 principal amount of convertible notes into 851,611 shares of the Company common stock, at an exercise price of $1.55 per share, in accordance with the terms of the convertible notes.
The Company issued the convertible notes and warrants to accredited investors in private placements. All above common stock issuances are unregistered and exempt from the registration requirements of the Securities Act. The issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
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Shares issued in the Merger
In connection with the Merger, each unit representing an equity interest in Nutex Health Holdco issued and outstanding immediately prior to the Merger was converted into the right to receive 3.571428575 shares of Company common stock. As a result, former Nutex equityholders received an aggregate of 592,791,712 shares of Company common stock.
Such shares of Company common stock were issued in the Merger pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities, and Rule 506 of Regulation D promulgated thereunder. The Company believes the exemption is available based on the representation made by Nutex in the Merger Agreement to the effect that, pursuant to the contribution transaction, each former Nutex equityholder is an accredited investor as defined in Rule 501(a) under the Securities Act and, to the knowledge of Nutex, each of the representations made by the former Nutex equityholders in the applicable contribution agreement that such former Nutex equityholder is an accredited investor is true and correct.
Item 3. Defaults upon Senior Securities.
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information.
None
| 68 |
Item 6. Exhibits
* Filed herewith
| 69 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 22, 2022.
| Nutex Health Inc. | ||
| By: | /s/ Thomas Vo | |
| Thomas Vo | ||
| Chairman and Chief Executive Officer | ||
| By: | /s/ Jon Bates | |
| Jon Bates | ||
| Chief Financial Officer | ||
| 70 |
(Under Construction Hospitals)
Contribution Agreement
By And Among
Nutex Health Holdco LLC,
The Owners Listed on the Signature Pages Attached Hereto
and
The Owners’ Representative
November 23, 2021
| i |
TABLE OF CONTENTS
| ARTICLE 1 DEFINITIONS | 1 |
| 1.1. Definitions | 1 |
| 1.2. Construction | 2 |
| ARTICLE 2 CONTRIBUTION; CLOSING | 2 |
| 2.1. Contribution | 2 |
| 2.2. Consideration | 2 |
| 2.3. Closing | 2 |
| 2.4. Closing Deliveries | 3 |
| 2.5. Merger Agreement | 4 |
| 2.6. Equity Consideration Adjustment—Under Construction Hospital | 5 |
| 2.7. Equity Consideration Adjustment | 5 |
| 2.8 Debt | 5 |
| ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE OWNERS | 6 |
| 3.1. Authority; Enforceability | 6 |
| 3.2. No Conflict | 7 |
| 3.3. Ownership | 7 |
| 3.4. Accredited Investor Status; Investment Intent | 8 |
| ARTICLE 4 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND THE BUSINESS | 9 |
| 4.1. Organization | 9 |
| 4.2. Qualification | 9 |
| 4.3. No Conflict | 9 |
| 4.4. Capitalization | 10 |
| 4.5. Merger Agreement Representations | 10 |
| 4.6. Fees and Commissions | 11 |
| ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HOLDCO | 11 |
| 5.1. Organization; Authority | 11 |
| 5.2. No Conflict | 11 |
| 5.3. Fees and Commissions | 12 |
| ARTICLE 6 COVENANTS | 12 |
| 6.1. Covenants Regarding Conduct of the Company | 12 |
| 6.2. Information, Access and Assistance | 13 |
| 6.3. Public Announcements | 13 |
| 6.4. Consents; Further Assurances | 13 |
| 6.5. Waiver, Release and Discharge | 14 |
| 6.6. Consent and Waiver of Organizational Documents | 15 |
| 6.7. Transfer Taxes | 15 |
| 6.8. Restrictive Covenants | 15 |
| 6.9. Shift Guaranty Agreements | 15 |
| 6.10. Guaranty Obligations | 15 |
| ARTICLE 7 CONDITIONS TO CLOSING | 16 |
| 7.1. Holdco’s Closing Conditions | 16 |
| 7.2. The Owners’ Closing Conditions | 17 |
| ARTICLE 8 TERMINATION | 18 |
| 8.1. Termination Rights | 18 |
| 8.2. Effect of Termination | 19 |
| ARTICLE 9 INDEMNIFICATION | 19 |
| 9.1. Indemnification by the Owners | 19 |
| 9.2. Indemnification by Holdco | 20 |
| 9.3. Claim Procedures | 20 |
| 9.4. Third Party Claims and Direct Claims | 20 |
| 9.5. Survival | 22 |
| 9.6. Limitations | 23 |
| 9.7. Sources of Recovery | 23 |
| 9.8. Express Negligence; Limitations on Defense | 24 |
| 9.9. Exclusive Remedy | 24 |
| 9.10. Materiality Qualifiers | 24 |
| ARTICLE 10 OWNERS’ REPRESENTATIVE | 25 |
| 10.1. Appointment of Owners’ Representatives | 25 |
| 10.2 Additional Provisions | 26 |
| ARTICLE 11 MISCELLANEOUS | 27 |
| 11.1. Notices | 27 |
| 11.2. Headings | 28 |
| 11.3. Amendments | 28 |
| 11.4. Rights; No Waiver | 28 |
| 11.5. Entire Agreement | 28 |
| 11.6. Successors and Assigns; Assignment | 29 |
| 11.7. Counterparts | 29 |
| 11.8. Governing Law, Venue and Severability, Jury Trial Waiver | 29 |
| 11.9. Remedies | 30 |
| 11.10. Transaction Expenses | 30 |
| 11.11. Rules of Construction | 30 |
| ii |
(Under Construction Hospitals)
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Holdco”), each of the owners listed on the signature pages attached hereto (each, an “Owner” and collectively the “Owners”), and Thomas T. Vo as the Owners’ Representative (as hereinafter defined). Each of Holdco and the Owners is referred to individually herein as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, the Owners collectively own certain of the issued and outstanding Equity Interests of [______________], a [_________] limited liability company (the “Company”);
WHEREAS, the Company is currently engaged in the business of owning and operating a specialty hospital and/or stand-alone emergency room clinic and hospital located at [__________] (the “Business”);
WHEREAS, concurrently with the execution of this Agreement, Holdco is entering into a merger (the “Merger”) with Clinigence Holdings, Inc., a publicly traded Delaware corporation (“CLNH”), pursuant to the terms of the Merger Agreement;
WHEREAS, in accordance with and subject to the terms and conditions of this Agreement, at the Closing, each of the Owners desires to contribute to Holdco, and Holdco desires to accept, all of their respective Equity Interests in the Company listed on the signature pages attached hereto under the heading “Contributed Interests” (collectively, the “Membership Interests”) in exchange for the issuance by Holdco to each such Owner of certain Units in Holdco described in Section 2.2 hereto, subject to adjustment in accordance with the terms herein; and
WHEREAS, the Parties are making certain representations, warranties, covenants and indemnities herein as an inducement to the other Parties to enter into this Agreement.
NOW, THEREFORE, in consideration of the terms, provisions and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
AGREEMENTS
ARTICLE
1
DEFINITIONS
1.1. Definitions. In addition to the terms defined in the body of this Agreement, capitalized terms used herein shall have the meanings given to them in Exhibit A attached hereto.
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1.2. Construction. Unless the context requires otherwise: (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine, and neuter; (b) references to Articles and Sections refer to articles and sections of this Agreement unless expressly provided otherwise; (c) references to Exhibits and Schedules are to exhibits and schedules attached to this Agreement, each of which is incorporated herein and made a part of this Agreement for all purposes; (d) references to money refer to legal currency of the United States of America; (e) words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires; (f) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (g) references to “have delivered to Holdco”, “have provided to Holdco” or “have made available to Holdco” (or similar references, and with any correlative word or phrase) means was provided directly to Holdco or its Representatives, in either tangible or electronic form, or made available to Holdco or its Representatives in a virtual data room made available for purposes of the transactions contemplated by this Agreement at least two (2) Business Days prior to the date hereof; and (h) with respect to the Business or the Company, the term “ordinary course of business” will be deemed to refer to the ordinary conduct of the Company’s business in a manner consistent with the past practices of the Owners. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.
ARTICLE
2
CONTRIBUTION; CLOSING
2.1. Contribution. Upon the terms and subject to the conditions of this Agreement, effective as of the Closing Date, in exchange for the consideration provided in Section 2.2 below, at the Closing, the Owners shall contribute, transfer, assign, convey and deliver to Holdco, and Holdco shall accept, receive and acquire from the Owners, all of the Membership Interests, free and clear of all Liens (other than any transfer restrictions imposed by any Legal Requirement or the Company’s Organizational Documents).
2.2. Consideration. As the aggregate consideration for the contribution of the Membership Interests by the Owners to Holdco, subject to Section 2.6 and Section 2.7 hereof, Holdco shall issue at the Closing the number and class of Units to each Owner as set forth on Schedule 2.2 attached hereto and listed across from such Owner’s name, in each case subject to the terms and restrictions of the Holdco LLC Agreement (collectively, as the same may be adjusted pursuant to Section 2.7 hereof, and as it may be increased pursuant to Section 2.6 hereof, the “Equity Consideration”).
2.3. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Locke Lord LLP, 600 Travis Street, Suite 2800, Houston, Texas 77002, on the third (3rd) Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties set forth in Article 7 (other than those conditions that, by their nature, are to be satisfied only at the Closing Date, but subject to the satisfaction or valid waiver of such conditions at the Closing in accordance with this Agreement), or such other date as the Owners’ Representative and Holdco may mutually agree in writing (the date on which the Closing occurs is referred to herein as the “Closing Date”); provided, however, the Parties need not attend the Closing in person, and the delivery of all documents and funds as described in Section 2.4 may be handled by wire transfer and electronic mail or by facsimile transmission. The Closing shall be deemed effective immediately prior to the consummation of the Merger.
| 2 |
2.4. Closing Deliveries.
(a) Owners’ Closing Deliveries. At the Closing, the Owners’ Representative, on behalf of the Owners, shall deliver, or cause to be delivered, to Holdco, as applicable:
(i) contribution and assignment agreements, in substantially the form attached hereto as Exhibit B, effecting the contribution and assignment by the Owners to Holdco of the Membership Interests (the “Assignment Agreements”), duly executed by each of the Owners;
(ii) a counterpart signature page or joinder agreement (in form and substance reasonably satisfactory to Holdco) to the Holdco LLC Agreement, duly executed by each of the Owners;
(iii) duly executed copies of the consents and approvals required for the consummation of the transactions contemplated by this Agreement, including those listed on Schedule 2.4(a)(iii);
(iv) certificates in the form prescribed by Treasury Regulation Section 1.1445-2(b)(2) and Section 1446(f)(2) to the effect that each of the Owners is not a foreign person, in substantially the form attached hereto as Exhibit D-1, D-2 or D-3, as applicable, duly executed by each of the Owners;
(v) a certificate from a duly authorized officer of the Company certifying to and providing copies of (A) the Company’s Organizational Documents as in effect at the Closing (including all amendments thereto); and (B) a good standing certificate or the equivalent issued by secretary of state of the jurisdiction of organization of the Company and in each jurisdiction in which the Company is qualified to do business, in each case, dated within ten (10) days of the Closing Date;
(vi) written resignations of the officers and directors or managers of the Company, dated effective as of the Closing Date;
| 3 |
(vii) a certificate, dated as of the Closing Date, signed by the Owners’ Representative (on behalf of the Owners), certifying that the conditions set forth in Section 7.1(a), Section 7.1(b) and Section 7.1(c) have been satisfied;
(viii) a lock up agreement with CLNH, in substantially the form attached hereto as Exhibit J, duly executed by each of the Owners; and
(ix) such other documents as reasonably requested by Holdco or the Owners’ Representative or required to consummate the transactions contemplated by this Agreement or required in connection with the Merger Agreement.
(b) Holdco’s Closing Deliveries. At the Closing, Holdco will deliver, or cause to be delivered, the following:
(i) to the Owners, the Equity Consideration in accordance with Section 2.2;
(ii) to the Owners’ Representative, a certificate, dated as of the Closing Date, signed by an authorized representative of Holdco, certifying that the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied;
(iii) to the Owners, evidence of the assumption of the Guaranty Obligations by Holdco and a written guaranty in connection with the same, duly executed by Holdco, as applicable; and
(iv) such other documents as reasonably requested by the other Parties or required to consummate the transactions contemplated by this Agreement.
2.5. Merger Agreement.
(a) Each Owner has reviewed, and by his, her or its execution hereof, hereby approves and authorizes the Merger Agreement and the other transaction documents contemplated or referenced therein or otherwise required to consummate the transactions contemplated therein. Each Owner has reviewed the representations, warranties, covenants and indemnities and other terms and conditions set forth in the Merger Agreement and has provided to Holdco true, correct and complete disclosures required under the Merger Agreement with respect to the Company, as applicable. Each Owner, on his, her or its own behalf and on behalf of the Company, and, after the consummation of the transactions contemplated by this Agreement, on behalf of Holdco, hereby (i) deems it to be in the best interest of the Company and, after the consummation of the transactions contemplated by this Agreement, in the best interest of Holdco, for Holdco to enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement, including the Merger, (ii) consents to, votes for and raises no objections against the Merger or the process pursuant to which the Merger was arranged, (iii) waives any dissenters, appraisal and similar rights with respect to the Merger, if any, and (iv) agrees that he, she or it shall take all necessary and reasonably desirable actions in connection with the consummation of the transactions contemplated by the Merger Agreement, including the Merger in accordance with the terms and provisions of the Merger Agreement.
| 4 |
(b) Each Owner shall (and shall cause the Company to) comply with all of the statements, covenants and obligations contained in Article IV of the Merger Agreement with respect to the Owners and/or the Company, as applicable.
2.6. Equity Consideration Adjustment—Under Construction Hospital. The provisions of Exhibit H are incorporated herein by reference.
2.7. Equity Consideration Adjustment—Debt. To the extent that the Company has any Debt outstanding at or immediately prior to the Closing, the aggregate Equity Consideration shall be adjusted at the Closing downwards, pro-rata among the Owners, on a dollar for dollar basis based on the aggregate Debt outstanding.
| 5 |
ARTICLE
3
REPRESENTATIONS AND WARRANTIES OF THE OWNERS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally, represents and warrants to Holdco that the statements contained in this Article 3 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
3.1. Authority; Enforceability. Such Owner that is not an individual is duly organized and validly existing under the laws of its jurisdiction of formation. Such Owner that is not an individual has the requisite limited partnership, limited liability company, or corporate power and authority, as applicable, to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Transaction Agreements to which such Owner is a party and the consummation by such Owner that is not an individual of the transactions contemplated hereunder and thereunder have been duly authorized and approved by all necessary partnership, company, or corporate action, as applicable, on the part of such Owner. Such Owner that is an individual has all necessary authority and legal capacity to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party by such Owner, the performance by such Owner of all the terms and conditions hereof and thereof to be performed by such Owner and the consummation of the transactions contemplated hereby and thereby by such Owner have been duly authorized and approved by all requisite action on the part of such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party have been duly executed and delivered by such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party constitute the valid and binding obligations of such Owner, each enforceable against such Owner in accordance with the terms thereof (assuming the due authorization, execution and delivery thereof by the other parties thereto), subject to applicable bankruptcy, insolvency or other similar laws relating to or affecting the enforcement of creditors’ rights generally and general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity) (collectively, the “Equitable Principles”).
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3.2. No Conflict.
(a) Except as set forth on Schedule 3.2, the execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of such Owner or any resolution or written consent adopted by the member, board of managers or other governing authority of such Owner, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which such Owner is a party or by which any assets of such Owner are bound, or cause the creation of any Lien upon such Owner or any of the assets of such Owner, including the Membership Interests; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by such Owner with any Governmental Authority pursuant to any Legal Requirement applicable to such Owner; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which such Owner is a party or by which such Owner or any of his, her or its respective assets are bound.
(b) Such Owner has obtained all necessary consents, authorizations, approvals and orders, and has made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by such Owner in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of such Owner, if applicable, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by such Owner in order to execute and deliver this Agreement and the Transaction Agreements to which such Owner is a party and to consummate the closing of the transactions contemplated herein and therein.
3.3. Ownership. Such Owner owns, legally and of record, all of the Equity Interests in the Company as set forth opposite such Owner’s name on Schedule 3.3, which such Equity Interests constitute in the aggregate all of the issued and outstanding Equity Interests of the Company owned by such Owner. With the exception of any liens or security interests set forth on Schedule 3.3 hereto, all of such Equity Interests have been duly authorized and validly issued and are fully paid and nonassessable. Such Owner does not own any other interests in the Company, nor does he, she or it have an option, warrant, equity appreciation right, convertible security or other contractual right or security (whether or not currently exercisable) to acquire any such interests.
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3.4. Accredited Investor Status; Investment Intent.
(a) Each of the Owners understands that the Units to be acquired by such Owner pursuant to this Agreement will not be registered under the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder. Such Owner also understands that such Units are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon such Owner’s representations contained in this Agreement.
(b) Such Owner represents that he, she or it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D of the Securities Act, or that such Owner (i) has adequate means of providing for current needs and personal contingencies and has no need to sell the Units in the foreseeable future (that is, at the time of this Agreement, such Owner can afford to hold the Units for an indefinite period of time); (ii) has sufficient knowledge and experience in business and financial matters to be able to evaluate the risks and merits of an investment in the Units, (iii) has the capacity to understand the merits and risks associated with an investment in the Units or (iv) is a member of Holdco’s management and/or is familiar with Holdco, its financial condition and operations. Such Owner understands that he, she or it must bear the economic risk of this investment indefinitely unless the Units are registered pursuant to the Securities Act, or an exemption from registration is available. Such Owner understands that Holdco has no present intention of registering the Units held by such Owner. Such Owner also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Owner to transfer all or any portion of the Units held by such Owner under the circumstances, in the amounts or at the times that such Owner might propose.
(c) With the exemption of the contemplated exchange of the Units in the Merger, the Units issued to such Owner are being acquired for such Owner’s own account and for the purpose of investment, and not with the view to, or for resale in connection with, any distribution or public offering thereof in violation of the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder.
(d) Such Owner has had sufficient time to review the Merger Agreement and the Risk Factors attached as Exhibit G hereto, has had ample opportunity to conduct inquiries and discussions satisfactory to such owner with respect to the transactions contemplated herein and in the Merger Agreement. Further, such owner acknowledges that such owner has the right to be represented by separate legal, financial and tax advisors.
(e) The representations of such Owner set forth in this Section 3.4 are made for the purpose of complying with Regulation D of the Securities Act.
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ARTICLE
4
REPRESENTATIONS AND WARRANTIES RELATING
TO THE COMPANY AND THE BUSINESS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally for or on behalf of any other Owner, represents and warrants to Holdco that the statements contained in this Article 4 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
4.1. Organization.
(a) The Company has been duly organized and validly formed as a limited liability company organized under the laws of the State of [_______] and is validly existing and in good standing thereunder. The Company has all requisite power and authority to own and operate its property and assets and to conduct the Business as it is currently being conducted. The Owners have made available to Holdco true and complete copies of each of the Company’s Organizational Documents. The Company does not have any direct or indirect Subsidiaries nor does it own, directly or indirectly, any capital of or other equity interest in or have any other investment in any other Entity.
(b) Except as set forth on Schedule 4.1(b), the Company has not conducted the Business under or otherwise used, for any purpose in any jurisdiction, any “d/b/a,” fictitious name, assumed name, trade name or other name.
4.2. Qualification. The Company is duly qualified and in good standing to do business in each jurisdiction in which the nature of the Business or the ownership, operation or leasing of its assets makes such qualification necessary.
4.3. No Conflict.
(a) Except as reflected on Schedule 4.3(a), the execution of this Agreement and the other Transaction Agreements and the performance of the transactions contemplated hereby and thereby will not: (i) violate, conflict with or result in a default of any provision the Company’s Organizational Documents; (ii) violate or conflict with, result in a default under (or an event which, with notice or lapse of time or both, would result in a default) under any material Contract to which the Company is a party or by which any of the assets of the Company are bound, or cause the creation of any Lien upon the Company’s Equity Interests or any of the assets or business of the Company; (iii) violate or result in a violation of, or constitute a default under, any Legal Requirement by the Owners or the Company; or (iv) accelerate any obligation under, or give rise to a right of termination of any material Contract or material Permit to which the Company is a party or by which any of the assets of the Company are bound.
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(b) Except as set forth on Schedule 4.3(b), there are no authorizations, approvals and orders and no registrations, qualifications, designations, declarations or filings with any federal, state, or other relevant Governmental Authorities, required by such Governmental Authorities to be obtained by the Owners or the Company in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except as set forth on Schedule 4.3(c), neither the execution of this Agreement and the other Transaction Agreements nor the performance of the transactions contemplated hereby and thereby will (i) give rise to an acceleration of any amount payable by, or give rise to any additional payment by the Company or (ii) pursuant to a preferential purchase right, right of first refusal or offer, buy-sell arrangement or other provision, give any Person the right to acquire all or any part of equity or any of the assets or business of the Company.
4.4. Capitalization.
(a) Schedule 4.4(a) lists all of the issued and outstanding Equity Interests of the Company and the Persons who hold legal and record title to such Equity Interests. The Equity Interests listed on Schedule 4.4(a) constitute all of the issued and outstanding Equity Interests in the Company as applicable. All of such Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable.
(b) Except as set forth on Schedule 4.4(b), there are no Contracts obligating the Company (i) to issue, sell, pledge, dispose of or encumber any of its Equity Interests, or any securities convertible, exercisable or exchangeable into any Equity Interests of the Company, (ii) to redeem, purchase or acquire in any manner any class of any equity of the Company or any securities that are convertible, exercisable or exchangeable into any Equity Interests of the Company, or (iii) to make a distribution of any kind with respect to any of the equity of the Company. There are no outstanding or authorized equity appreciation, phantom stock, preemptive rights, approval rights, proxies, rights of first refusal, profit participation rights or similar rights affecting the Equity Interests of the Company. There are no voting trusts, proxies, or other similar agreements or understandings with respect to the voting or registration of the Company.
4.5. Merger Agreement Representations. The statements contained in Article VII of the Merger Agreement with respect to the Owners and/or the Company are true, accurate and complete as of the date of the Merger Agreement and as of the Closing Date (as defined under the Merger Agreement) (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date).
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4.6. Fees and Commissions. Except as set forth on Schedule 4.6, none of the Company nor the Owners has retained, or otherwise authorized to act, any finder, broker, agent, financial advisor or other similar intermediary (collectively “Intermediary”) in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that has resulted or may result in an obligation by the Company or Holdco to pay any fees or commissions to any broker or finder as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
5
REPRESENTATIONS AND WARRANTIES OF HOLDCO
Holdco represents and warrants to the Owners that the statements contained in this Article 5 are true, accurate and complete as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
5.1. Organization; Authority. Holdco is a limited liability company that is duly organized, validly existing and in good standing under the laws of the State of Delaware. Holdco has all requisite limited liability company power and authority to execute and deliver this Agreement and the other Transaction Agreements contemplated herein, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof and thereof to be performed by Holdco, as applicable. The execution and delivery of this Agreement and the other Transaction Agreements by Holdco, the performance by Holdco of all the terms and conditions hereof and thereof to be performed by Holdco and the consummation of the transactions contemplated hereby and thereby by Holdco have been duly authorized and approved by all requisite action on the part of Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party have been duly executed and delivered by Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party constitute the legal, valid and binding obligations of Holdco (assuming the due authorization, execution and delivery thereof by the other Parties hereto and thereto other than Holdco), each enforceable against Holdco in accordance with the terms thereof, subject to Equitable Principles.
5.2. No Conflict.
(a) The execution and delivery of this Agreement and the other Transaction Agreements to which Holdco is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of Holdco or any resolution or written consent adopted by the member, board of managers or other governing authority of Holdco, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which Holdco is a party or by which any assets of Holdco are bound, or cause the creation of any Lien upon any of the assets or limited liability company interests of Holdco; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by Holdco with any Governmental Authority pursuant to any Legal Requirement applicable to Holdco; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which Holdco is a party or by which Holdco or any of its assets are bound.
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(b) Holdco has obtained all necessary consents, authorizations, approvals and orders, and have made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by Holdco in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of Holdco, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by Holdco in order to execute and deliver this Agreement and the Transaction Agreements to which Holdco is a party and to consummate the closing of the transactions contemplated herein and therein.
5.3. Fees and Commissions. Neither Holdco nor any of its Affiliates has retained, or otherwise authorized to act, any Intermediary in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that may result in an obligation for Owners, the Company or Holdco to pay any fees or commissions to any Intermediary as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
6
COVENANTS
6.1. Covenants Regarding Conduct of the Company. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing, except as (1) permitted or required by the other terms of this Agreement, the Transaction Agreements or the Merger Agreement, (2) described on Schedule 6.1, (3) required by any material Contract or material Permit, or (4) consented to or approved in writing by Holdco:
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(a) the Owners shall, and shall cause the Company to, adhere to Section 4.2(a) of the Merger Agreement with respect to the Company; and
(b) the Owners shall not and shall cause the Company not to, directly or indirectly, do or propose to do any of the items set forth in Section 4.2(b) of the Merger Agreement.
6.2. Information, Access and Assistance. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing Date, upon receipt of reasonable advance notice and in furtherance of Holdco’s investigation of the Company, the Owners will afford Holdco and its authorized Representatives reasonable access during normal business hours to the offices, properties, books and records, and Representatives of the Company who have significant responsibility in connection with the Business, and will furnish Holdco with such additional information directly concerning the Company’s businesses, properties and personnel as may reasonably be requested; provided further, Holdco shall, and shall cause its Representatives to, observe and comply with all material health, safety, and security requirements of the Company. Any inspection or investigation conducted by Holdco or its representatives prior to the Closing will be conducted in accordance with applicable Legal Requirements, and in such manner as not to interfere unreasonably with the business or operations of the Company.
6.3. Public Announcements. The Parties shall not, and shall not permit their Representatives to, make or release any public announcements or otherwise communicate with any news media with respect to this Agreement or the Merger Agreement, the consummation of the transactions contemplated herein or the Merger Agreement, including the Merger, the identity of the Parties or their Affiliates, or any of the agreements, documents and instruments to be entered into in connection herewith, in each case without the prior written approval of Holdco or the Owners’ Representative, as applicable. Notwithstanding the foregoing, (i) Holdco and its Representatives shall be entitled to disclose this Agreement or any of the agreements, documents and instruments to be entered into in connection herewith, to CLNH and its Representatives, and (ii) each Party may make such public announcement as its counsel or accountants reasonably believe is the minimum disclosure necessary to satisfy the Party’s or CLNH’s obligations under applicable securities law (in which case the disclosing Party shall advise the other Party and provide it with a copy of the proposed disclosure or filing prior to making the disclosure or filing).
6.4. Consents; Further Assurances. The Parties shall execute and deliver to the other, from and after the date hereof, any other agreement or instrument which may be reasonably requested by the other and which is reasonably appropriate to perfect or evidence any of the sales, assignments, contributions, transfers or conveyances contemplated by this Agreement or the Merger Agreement. From and after the date hereof, the Parties shall also cooperate with one another and use commercially reasonable efforts to obtain any third party consents and Permits necessary for Holdco and its Affiliates (including after the Closing, the Company) to continue to operate the Business in substantially the same manner operated by the Owners prior to the Closing Date, and to do any and all such further acts and things as may be reasonably necessary to effect completely the intent of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, to the extent the Parties consummate the transactions contemplated hereby prior to obtaining a third party consent required in connection with the other transactions contemplated by this Agreement, the Owners shall use commercially reasonable efforts to take such actions as may be possible without violation or breach of any such non-assignable material Contract or Permits to effectively provide Holdco with the economic benefits of such material Contracts and Permits.
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6.5. Waiver, Release and Discharge. Effective as of the Closing, except for (i) the Retained Rights and (ii) as set forth in this Section 6.5, each of the Owners does hereby unconditionally and irrevocably, on behalf of itself, and its Affiliates, shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, agents, advisors and each of their respective successors, assigns, and any other Person claiming by, through or under any of the foregoing (each, a “Releasing Party”), release, acquit and forever discharge Holdco and the Company and their respective past and present shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, advisors and each of their respective successors and assigns (the “Released Parties”), from any and all claims, actions, causes of action, suits, rights, debts, agreements, damages, injuries, losses, costs, expenses (including legal fees) and demands whatsoever and all consequences thereof, of every nature or description, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, whether existing as of the Closing or arising from actions or omissions occurring prior to the Closing, that any of Releasing Party ever had, now has or may in the future have against any of the Released Parties, in law or in equity, as a result of any act, transaction, agreement, event or omission (or any circumstances existing) on or prior to the Closing Date. Notwithstanding the foregoing to the contrary, the release set forth in this Section 6.5 shall not apply to (a) any rights, remedies, claims and causes of action related to the obligations of Holdco or the other Released Parties pursuant to this Agreement or the Transaction Agreements or any claims arising out of the transactions contemplated by this Agreement or (b) the Retained Rights. The term “Retained Rights” means, with respect to the Owners, (A) if such Owner is an employee of the Company, such Owner’s claims or rights to accrued compensation for services rendered to the Company in the ordinary course of business, (B) if such Owner is an employee of the Company, claims or rights to accrued compensation, benefits or other remuneration of the Owners, and (C) any claim arising from any rights of indemnification, contribution, advancement of expenses or insurance coverage or protection that the Owners have or had pursuant to the Organizational Documents of the Company. Each of the Owners understands that this is a full and final general release of all liabilities, duties and obligations of any nature whatsoever, whether or not known, suspected or claimed, that could have been asserted in any legal or equitable proceeding against the Released Parties to the extent relating to the matters in this Section 6.5.
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6.6. Consent and Waiver of Organizational Documents. By execution of this Agreement, each Owner hereby (a) approves, ratifies and consents to the transfer of the Membership Interest by each other Owner, as contemplated hereby, and (b) irrevocably WAIVES any and all rights of first refusal or other restrictions on transfer that such Owner may have pursuant to the Organizational Documents, or otherwise, and any notice rights or other similar rights associated therewith, with respect to the Membership Interest being transferred hereby.
6.7. Transfer Taxes. The Owners shall pay all Transfer Taxes, if any. Any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and timely filed by the Party required under applicable law to file such Tax Returns, and such Party shall provide such Tax Returns to the other Party at least ten (10) Business Days prior to the due date for such Tax Returns. The Parties shall cooperate in filing all necessary Tax Returns as relates to Transfer Taxes and providing each other with any appropriate resale exemption certifications and other similar documentation.
6.8. Restrictive Covenants. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees to be bound by the terms and provisions attached hereto as Exhibit I (collectively, the “Restrictive Covenants”).
6.9. Shift Guaranty Agreements. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees that he, she or it shall continue to be bound by and subject to and shall comply with the terms and provisions of Section 10.7 or 10.8 of the Operating Agreement and/or such other provisions in the Operating Agreement, as applicable, which address such Owner’s and/or Doctor-Owner’s shift obligations or performance of service obligations with respect to the Facility or related facilities, as applicable, as if such Owner and/or Doctor-Owner were still a party to and subject to the terms and conditions of the Operating Agreement in all respects (the “Shift Guaranty”).
6.10. Guaranty Obligations. In connection with and effective as of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, Holdco will guaranty a pro rata percentage of the obligations under the real estate leases to which the Company is a party based on Holdco’s pro rata ownership of the Company immediately after the consummation of the transactions contemplated by this Agreement (the “Guaranty Obligations”). For avoidance of doubt, no Party shall be required to pay or be responsible for more than its pro rata share portion (based on ownership of the Company immediately after consummation of the transactions contemplated by this Agreement) of the obligations under such real estate leases. In the event that any Party is required to pay more than its pro rata portion in connection with the obligations under such real estate leases, the other Parties shall be responsible for and contribute to the overpaying Parties their respective pro rata portions of such obligations.
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ARTICLE
7
CONDITIONS TO CLOSING
7.1. Holdco’s Closing Conditions. Holdco’s obligations to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by Holdco), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of the Owners in Articles 3 and 4 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of the Owners set forth in this Agreement shall be true and correct (without giving effect to any “materiality,” “in all material respects,” “Material Adverse Effect” or other materiality-based qualifiers) as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date) except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” qualifiers set forth therein) does not, and would not reasonably be expected to, individually or in the aggregate, constitute a Material Adverse Effect.
(b) The Owners will have performed or caused the Company to have performed and complied in all material respects with all of the covenants required by this Agreement to be performed or complied with by them or it on or prior to the Closing Date.
(c) No Material Adverse Effect shall have occurred since the date hereof.
(d) Holdco shall have received (or the Owners or the Owners’ Representative shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(a).
(e) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(f) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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7.2. The Owners’ Closing Conditions. The obligations of the Owners to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by the Owners), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of Holdco in Article 5 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of Holdco set forth in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” qualifiers set forth therein) does not and would not reasonably be expected to, individually or in the aggregate, constitute a material adverse effect on Holdco.
(b) Holdco will have performed and complied in all material respects with all the covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) The Owners shall have received (or Holdco shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(b).
(d) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(e) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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ARTICLE
8
TERMINATION
8.1. Termination Rights. This Agreement may be terminated and the transactions contemplated hereunder abandoned at any time prior to the Closing as follows:
(a) by mutual written consent of the Owners’ Representative (on behalf of the Owners) and Holdco;
(b) by the Owners’ Representative (on behalf of the Owners) or Holdco if there shall be in effect a final non-appealable Order of a Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to the Owners’ Representative (on behalf of the Owners), on the one hand, or Holdco, on the other hand, if such Order was primarily due to the failure of the Owners, on the one hand, or Holdco, on the other hand, to perform any of their respective obligations under this Agreement;
(c) by the Owners’ Representative (on behalf of the Owners) in the event that there will have been a breach or inaccuracy of Holdco’s representations and warranties in this Agreement or a failure by Holdco to perform its covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.2(a) or Section 7.2(b) would not be satisfied (provided that none of the representations and warranties set forth in Article 3 or Article 4 will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.1(a) not to be satisfied and there has been no failure by the Owners to perform their covenants in such a manner as would cause the condition set forth in Section 7.1(b) not to be satisfied); provided, however, that the Owners’ Representative (on behalf of the Owners) will provide notice to Holdco as soon as practicable after becoming aware of any such breach, inaccuracy or failure of Holdco; and provided further, that if such breach, inaccuracy or failure is curable by Holdco through the exercise of its commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Holdco receives written notice of such violation or breach and the Outside Date) from the date Holdco receives notice of such breach, inaccuracy or failure from the Owners’ Representative (on behalf of the Owners), as long as Holdco continues to exercise such commercially reasonable efforts, the Owners’ Representative (on behalf of the Owners) may not terminate this Agreement under this Section 8.1(c) prior to the later of (x) the Outside Date or (y) the end of such 30-day period;
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(d) by Holdco in the event that there has been a breach or inaccuracy of the representations and warranties set forth in Article 3 or Article 4 or a failure by the Owners to perform their covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.1(a) or Section 7.1(b) would not be satisfied (provided that none of the representations and warranties of Holdco will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.2(a) not to be satisfied and there has been no failure by Holdco to perform its covenants in such a manner as would cause the condition set forth in Section 7.2(b) not to be satisfied); provided, however, that Holdco will provide notice to the Owners’ Representative as soon as practicable after becoming aware of any such breach or inaccuracy of the Owners; and provided further, that if such breach or inaccuracy is curable by the Owners through the exercise of commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Owners’ Representative (on behalf of the Owners) receives written notice of such violation or breach and the Outside Date) from the date the Owner receives notice of such breach or inaccuracy from Holdco, as long as the Owners continue to exercise such commercially reasonable efforts, Holdco may not terminate this Agreement under this Section 8.1(d) prior to the later of (x) the Outside Date or (y) the end of such 30-day period; or
(e) by either the Owners’ Representative (on behalf of the Owners) or Holdco following the Outside Date (as the same may be extended pursuant to the terms of this Agreement by mutual written agreement of the Owners’ Representative (on behalf of the Owners) and Holdco); provided that the right to terminate this Agreement under this Section 8.1(e) will not be available to any Party whose breach of any representation, warranty or covenant contained in this Agreement will have been the cause of, or will have resulted in, the failure of the Closing to occur on or before the Outside Date.
8.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, all obligations of the Parties will terminate, except for the provisions of this Section 8.2 and Article 10.
ARTICLE
9
INDEMNIFICATION
9.1. Indemnification by the Owners. Subject to the limitations and other terms of this Article 9, from and after the Closing, each Owner, severally on such Owner’s own behalf (based on such Owner’s pro rata ownership of the Company) and not jointly and severally for or on behalf of any other Owner, hereby agrees to and shall indemnify, defend and hold harmless Holdco and its Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Holdco Indemnitees”) from and against any and all Losses incurred by Holdco Indemnitees arising out of or resulting from:
(a) the failure of such Owner’s representations or warranties contained in Article 3 and Article 4 or any other Transaction Agreement to be true and correct;
(b) the failure of such Owner to perform any of covenants or obligations to be performed by such Owner individually under this Agreement or any other Transaction Agreement; and
(c) if applicable, any Real Estate Guaranty.
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9.2. Indemnification by Holdco. Subject to the other terms of this Article 9, from and after the Closing, Holdco hereby unconditionally, absolutely and irrevocably agrees to and shall indemnify, defend and hold harmless the Owners and their respective Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Owner Indemnitees”), from and against any and all Losses arising out of or resulting from (a) the failure of Holdco’s representations or warranties contained in this Agreement or any other Transaction Agreement to be true and correct, and (b) the failure of Holdco to perform any of its covenants or obligations under this Agreement or any other Transaction Agreement.
9.3. Claim Procedures. Each Person entitled to be indemnified under this Article 9 (each, an “Indemnitee”) agrees that after it becomes aware of facts giving rise to a claim by it for indemnification pursuant to this Article 9, such Indemnitee must assert its claim for indemnification under this Article 9 (each, a “Claim”) by providing a written notice (a “Claim Notice”) to Holdco or to the Owners’ Representative, on behalf of Owners, as applicable, depending on which Parties are allegedly required to provide indemnification protection under this Article 9 (each, an “Indemnitor”), specifying, in reasonable detail, the nature and basis for such Claim and copies of all documents and a summary of all other information reasonably available in connection therewith. Notwithstanding the foregoing, an Indemnitee’s failure to send or delay in sending a Claim Notice will not relieve the Indemnitor from liability hereunder with respect to such Claim except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. The Indemnitor shall have thirty (30) days after its receipt of such notice to respond in writing to a Claim that is a third party claim. Indemnitee shall provide all information and copies of all documents reasonably requested by Indemnitor and shall reasonably cooperate with Indemnitor in connection with any Claim. If the Indemnitor does not respond to a third-party Claim Notice within such thirty (30)-day period, the Indemnitor shall be deemed to have rejected such Claim, in which case the Indemnitee shall be free to pursue such remedies as may be available to the Indemnitee on the terms and subject to the provisions of this Agreement.
9.4. Third Party Claims and Direct Claims.
(a) In the event of the assertion of any Claim for which, by the terms hereof, an Indemnitor is obligated to indemnify an Indemnitee where liability is assert against or sought to be collected from an Indemnitee by a third party (a “Third Party Claim”), the Indemnitor will have the right, at such Indemnitor’s expense, to assume the defense of same and, subject to the terms of this Section 9.4, the right to direct and control such defense, including the appointment and selection of counsel on behalf of the Indemnitee. Subject to Section 9.4(c), the Indemnitor will have the right to reasonably settle or compromise or take any corrective or remediation action with respect to any such Third Party Claim by all appropriate proceedings, which proceedings will be diligently and reasonably prosecuted by the Indemnitor to a final conclusion or settled at the discretion of the Indemnitor. The Indemnitee will be entitled, at its own cost, to participate with the Indemnitor in the defense of any such Third Party Claim.
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(b) If the Indemnitor accepts responsibility for any such Third Party Claim but fails to diligently prosecute such Claim, or if the Indemnitor does not accept responsibility for any such Third Party Claim, the Indemnitee may assume control of such defense and in the event it is finally determined by a court of competent jurisdiction that the Third Party Claim was a matter for which the Indemnitor is responsible under the terms of this Agreement, the Indemnitor will bear the reasonable costs and expenses of such defense (including reasonable fees and expenses of a single outside counsel).
(c) Notwithstanding anything to the contrary in this Agreement, the Indemnitor will not be permitted to settle, compromise, take any corrective or remedial action or enter into an agreed judgment or consent decree (a “Settlement”), in each case, that subjects the Indemnitee to any criminal liability, requires an admission of guilt or wrongdoing or violation of Legal Requirements or any Contract on the part of or by the Indemnitee or its Affiliates, or imposes injunctive relief or any continuing obligation on (including any restriction on the activity or conduct of an Indemnitee) or requires any payment from the Indemnitee without the Indemnitee’s prior written consent, which consent will not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate and shall cause its Affiliates to reasonably cooperate in the defense of any Third Party Claim, including by providing access to such personnel, support and relevant business records and other documents as may be reasonably requested by the Indemnitee in connection with such defense.
(d) The Owners’ Representative and Holdco shall cooperate and shall cause the other Parties to cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including providing access to applicable personnel and available records relating to such Third Party Claim and furnishing, without expense, to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Claim.
(e) Any claim for indemnification of Losses under this Article 9 that is not a Third Party Claim (a “Direct Claim”) by an Indemnitee shall be asserted by giving prompt written notice thereof, and in any event within thirty (30) days of discovery of such claim, to the Owners’ Representative (in the case of indemnification sought by Holdco) or Holdco (in the case of indemnification sought by the Owners’ Representative on behalf of Owners); provided, however, that any delay in providing, or the failure to provide such notification, shall not affect the right of the Indemnitee to indemnification hereunder except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. Such notice shall describe the Direct Claim in reasonable detail, including copies of any written documents in connection therewith and other reasonably available information and shall indicate the estimated amount of Losses, if reasonably determinable, sustained by the Indemnitee.
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(f) The Indemnitor shall not be bound to or obligated to pay any Direct Claim under this Agreement unless (i) a written instrument is executed by the Indemnitor (which shall be the Owners’ Representative on behalf of all Owners, if any or all of the foregoing are the Indemnitor, and Holdco, if any or all of the foregoing are the Indemnitor) pursuant to which such applicable Party agrees to indemnify the applicable Indemnitees for the applicable Losses, or (b) a court of competent jurisdiction has issued a final, non-appealable order, ruling, judgment or decree (“Order”) regarding the disposition of such Direct Claim. The Indemnitee (acting through the Owners’ Representative, for all Owners or Holdco will be free to pursue enforcement of any final, non-appealable Order as set forth above in any federal or state court of competent jurisdiction located in Harris County, Texas.
9.5. Survival. Subject to the limitations and other provisions of this Agreement, all of the representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement as set forth in this Section 9.5. The representations and warranties in this Agreement shall remain in effect until the date that is eighteen (18) months following the Closing Date, which shall constitute the Cutoff Date (as further defined below) with respect to such representations and warranties; provided that Section 3.1 (“Authority; Enforceability”), Section 3.2 (“No Conflict”), Section 3.3 (“Ownership”), Section 4.1 (“Organization”), Section 4.3 (“No Conflict”), Section 4.4 (“Capitalization”), Section 4.6 (“Fees and Commissions”), Section 5.1 (“Organization; Authority”), Section 5.2 (“No Conflict”), and Section 5.3 (“Fees and Commissions”) (collectively, the “Fundamental Representations”), shall survive indefinitely; provided, further, that Section 4.5 (Merger Agreement Representations) shall survive twenty-four (24) months following the Closing Date. The covenants and agreements of the Parties made herein shall survive until such covenants have been performed in accordance with the terms and provisions herein or for the period explicitly specified therein, and any Claims with respect to fraud shall survive until the statute of limitations applicable thereto expires. The date on which the survival of a representation, warranty, covenant or agreement ends pursuant to this Section 9.5, shall be the “Cutoff Date” with respect to such representation, warranty, covenant or agreement, as applicable, and the Parties’ right to assert Claims or commence Proceedings with respect thereto shall expire and terminate at such Cutoff Date; provided, however, that any representation or warranty or covenant that would otherwise terminate in accordance with this Section 9.5 will continue to survive if a notice of a claim (whether or not formal legal action shall have been commenced based upon such claim) shall have been given under Section 9.4 on or prior to such date on which it otherwise would terminate, until the related claim for indemnification has been satisfied or otherwise resolved as provided in this Article 9, but such survival shall only be with respect to the matters covered by or relating to such notice of claim.
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9.6. Limitations.
(a) No Owner will have any liability under Section 9.1(a) until Holdco has suffered Losses in excess of one percent (1%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Indemnity Threshold”) in the aggregate arising with respect to a Claim or series of related Claims if such Claim or series of related Claims arise out of the same or similar facts or circumstances under Section 9.1(a) and then the Owners will be responsible for all recoverable Losses under Section 9.1(a) (including the Losses making up the Indemnity Threshold); provided, however that the Indemnity Threshold shall not apply to any Claim based on Section 4.5 (Merger Agreement Representations), a breach of the Fundamental Representations or fraud by the Owners. Further, the Owners’ maximum indemnification liability with respect to any Losses under this Article 9 shall in no event exceed ten percent (10%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Cap”); provided, however that the Cap shall not apply to any Claim based on a breach of Section 4.5 (Merger Agreement Representations), the Fundamental Representations or fraud by the Owners.
(b) Notwithstanding anything to the contrary in this Article 9 or elsewhere in this Agreement, no Claim for indemnification under Section 9.1 may be asserted by any Indemnitee following the applicable Cutoff Date described in Section 9.5; provided, however, that such Cutoff Date shall not affect or limit any Claim asserted in good faith with reasonable specificity and in writing by notice the Indemnitee to the Indemnitor prior to such Cutoff Date which such Claims shall survive until finally resolved pursuant to the terms hereof.
9.7. Sources of Recovery. To the extent a monetary obligation or payment is due and owing by the Owners to any Holdco Indemnitee pursuant to this Article 9, at the Indemnitor’s option, any such indemnification payment may be satisfied, as applicable, (i) pursuant to a forfeiture of a corresponding amount of any shares of CLNH then held by such Indemnitor, based on the fair market value (calculated by taking the average of the highest and lowest selling prices of the shares of CLNH) of such shares of CLNH as of the date of determination that such indemnification obligation is due and owing (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee); and/or (ii) by wire transfer of immediately available funds to the account or accounts designated in writing by Holdco Indemnitee within five (5) Business Days after it is established (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee) that Holdco Indemnitee is entitled to such payment under this Article 9.
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9.8. Express Negligence; Limitations on Defense.
(a) THE FOREGOING INDEMNITIES SET FORTH IN THIS ARTICLE 9 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY INDEMNIFIED PARTIES. THE PARTIES HERETO ACKNOWLEDGE THAT THE INDEMNITIES SET FORTH HEREIN MAY RESULT IN THE INDEMNITY OF A PARTY FOR ITS SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF THE INDEMNIFIED PARTY.
(b) TO THE EXTENT THAT HOLDCO MAKES ANY CLAIMS AGAINST THE OWNERS UNDER THE PROVISIONS OF THIS ARTICLE 9, THE OWNERS MAY NOT ASSERT AND HEREBY EXPRESSLY WAIVE AS A DEFENSE, COUNTERCLAIM, OR OTHERWISE THAT HOLDCO AND ITS AFFILIATES OR REPRESENTATIVES HAVE BEEN NEGLIGENT IN CONDUCTING THEIR DUE DILIGENCE RELATING TO ANY ASPECT OF THE assets of the COMPANY AND/OR THE BUSINESS. THE RIGHT TO INDEMNIFICATION IN ACCORDANCE WITH THE PROVISIONS OF THIS ARTICLE 9 WILL NOT BE AFFECTED BY ANY INVESTIGATION CONDUCTED BY HOLDCO WITH RESPECT TO, OR ANY KNOWLEDGE ACQUIRED (OR CAPABLE OF BEING ACQUIRED) BY HOLDCO AT ANY TIME, WHETHER BEFORE OR AFTER THE CLOSING DATE, WITH RESPECT TO THE ACCURACY OR INACCURACY OF OR COMPLIANCE WITH, ANY REPRESENTATION, WARRANTY, COVENANT OR OBLIGATION SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION AGREEMENT.
9.9. Exclusive Remedy. The remedies available under this Article 9 and the Merger Agreement shall be the sole and exclusive remedies of Holdco (and any Holdco Indemnitee) for any Losses, damages, Claims, Proceedings, breaches, rights, claims and causes of action arising out of or in connection with this Agreement and/or the transactions contemplated hereby; provided, however, that this exclusivity shall not limit or apply to any rights or remedies available at law or in equity arising from fraud by the Owners.
9.10. Materiality Qualifiers. For purposes of determining whether there has been a breach of any Party’s representations and warranties herein for which the other Party hereto or any other indemnified Person is entitled to indemnification hereunder and the Losses resulting therefrom, any materiality qualifiers (including any Material Adverse Effect) contained in such Party’s representations or warranties shall be disregarded.
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ARTICLE
10
OWNERS’ REPRESENTATIVE
10.1. Appointment of Owners’ Representatives. Each Owner hereby irrevocably constitutes and appoints Thomas T. Vo (the “Owners’ Representative”) as such Owner’s true and lawful agent and attorney-in-fact, to execute documents, agreements and instruments in the name of such Owner and on such Owner’s behalf, to act in the name and on behalf of such Owner as set forth in this Section 10.1. Except as otherwise provided in this Agreement, any right or action that may be taken at the election of all or any of the Owners shall be taken solely by the Owners’ Representative on their behalf. Each Owner hereby authorizes the Owners’ Representative and Holdco to rely on any action taken by the Owners’ Representative as having been duly and validly authorized by such Owner. The Owners’ Representative shall have the power to execute documents, agreements and instruments in the name and stead of such Owner and on such Owner’s behalf and to act in the name and on behalf of such Owner as follows:
(a) as provided in and in accordance with Article VIII of the Merger Agreement;
(b) in connection with any claim for indemnification made under Article 9 or the Merger Agreement, to take any and all actions required or authorized to be taken by the Owners pursuant to Article 9, and to defend, compromise or settle any claim for indemnification made by an Indemnitee against such Owner under Article 9 or, in accordance with Article 9, any Third Party Claim that has given rise to an indemnity matter under Article 9;
(c) to receive and give receipt for all notices and other communications required or permitted to be given to or from such Owner under this Agreement or the Merger Agreement, including all notices under Article 9 relating to any indemnity matter;
(d) to act on such Owner’s behalf hereunder for all purposes specified herein, including determining, on behalf of any specific Owner or all Owners, whether to make any claim or institute any Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof, settling any claim or Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof or agreeing that any specific Owner or all Owners are responsible for or are not responsible for any indemnification obligations under this Agreement due to a breach or alleged breach of this Agreement or the Merger Agreement, subject to the caps and limitations set forth in this Agreement, with all of the foregoing decisions of the Owners’ Representative to be final, binding and not subject to dispute or appealable by any Owner;
(e) to take any other action authorized to be taken by the Owners’ Representative pursuant to the terms of this Agreement or the Merger Agreement;
(f) to agree with Holdco and all Owners as to any amendments to this Agreement or the Merger Agreement which the Owners’ Representative deems necessary or advisable;
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(g) to employ legal counsel on behalf of the Owners;
(h) to pay any legal and any other fees and expenses incurred by the Owners’ Representative in consummating the transactions contemplated by this Agreement or the Merger Agreement or in connection with carrying out the Owners’ Representative’s duties under this Agreement or the Merger Agreement, including on behalf of any or all Owners investigating, defending or pursuing any claims or Proceedings and managing matters associated with this Agreement or the Merger Agreement; and
(i) making, executing, acknowledging, and delivering all such contracts, orders, receipts, documents, instruments, notices, requests, instructions and certificates and doing all things and taking all actions which the Owners’ Representative, in its sole discretion, considers necessary or proper in connection with or to carry out the terms of this Agreement or the Merger Agreement, as fully as if such Owner were personally present and acting.
10.2. Additional Provisions.
(a) The Owners’ Representative will incur no liability to the Owners in connection with his services pursuant to this Agreement and any related agreements except to the extent resulting from his fraud, gross negligence or willful misconduct. The Owners’ Representative shall not be liable for any action or omission pursuant to the advice of counsel. Each Owner agrees on a several and not joint and several basis to defend, indemnify and hold the Owners’ Representative harmless from and against any and all Losses arising out of or in connection with this Agreement or the Merger Agreement or any related agreement incurred as a result of its position as the Owners’ Representative or any of his actions or inactions as such, except such Losses are finally adjudicated to have been caused by his fraud, gross negligence or willful breach of this Agreement or the Merger Agreement.
(b) The Owners’ Representative will promptly provide all notices received by the Owners’ Representative pursuant to this Agreement to the other Owners, if applicable to such Owner. Each Owner acknowledges that the powers and authority granted in Section 10.1 and in this Section 10.2 are irrevocable, coupled with an interest and shall not be terminated by any act of such Owner (including the death, disability, bankruptcy or insolvency of such Owner). The Owners agree to indemnify the Owners’ Representative against and hold the Owners’ Representative harmless from and against any and all losses, costs, judgments, settlements, damages of any kind or nature, expenses, claims, and attorneys’ fees and costs suffered or incurred by the Owners’ Representative as a result of, in connection with or arising from or out of the acts or omissions of the Owners’ Representative in the performance of his obligations contained in this Agreement and the Merger Agreement, except such acts or omissions as result from the Owners’ Representative’s willful breach of this Agreement or gross negligence. The foregoing indemnities will survive the Closing, the resignation or removal of the Owners’ Representative or the termination of this Agreement.
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(c) The Owners approve of the execution and delivery of the Disclosure Schedules and any other certificates, documents or instruments contemplated to be executed and delivered by the Owners’ Representative on behalf of the Owners pursuant to this Agreement or the Merger Agreement.
ARTICLE
11
MISCELLANEOUS
11.1. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be given (a) by U.S. Postal Service, registered or certified mail, first-class postage paid, return receipt requested, (b) sent by national reputable overnight delivery service such as Federal Express or United Parcel Service, (c) transmitted by electronic mail or (d) delivered by hand to the Persons and addresses, as the case may be, set forth below. Any notice shall be deemed to have been duly received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, when actually received, (ii) if sent by national reputable courier service, when actually received, (iii) if sent by electronic mail, when confirmation of receipt is received by sender, and (iv) if delivered by hand, on the date of receipt. The notice addresses and facsimile numbers of the Parties are as follows:
If to Holdco, to:
Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email:******
with a copy to (which shall not constitute notice):
Locke
Lord LLP
600 Travis Street, Suite 2800
Houston, TX 77002
Attention: Joe Perillo
Email: *****
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If to the Owners, to the Owners’ Representative as follows:
c/o Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email: *******
Any Party may change the address to which notices are to be sent by written notice given to the other Parties hereto.
11.2. Headings. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.
11.3. Amendments. This Agreement may only be amended pursuant to a written agreement executed by Holdco and the Owners’ Representative.
11.4. Rights; No Waiver. The failure of a Party to exercise any right granted hereunder will not impair nor be deemed a waiver of such Party’s privilege of exercising that right at any subsequent time or times, except as expressly provided herein. No waiver by a Party of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless expressly provided. No waiver will be effective unless made in writing and signed by the Party to be charged with such waiver.
11.5. Entire Agreement. This Agreement and the Merger Agreement, together with the Schedules and Exhibits attached hereto or thereto and hereby or thereby incorporated herein by reference, and the Transaction Agreements contain the entire agreement among the Parties with respect to the transactions contemplated hereby, and supersedes all negotiations, agreements, representations, warranties and commitments, whether in writing or oral, prior to the date hereof. Notwithstanding the above to the contrary, in the event that an Owner is not contributing one hundred percent (100%) of his, her or its equity interest in the Company to Nutex pursuant to this Agreement, such Owner shall continue to be bound by and subject to the terms and provisions of the Operating Agreement; provided that in the event of a conflict between the terms of this Agreement and the Operating Agreement, this Agreement shall control.
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11.6. Successors and Assigns; Assignment. Except as otherwise expressly provided in this Agreement, all of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted transferees of the Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or to give any Person not a Party any rights or remedies under or by reason of this Agreement, except for the indemnified parties expressly identified in this Agreement. No Owner may assign this agreement or any of his, her or its rights or obligations under this agreement without the prior written consent of Holdco; provided that Holdco may assign this agreement and/or any or all of its rights or obligations under this agreement to CLNH in connection with or after the consummation of the transactions contemplated under the Merger Agreement.
11.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute one instrument. Delivery of a copy of this Agreement bearing an original signature by facsimile transmission or by electronic mail in “portable document format” form shall have the same effect as physical delivery of the paper document bearing the original signature.
11.8. Governing Law, Venue and Severability, Jury Trial Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
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11.9. Remedies. Each Party acknowledges that the remedies at law of the Parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any Party, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
11.10. Transaction Expenses. Except as otherwise contemplated in this Agreement or the other Transaction Agreements, all fees, costs and expenses incurred by the Parties hereto in connection with this Agreement and the transactions contemplated hereby including legal and accounting fees (“Transaction Expenses”) shall be borne by the Party incurring such Transaction Expenses; provided, however, that notwithstanding anything to the contrary herein, each Owner shall be responsible for and shall pay his, her or its pro rata share (based on each such Owner’s share of the aggregate Equity Consideration) of the Transaction Expenses incurred by the Company, Nutex Health LLC or Nutex in connection with the transactions contemplated herein and/or in connection with the Merger Agreement. For the avoidance of doubt, expenses incurred by any Owner on his, her or its own behalf (including the fees and disbursements of counsel, advisors and other Persons retained by such Owner) will not be considered fees or costs incurred by the Company, Nutex Health LLC or Nutex and will therefore be the sole responsibility of such Owner.
11.11. Rules of Construction. Each of the Parties has contributed to the drafting of this Agreement; accordingly, no rule of strict construction shall be applied against any Party.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
HOLDCO:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
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OWNERS:
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| FULL LEGAL NAME OF OWNER [print]: | ||
| Form
of Legal Entity of Owner (for U.S. tax purposes) [check one]: ☐ Individual ☐ Corporation ☐ Estate ☐ Trust ☐ Partnership (includes limited liability companies, professional limited liability companies, professional associations, limited partnerships) ☐ Disregarded Entity ☐ Other: | ||
If OWNER IS an INDIVIDUAL: [signature of Owner] If OWNER IS an entity: By: [signature of authorized person] Name of Authorized Person: Title of Authorized Person: AND [signature of Doctor-Owner] |
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| 33 |
INTERESTS: Name of Company or Facility: ______________________ |
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Percent of Owner’s Total Ownership Percentage Owner will contribute to Holdco: _____% (the “Contributed Interests”) NOTICE INFORMATION: [please provide address and contact information] |
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| E-mail Address: | ||
| 34 |
OWNERS’ REPRESENTATIVE:
______________________________________
THOMAS T. VO
| 35 |
EXHIBIT A
DEFINED TERMS
As used in the Agreement, the following terms shall have the respective meanings set forth below:
“Affiliate” means, with respect to any Person, any other person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, the term “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the Preamble.
“Assignment Agreements” has the meaning set forth in Section 2.4(a)(i).
“Business” has the meaning set forth in the Recitals.
“Business Day” means any day other than a Saturday, Sunday or federal bank holiday.
“Cap” has the meaning set forth in Section 9.6(a).
“Claim” has the meaning set forth in Section 9.3.
“Claim Notice” has the meaning set forth in Section 9.3.
“CLNH” has the meaning set forth in the Recitals.
“Closing” has the meaning set forth in Section 2.3.
“Closing Date” has the meaning set forth in Section 2.3.
“Company” has the meaning set forth in the Recitals.
“Confidentiality Agreements” means, collectively, the confidentiality agreements entered into and executed by each of the Owners and Nutex Health LLC in connection with and anticipation of the transactions contemplated herein.
“Contracts” means any and all assignments, deeds, contracts, commitments, agreements, franchises, understandings, obligations, letters of intent, indemnification agreements, arrangements, purchase orders, leases, subleases, licenses, registrations, authorizations, easements, servitudes, rights-of-way, mortgages, credit agreements or documents, bonds, notes, indentures, documents, and other instruments, whether written or unwritten, to which the applicable Person is party or by which it is bound, and all amendments thereof.
“Cutoff Date” has the meaning set forth in Section 9.5.
“Debt” means, with respect to any Person, as of any particular time, without duplication, (a) indebtedness of such Person for money borrowed from banks or similar financial institutions or evidenced by bonds, debentures, notes or other similar instruments or securities (and whether or not convertible into any other security), including the amount drawn on any letter of credit supporting the repayment of indebtedness for borrowed money issued for the account of such Person and obligations under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing; (b) obligations under any capital leases (as defined under GAAP); (c) obligations of such Person to pay the deferred purchase price or acquisition price of any asset, property, business or services (including obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable, (e) obligations for any accrued interest, prepayment premiums or penalties or other costs or expenses related to any of the foregoing and (d) guarantees of any of the foregoing on behalf of another Person.
“Direct Claim” has the meaning set forth in Section 9.4(e).
“Disclosure Schedule” or “Schedule” or “Schedules” means the disclosure schedule accompanying this Agreement.
“Doctor-Owner” means, if an Owner is an entity or a trust, the doctor or physician who owns or controls such Owner.
“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability company, joint venture, joint stock association, estate, trust, cooperative, foundation, union, syndicate, league, consortium, coalition, committee, society, firm or other enterprise, association, organization or entity of any nature, other than a Governmental Authority.
“Equitable Principles” has the meaning set forth in Section 3.1.
“Equity Consideration” has the meaning set forth in Section 2.2.
“Equity Interests” means any membership interests, limited liability company interests, partnership interests, shares, capital stock or other equity securities or ownership interests of a Person and securities exercisable or exchangeable for or convertible into, or other rights to acquire, membership interests, limited liability company interests, partnership interests, shares or capital stock or other equity securities or ownership interests of a Person.
“Fundamental Representations” has the meaning set forth in Section 9.5.
“GAAP” means United States generally accepted accounting principles consistently applied.
“Governmental Authority” means a federal, state, local or foreign governmental or quasi-governmental authority, a state, commonwealth, territory or district thereof; a county or parish; a city, town, township, village or other municipality; a district, ward or other subdivision of any of the foregoing; and any executive, legislative or other governing body or administrative authority of any of the foregoing.
“Guaranty Obligations” has the meaning set forth in Section 6.10.
“Holdco” has the meaning set forth in the Preamble.
“Holdco Indemnitees” has the meaning set forth in Section 9.1.
“Holdco LLC Agreement” means an Amended and Restated Limited Liability Company Agreement of Holdco, in substantially the form attached hereto as Exhibit C.
“Indemnitee” has the meaning set forth in Section 9.3.
“Indemnitor” has the meaning set forth in Section 9.3.
“Indemnity Threshold” has the meaning set forth in Section 9.6(a).
“Legal Requirements” means any and all applicable (a) federal, state, provincial, local and foreign laws, statutes, common law rulings, rules, regulations, codes, ordinances, Permits, bylaws, variances, policies, judgments, injunctions, orders, and conditions, including Environmental Laws, (b) non-appealable judgments of a court of competent jurisdiction which are binding on the applicable Person, (c) Contracts with any federal, state, local or foreign court, arbitrator or administrative or Governmental Authority relating to compliance with matters described in (a) or (b) above to which the applicable Person is party, and (d) consent decrees and similar arrangements to which the applicable Person is party.
“Liabilities” means all claims, Proceedings, costs, expenses, obligations or liabilities of any nature (including any undisclosed, unfixed, unknown, unliquidated, unsecured, unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied, vicarious, joint, several or secondary liabilities), regardless of whether required to be disclosed on a balance sheet prepared in accordance with GAAP or known as of the Closing.
“Liens” means any and all liens, mortgages, charges, financing statements, security interests, or other restrictive covenants, options or preferential purchase rights.
“Losses” means damages, claims, suits, liabilities, losses, costs and expenses (including reasonable fees and expenses of counsel and court costs).
“Material Adverse Effect” means any result, occurrence, fact, change, event, effect or condition that has had or could reasonably be expected to have a material adverse effect on the property, business, operations, assets, liabilities, financial condition, prospects or results of operations of the Company or the Business, individually or in the aggregate, except for (i) the effect of any change in the United States or foreign economies or securities or financial markets in general; (ii) the effect of any change that generally affects any industry in which the Company operates; (iii) the effect of any change arising in connection with earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions existing or underway as of the date hereof; or (iv) the effect of any changes in applicable Legal Requirements or GAAP; provided that with respect to (i) – (iv), such change shall not have a disproportionate effect on the Company.
“Membership Interests” has the meaning set forth in the Recitals.
“Merger” has the meaning set forth in the Recitals.
“Merger Agreement” means the Agreement and Plan of Merger, substantially in the form attached as Exhibit E hereto.
“Operating Agreement” means the company agreement or operating agreement of the Company to which the Owners or their Affiliates are a party or by which they are bound, as the same may be amended.
“Order” has the meaning set forth in Section 9.4(f).
“Organizational Documents” means the articles of incorporation, certificate of incorporation, articles or certificate of formation, articles or certificate of limited partnership, bylaws, operating agreement, partnership agreement, shareholders agreement, company agreement, limited liability company agreement, regulations, certificate of designations for preferred stock or other equity interests and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of an Entity, including all amendments thereto and restatements thereof.
“Outside Date” means September 30, 2022.
“Owner” or “Owners” has the meaning set forth in the Preamble.
“Owner Indemnitees” has the meaning set forth in Section 9.2.
“Owners’ Representative” has the meaning set forth in Section 10.1.
“Party” or “Parties” has the meaning set forth in the Preamble.
“Permit” means any permit, permit exception, license, registration, exemption, certificate, authorization and approval of any Governmental Authority.
“Person” means any individual, Entity or Governmental Authority.
“Real Estate Guaranty” means any guaranty entered into or executed by the Company in connection with any Debt on any real property leased by the Company.
“Released Party” has the meaning set forth in Section 6.5.
“Releasing Party” has the meaning set forth in Section 6.5.
“Representative” means any officer, employee, director, member, manager, attorney, law firm, investment advisor, consultant, accountant, accounting firm, investment banker or other professional representing, providing services to or acting on behalf of any Party to this Agreement.
“Restrictive Covenants” has the meaning in Section 6.8.
“Retained Rights” has the meaning set forth in Section 6.5.
“Securities Act” means the Securities Act of 1933, as amended.
“Settlement” has the meaning set forth in Section 9.4(c).
“Shift Guaranty” has the meaning in Section 6.9.
“Subsidiaries” means, with respect to any Person of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the equity interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Entities owned by or controlled by that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).
“Tax” or “Taxes” means any taxes, assessments, charges, duties, fees, levies, imposts and other governmental charges imposed by any Governmental Authority, including without limitation income, franchise, profits, margins, gross receipts, capital gains, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, escheat, abandoned or unclaimed property, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, or other tax of any kind whatsoever, including any deficiency assessments, interest, penalty, or addition thereto, whether disputed or not.
“Taxing Authority” means, with respect to any Tax, the Governmental Authority that is responsible for the imposition and/or administration of such Tax, including any Governmental Authority that imposes, or is charged with collecting, social security or similar charges or premiums.
“Tax Return” means any return, declaration, report, claim for refund, election, estimated tax filing or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Third Party Claim” has the meaning set forth in Section 9.4(a).
“Transaction Agreements” means this Agreement, the Confidentiality Agreements, the Assignment Agreement, the Holdco LLC Agreement and any other ancillary documents contemplated by this Agreement to be delivered at Closing and to which a Party is a signatory thereto.
“Transaction Expenses” has the meaning set forth in Section 11.10.
“Transfer Taxes” means all transfer, documentary, sales, use, stamp, registration and other similar Taxes (other than income Taxes) and all conveyance fees, recording charges and other fees and charges imposed on the Company in connection with the consummation of the transactions contemplated by this Agreement.
“Units” has the meaning set forth in the Holdco LLC Agreement.
| A-1 |
Exhibit B
Form of Assignment Agreement
CONTRIBUTION AND ASSIGNMENT AGREEMENT
THIS CONTRIBUTION AND ASSIGNMENT AGREEMENT (this “Assignment”), dated as of ______________, is made and entered into by and between the undersigned listed as Assignor on the signature page attached hereto (the “Assignor”), and Nutex Health Holdco LLC, a Delaware limited liability company (the “Assignee”). The Assignor and the Assignee may each be referred to herein as a “Party” and collectively as the “Parties.”
WHEREAS, the Assignor owns certain equity interests (the “Interests”) in the company and in the amounts as set forth on Exhibit A attached hereto;
WHEREAS, pursuant to the terms and provisions of that certain Contribution Agreement, dated as of November 23, 2021, by and among the Assignor, the Assignee and the other parties listed on the signature pages attached thereto (the “Contribution Agreement”), the Assignor desires to contribute, convey, transfer, assign and deliver to the Assignee, and the Assignee desires to receive and accept from the Assignor, the Interests;
WHEREAS, in order to effectuate the conveyance, transfer, assignment and delivery of the Interests to the Assignee, the Parties are executing and delivering this Assignment; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Contribution Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. Contribution of the Interests. The Assignor hereby CONTRIBUTES, CONVEYS, TRANSFERS, ASSIGNS AND DELIVERS unto the Assignee and its successors and assigns, and the Assignee hereby receives and accepts, all of the Assignor’s right, title and interest in and to the Interests.
2. Contribution Agreement. This Assignment is made effective as of the Closing and is expressly made subject to the terms, conditions and covenants of the Contribution Agreement. If there is a conflict between this Assignment and the Contribution Agreement, then the Contribution Agreement shall control in all respects. No provision of this Assignment shall in any way modify any of the provisions of the Contribution Agreement. This Assignment is intended solely to further effect the transfer of the Interests in accordance with the Contribution Agreement.
| B-1 |
3. Further Assurances. The Assignor covenants and agrees with the Assignee that the Assignor and its successors and assigns shall execute, acknowledge and deliver such other instruments of conveyance and transfer and take such other action as may reasonably be required to more effectively grant, convey, transfer, assign and deliver to and vest in the Assignee and its successors and assigns, and to put the Assignee and its successors and assigns in possession of, the Interests conveyed, transferred, assigned and delivered hereunder or to otherwise carry out the purposes of this Assignment.
4. Binding Effect. The terms and provisions of this Assignment extend to, bind and inure to the benefit of the Parties and their respective successors and permitted assigns.
5. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
6. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute but one and the same instrument. The delivery of copies of this Assignment, including executed signature pages by electronic transmission, will constitute effective delivery.
7. Successors and Assigns. This Assignment shall bind the Assignor and its successors and assigns and inure to the benefit of the Assignee and its successors and assigns.
8. Waiver; Amendment. None of the provisions of this Assignment may be waived, changed or altered except in a signed writing by the Party against whom enforcement of the same is sought.
| B-2 |
9. No Third-Party Beneficiaries. No provision of this Assignment is intended to confer upon any person other than the Parties any rights or remedies hereunder.
10. Entire Agreement. This Assignment, the Contribution Agreement and the other agreements and documents executed contemporaneously herewith and therewith or contemplated herein or therein, embody the entire agreement and understanding of the Parties with respect to the subject matter hereof. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein.
[Signature Page Follows]
| B-3 |
IN WITNESS WHEREOF, the Parties have executed this Assignment to be effective as of the date first above written.
| FULL LEGAL NAME OF ASSIGNOR (PRINT): | |
If an entity: By: Name: Title: If an INDIVIDUAL: Name: _______________________ |
|
| B-4 |
ASSIGNEE:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
| B-5 |
Exhibit D-1
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Entity)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor is not a disregarded entity as defined in Treasury Regulation Section 1.1445-2(b)(2)(iii);
3. Transferor’s U.S. taxpayer identification number is _________________; and
4. Transferor’s principal address is: ____________________________________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete, and the undersigned further declares that he has authority to sign this Certificate of Non-Foreign Status on behalf of Transferor.
Name of Transferor (Entity):____________________
By:
Name:
Title:
| D-1-1 |
Exhibit D-2
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Individual)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ___________________________; and
3. Transferor’s residential address is: ________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
____________________________________
Name: _________________
| D-2-1 |
Exhibit D-3
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Grantor Trust)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the trust listed below (“Seller”), and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Seller is a grantor trust under Code Sections 671-677, such that the transferor for U.S. federal income tax purposes is _________________ (the “Transferor”). Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ______ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ____________________________; and
3. Transferor’s residential address is: ________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
Name of Trust: ________________
____________________________________
Transferor: ____________
| D-3-1 |
EXHIBIT E
Merger Agreement
| E-1 |
Exhibit H
Equity Consideration Adjustment—Under Construction Hospital
Defined Terms: The following terms have the meanings ascribed below. Capitalized terms used herein and not otherwise defined shall have the meanings to be ascribed to them in this Agreement to which this Exhibit is attached.
“Ancillary Services” means any services other than professional services personally performed by physicians.
“Capital Contribution” means the aggregate capital contributions to the Company listed opposite the applicable Owner’s name on Annex 2.
“Earnout Representative” means such representative as selected by a majority of the Owners (other than Dr. Vo).
“EBITDA” means earnings of the Company before taxes, depreciation and amortization as calculated in accordance with GAAP; provided that notwithstanding anything to the contrary herein, all revenues from Ancillary Services, regardless of payor type or source of payment, shall be excluded from the calculation of EBITDA.
“Lock-Up Agreement” means a Lock-Up Agreement, in substantially the form attached hereto as Annex 1.
“Measurement Period” means, with respect to the Company, a period of twenty-four (24) months starting on the Opening Date of the Company.
“Opening Date” means the date on which the Company begins accepting patients.
“Parent Common Stock” shall have the meaning set forth in the Merger Agreement.
“Parent Stock Price Floor” means $2.80.
“Pro Rata Share” means, with respect to an Owner, the ownership percentage listed opposite such Owner’s name on Annex 2.
“TTM EBITDA” means EBITDA for the immediately preceding twelve (12) month period prior to the end of the Measurement Date.
Agreement: Holdco and the Owners acknowledge and agree as follows:
1. In connection with the closing of the Merger Agreement, each Owner shall receive a number of shares of Parent Common Stock equal to (a) such Owner’s Capital Contribution divided by (b) the price of the Parent Common Stock under the Merger Agreement.
2. In connection with the closing of the Merger Agreement, Holdco and/or CLNH shall assume and/or payoff the aggregate Debt of the Company outstanding as of the Closing of the Merger Agreement.
3. During the Measurement Period, each Owner will be entitled to receive his, her or its Pro-Rata Share of fifty percent (50%) of the aggregate distributable cash flow as determined by Holdco once all debt and tax obligations are satisfied (each, a “Distribution”) which such Distributions shall be reduced by any tax obligations. Distributions shall be made to the Owners on a quarterly basis, if available.
4. Subject to the limitations set forth in this agreement and the following terms and provisions, each Owner shall be eligible to receive a one-time additional issuance of Parent Common Stock based on such Owner’s Pro Rata Share of the TTM EBITDA of the Company; provided that such additional issuance shall be in addition to the initial issuance of shares of Parent Common Stock as provided in Section 2.2 and subject to Section 2.6 and Section 2.7. At the end of the applicable Measurement Period, such Owner(s), as applicable, shall be eligible to receive his, her or its Pro Rata Share of a number of shares of Parent Common Stock equal to (a)(i) the TTM EBITDA of the Company times (ii) ten (10) minus (iii) the aggregate amount of such Owner’s Capital Contribution minus (iv) such Owner’s Pro Rata Share of the aggregate Debt of the Company outstanding as of the Closing of the Merger divided by (b) the greater of (i) the price of the Parent Common Stock and (ii) the Parent Stock Price Floor, in each case (i.e., (a), (i), (ii), (iii), (iv) and (b)(i)), such amounts determined at the expiration of the applicable Measurement Period.
5. No later than thirty (30) days after the end of the applicable Measurement Period, Holdco shall prepare and deliver to the Earnout Representative, a statement (the “EBITDA Statement”) setting forth in reasonable detail the aggregate TTM EBITDA of the Company, as determined by Holdco in accordance with GAAP. The Earnout Representative shall have fifteen (15) days following Holdco’s delivery of the EBITDA Statement to review the EBITDA Statement (and the Earnout Representative shall have the right to examine the work papers used or generated in connection with the preparation of the EBITDA Statement and such other documents as the Earnout Representative may reasonably request in connection with his, her or its review of the EBITDA Statement) and to inform Holdco in writing of any good faith disagreement that he, she or it may have with the EBITDA Statement, which objection shall specify in reasonable detail the Earnout Representative’s disagreement with the EBITDA Statement (the “Objection”). If Holdco does not receive the Objection within such fifteen (15) day period, the EBITDA Statement shall be deemed to have been accepted by the Earnout Representative and shall become final and binding on the parties. If the Earnout Representative does timely deliver an Objection to Holdco, Holdco shall then have ten (10) days from the date of receipt of such Objection (the “Review Period”) to review and respond to the Objection. Holdco and the Earnout Representative shall attempt in good faith to resolve any disagreements with respect to the determination of the Company’s TTM EBITDA. If they are unable to resolve all of their disagreements with respect to the determination of the Company’s TTM EBITDA within ten (10) days following the expiration of the Review Period, they may refer, at the option of either party, their differences to a nationally recognized accounting firm, mutually agreeable to Holdco and the Earnout Representative (the “Neutral Arbitrator”), who shall determine only with respect to the differences so submitted, whether and to what extent, if any, the Company’s TTM EBITDA set forth in the EBITDA Statement should be adjusted. In submitting a dispute to the Neutral Arbitrator under this Section 5, each party shall prepare a detailed statement in support of their respective calculation of the Company’s TTM EBITDA. Holdco and the Earnout Representative shall make readily available to the Neutral Arbitrator, all relevant books and records relating to the EBITDA Statement and all other items reasonably requested. The Neutral Arbitrator shall be required to accept any determinations for which there is agreement between the parties, and will only decide upon matters on which there is a substantive dispute, which shall be decided based only upon the provisions of this Section 5 and the presentations by the parties (and not upon an independent review). Holdco, on the one hand, and the Owner(s), on the other hand, shall each pay one-half of the Neutral Arbitrator’s fees and expenses in connection with this Section 5; provided, however, that (i) if the aggregate estimate by Holdco of the disputed amount or amount differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then Holdco shall pay the entire amount of such cost, and (ii) if the aggregate estimate by the Earnout Representative of the disputed amount or amounts differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then the Owner(s) shall pay the entire amount of such cost; provided, further, however, if the aggregate estimates by both Holdco and the Earnout Representative of the disputed amount or amounts differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then the party whose estimate differs most greatly from the determination of the Neutral Arbitrator shall pay the entire amount of such cost. The Neutral Arbitrator’s determination shall be conclusive and binding upon the parties.
6. Upon the final resolution of the EBITDA Statement and related final issuance, if any, of the Parent Common Stock in accordance with Section 5, either pursuant to Holdco’s and the Earnout Representative’s mutual written agreement or the final determination by the Neutral Arbitrator, in each case, accordance with Section 5 (such date, the “Final Settlement Date”), the additional shares of Parent Common Stock contemplated by Section 5, if any, will be issued to the applicable Owner within 10 business days following the Final Settlement Date.
7. To the extent required by the laws in effect at the time any additional shares of Parent Common Stock are issued pursuant to this agreement, Holdco shall withhold any taxes required to be withheld for federal, state or local governmental purposes.
8. Notwithstanding anything to the contrary herein, the Owner shall not be entitled to receive the one-time additional issuance of Parent Common Stock contemplated herein unless and until such Owner delivers a duly executed Lock-Up Agreement, in form and substance acceptable to Holdco and the Parent, to Holdco.
| H-1 |
ANNEX 1
Form of Lock-Up Agreement
(ADDITIONAL ISSUANCES)1
This Lock-Up Agreement (this “Agreement”) is entered into as of [_____________]2 by and between the undersigned and Nutex Health, Inc. (formerly known as Clinigence Holdings, Inc.), a Delaware corporation (“Parent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as such term is defined below).
RECITALS
WHEREAS, Nutex Health Holdco, LLC, a Delaware limited liability company (the “Company”), a wholly owned subsidiary of Parent, and the undersigned are party to that certain Contribution Agreement dated [•];
WHEREAS, on [•], the Company, Parent and Nutex Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which Merger Sub merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), upon the terms and subject to the conditions set forth therein; and
WHEREAS, as a condition to the willingness of Parent to issue to the undersigned additional fully paid and non-assessable shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”) in accordance and subject to the conditions set forth in Exhibit H to the Contribution Agreement (the “Additional Issuance”) Parent and the Company have required that the undersigned agree to enter into this Agreement, which, among other things, restricts the sale, assignment, transfer, encumbrance or other disposition of the Covered Securities (as such term is defined below).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up of Securities.
(a) Lock-Up. In recognition of the benefit that the Additional Issuance confers upon the undersigned, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that:
(i) during the period commencing on the date of the Additional Issuance and including the date that is six (6) months from the date of the Additional Issuance (the “First Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Covered Securities by the undersigned, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Covered Securities, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise (each of the foregoing, a “Transfer”);
(ii) during the period commencing on the first calendar day following the end of the First Lock-Up Period to and including the date that is twelve (12) months from the date of the Additional Issuance (the “Second Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than one-third (1/3) of the Covered Securities; and
(iii) during the period commencing on the first calendar day following the end of the Second Lock-Up Period to and including the date that is eighteen (18) months from the date if the Additional Issuance (the “Third Lock-Up Period” and collectively with the First Lock-Up Period and Second Lock-Up Period, the “Lock-Up Periods”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than two-thirds (2/3) of the Covered Securities.
For the purposes of the Agreement, “Covered Securities” shall mean, with respect to the undersigned, any of the following: (i) any and all shares of Parent Common Stock which are issued to the undersigned as of the date of the Additional Issuance (the “Additional Shares”), (ii) any shares of Parent Common Stock issuable upon exercise, conversion or exchange of the Additional Shares, (iii) any securities of the Parent issued in respect of the shares of Parent Common Stock issued or issuable to the undersigned by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Parent Common Stock issuable upon conversion, exercise or exchange thereof, in each case to the extent relating to the Additional Shares and (iv) any other securities of the Parent issued or issuable to undersigned that are convertible into or exercisable or exchangeable for Parent Common Stock, whether at the option of the undersigned or otherwise, in each case to the extent relating to the Additional Shares. For the avoidance of doubt, this Agreement shall not apply with respect to any shares of Parent Common Stock issued to the undersigned as of the Effective Time; provided that such shares may be subject to a Lock Up Agreement between the Company and the undersigned dated as of [ ].
(b) Permitted Transfers. Notwithstanding the foregoing, the undersigned may Transfer the Covered Securities to a Permitted Transferee without the prior written consent of Parent, provided that (i) Parent receives a signed lock-up agreement in substantially the same form as this Agreement for the balance of the Lock-Up Periods from each donee, trustee, distributee, or transferee, as the case may be, (ii) any such Transfer shall not involve a disposition for value, (iii)if any filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Parent Common Stock in connection with such Transfer shall be legally required prior to the expiration of the Third Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such Transfer, and (iv) the undersigned does not otherwise voluntarily effect any public filing or report regarding such Transfers. For the purposes of this Agreement, “Permitted Transferee” means (1) if the undersigned is an individual (x) a member of the undersigned’s immediate family (which shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin) or a trust, corporation, partnership or limited liability company for the benefit of an immediate family member of the undersigned, all of the beneficial interests of which shall be held by the undersigned or one or more members of the undersigned’s immediate family and (y) the undersigned’s heirs, successors, administrators and executors and any beneficiary of the undersigned pursuant to will or other testamentary document or applicable laws of decent, (2) any Affiliate of the undersigned, (3) if the undersigned is a trust, to a trustee or beneficiary of the trust, or (4) if the undersigned is an individual, an entity or a trust, to any institution qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a bona fide gift or gifts, or for bona fide estate planning purposes.
(c) Stop Transfer. During the Lock-Up Periods, undersigned hereby authorizes Parent to cause any transfer agent for the Covered Securities subject to this Agreement to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities, subject to this Agreement for which the undersigned is the record holder and, in the case of Covered Securities subject to this Agreement for which the undersigned is the beneficial owner but not the record holder, agrees during the Lock-Up Periods to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities subject to this Agreement, if such transfer would constitute a violation or breach of this Agreement.
2. Termination. This Agreement shall automatically terminate and be of no further force or effect upon the first day following the expiration of the Third Lock-Up Period.
3. Transfer; Successor and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. As provided above, any Transfer of Parent Common Stock shall not be effective unless such transferee executes a lock-up agreement in substantially the same form as this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4. Compliance with Securities Laws. The undersigned shall not, at any time make any Transfer, except (i) Transfers pursuant to an effective registration statement under the Securities Act, (ii) Transfers pursuant to the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or (iii) if the undersigned shall have furnished Parent with an opinion of counsel, if reasonably requested by Parent, which opinion and counsel shall be reasonably satisfactory to Parent, to the effect that such Transfer is otherwise exempt from registration under the Securities Act, and in each of (i)-(iii), that such Transfer otherwise complies with the terms of this Agreement.
5. Other Restrictions.
(a) Legends. The undersigned hereby agrees that each outstanding certificate evidencing shares of Parent Common Stock issued to the undersigned shall bear legends reading substantially as follows:
(i) “THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(ii) “THE SALE OR TRANSFER OF THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF A LOCK-UP AGREEMENT DATED [_____________], BETWEEN THE COMPANY AND THE STOCKHOLDER LISTED ON THE FACE HEREOF. A COPY OF SUCH LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE HOLDER HEREOF UPON REQUEST THEREOF. NO TRANSFER OF THE SHARES EVIDENCED HEREBY WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP AGREEMENT.”
(b) Termination of Restrictive Legends. The restrictions referred to in Section 5(a)(i) hereof shall cease and terminate as to Additional Shares (i) when, in the opinion of counsel for Parent, such restriction is no longer required in order to assure compliance with the Securities Act or (ii) when such shares shall have been Transferred in accordance with and pursuant to Rule 144 under the Securities Act or effectively registered under the Securities Act. The restrictions referred to in Section 5(a)(ii) hereof shall cease and terminate at the end of the Lock-Up Periods. Whenever any restrictions under Section 5(a) shall cease and terminate as to any Parent Common Stock, the undersigned shall be entitled to receive from Parent, in exchange for a legended stock certificate then held thereby, without expense (other than applicable transfer fees and taxes, if any, if such unlegended shares are being delivered and Transferred to any person other than the registered holder thereof), a new stock certificate for the same number of shares of Parent Common Stock not bearing the legend set forth in Section 5(a) which have ceased and terminated. As a condition to providing any such new certificate without the legend set forth in Section 5(a)(i) hereof, Parent may require from the undersigned a certificate or an opinion of counsel of the undersigned with respect to any relevant matters in connection with removal of such legend, which certificate or opinion of counsel will be satisfactory to Parent.
(c) Copy of Agreement. A copy of this Agreement shall be filed with the corporate secretary of Parent, shall be kept with the records of Parent and shall be made available for inspection by any stockholder of Parent. In addition, a copy of this Agreement shall be filed with Parent’s transfer agent of record.
(d) Recordation. Parent shall not record upon its books any Transfer to any person except Transfers in accordance with this Agreement.
6. No Other Rights. The undersigned understands and agrees that Parent is under no obligation to register the sale, Transfer or other disposition of the undersigned’s Covered Securities under the Securities Act or to take any other action necessary in order to ensure compliance with an exemption from such registration is available.
7. Amendments and Waivers. This Agreement may not be amended, supplemented or modified except by an agreement in writing signed by the undersigned and Parent. Either party hereto may waive compliance by the other party hereto with any term or provision of this Agreement; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No such waiver shall be effective unless such waiver is in writing and is signed by the party hereto asserted to have granted such waiver.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
9. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures. This Agreement shall become effective when both parties hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party hereto has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party hereto shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
10. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
11. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) when delivered personally or by email (with confirmation of receipt), (ii) one (1) Business Day following the day when deposited with a reputable, established overnight courier service for delivery to the intended addressee, or (iii) three (3) Business Days following the day when deposited with the United States Postal Service as first class, registered or certified mail, postage prepaid and addressed as set forth on such party’s signature page hereto. Either party hereto may alter its notice address by notifying the other party hereto of such change of address in conformity with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
13. Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to as a remedy for any such breach, prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
14. Recapitalizations and Exchanges Affecting Shares. Except as otherwise provided in Section 1(b), the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Covered Securities, and to any and all shares of capital stock or equity securities of Parent which may be issued by reason of any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification or otherwise.
15. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party to this Agreement shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party to this Agreement of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder shall be cumulative and not alternative.
16. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
[Signature Page Follows]
| ANNEX-1-1 |
IN WITNESS WHEREOF, the parties hereto have executed this Lock-Up Agreement as of the date first written above.
PARENT:
NUTEX HEALTH INC.
By:
Name:
Title:
Address:
Facsimile:
Attention:
[_____________]:
(Signature)
Address:
Facsimile:
1Not for Execution - To be used for (1) Ramping Hospital (additional issuance only) and (2) Under Construction Hospitals (additional issuance only)
2Date of issuance of additional shares in accordance with Exhibit H to the contribution agreements for Ramping and Under Construction hospitals.
| ANNEX-1-2 |
Exhibit I
Restrictive Covenants
Each of the parties hereto acknowledges the highly competitive nature of the Business and agrees that the goodwill of the Business is an integral component of the Business, and without such goodwill, the value of the transactions contemplated by this Agreement and the Merger Agreement will be greatly diminished and Holdco’s reasons for entering into this Agreement and Braves’ reasons for entering into the Merger Agreement and consummating the transactions contemplated herein and therein will be impaired.
Each of the parties hereto further acknowledges that as a result of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, each of the Restricted Parties shall receive certain direct or indirect consideration.
The parties hereto intend this Agreement, including this Exhibit, to evidence their understanding with respect to the restrictions on the Restricted Parties’ activities following consummation of the transactions contemplated by this Agreement and the Merger Agreement.
1. Defined Terms. For purposes of this Exhibit, the following terms have the respective meanings set forth below.
(a) “Business” has the meaning set forth in the recitals to this Agreement.
(b) “Confidential Information” includes but is not limited to: (i) any confidential or proprietary information of the Company or Holdco, whether or not marked or otherwise designated as confidential, whether tangible or intangible and in whatever form or medium, including, without limitation, information that is not generally known or readily ascertainable outside of the Company or Holdco regarding the Company or Holdco and relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, work-in-process, databases, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, revenue, costs, formulae, notes, communications, product plans, ideas, audiovisual programs, inventions, unpublished patent applications, discoveries, experimental processes, experimental results, specifications, and referral networks and sources, (ii) any information received by the Company or Holdco from third parties which the Company or Holdco is obligated to keep confidential, and (iii) all other information relating to the Company’s or Holdco’s business which is not common knowledge outside the Company or Holdco and which provides the Company or Holdco with a business advantage and/or would provide a business advantage to the Company’s or Holdco’s competitors.
(c) “Facility” means the stand-alone emergency room clinic and/or hospital described in the recitals to this Agreement.
(d) “Family Group” means a Person’s spouse, parents, siblings and descendants (whether by birth or adoption) and any trust or other estate planning vehicle solely for the benefit of such Person or such Person’s spouse, parents, siblings or descendants (whether by birth or adoption).
(e) “Holdco Group” means Holdco and its Affiliates, including the Company and after the consummation of the Merger, Braves.
(f) “Restricted Area” means a twenty-five (25) mile radius around the Facility.
(g) “Restricted Business” means any Person that engages in or is planning to engage in business activities that are substantially similar to or the functional equivalent of, and that are competitive with, any aspect of the Business in the Restricted Area, including (a) the owning or operating a facility at which physicians provide medical care, treatment or diagnosis on an urgent or emergency basis; or (b) leasing or subleasing a facility for those purposes.
(h) “Restricted Party” means the Owner or if such Owner is an entity or a trust, the Doctor-Owner affiliated with such Owner as listed on the signature pages attached to this Agreement.
(i) “Restricted Period” means the restrictive covenant period set forth in the Operating Agreement applicable to such Restricted Party; provided, however, that the period shall begin on the date on which the Restricted Party ceases to provide services to the Facility rather than the date on which such Restricted Party ceases to own equity interests in the Company.
2. Non-Competition.
(a) Such Restricted Party agrees that such Restricted Party shall not, at any time during the period of time during which such Restricted Party is providing services to the Facility and continuing during the Restricted Period, on such Restricted Party’s own behalf or on behalf of any other Person (other than Holdco Group), directly or indirectly (including through another Person, including its Family Group or any Affiliate) enter into or attempt to enter into any Restricted Business or own voting equity in, or form or operate as an owner, equity holder, interest holder, stockholder, officer, director, member, manager, partner, co-venturer, any business engaged in activities relating to any Restricted Business.
(b) Such Restricted Party acknowledges and agrees that, for purposes of this Agreement, indirect acts by such Restricted Party shall include, without limitation, an act by any Person directly or indirectly controlled by such Restricted Party.
(c) Such Restricted Party acknowledges that (i) the confidential and propriety information and the goodwill associated with the Business and its customers, suppliers, vendors and employees is an integral component of the value of the Business being acquired by Holdco in this Agreement and Braves in the Merger Agreement and that the obligations of such Restricted Party under this Agreement are a material inducement to Holdco’s execution and performance of this Agreement and Braves’ execution and performance of the Merger Agreement, (ii) at the time that these restrictive covenants are made, to the extent applicable to such Restricted Party, the limitations as to time, geographic scope and activity to be restrained, as described in this Section 2 are reasonable and do not impose a greater restraint than necessary to protect Holdco’s and Braves’ legitimate business interests and the value to Holdco and Braves of the transactions contemplated by this Agreement and the Merger Agreement, including, without limitation, the Confidential Information, the relationships with employees and customers, and/or the goodwill and business productivity of the Business, (iii) such Restricted Party has carefully read this Agreement and has given careful consideration to the restraints imposed upon such Restricted Party by this Agreement and consents to the terms of such restrictive covenants and (iv) the restrictions set forth in this Agreement are fair and reasonable in light of the nature of the operations of the Business and geographic scope, which reasonably correlates to the Restricted Area.
(d) Notwithstanding anything to the contrary in this Section 2, (a) the Restricted Parties may own or hold, solely as passive investments, securities of a publicly traded corporation involved in a Restricted Business; provided that, for each such investment, (i) the aggregate securities held by the Restricted Parties do not exceed three percent (3%) of the outstanding securities of such Restricted Business, and (ii) no Restricted Party, directly or indirectly, participates in, or attempts to influence, the management, direction or policies of such Restricted Business (other than through the exercise of any voting rights held by such Restricted Party in connection with such securities), (b) if the Restricted Party retains ownership in the Company following the Merger, the Restricted Party shall remain subject to the terms and conditions of the Operating Agreement of the Company, and (c) the Restricted Party may provide services for a Restricted Business within the Restricted Territory so long as the Restricted Party does not own or hold any securities in such Restricted Business.
(e) Notwithstanding anything to the contrary in this Section 2, a Restricted Party who is a licensed physician by the applicable state medical board in which such Restricted Party practices or in which such Facility is located may, at all times:
(i) have access to medical records of the physician's patients upon authorization of the pertinent patient and any copies of medical records to the extent permitted by applicable state and federal Legal Requirements upon payment of a reasonable fee when permitted by applicable Legal Requirements, which access will be in the format in which those records are normally maintained; and
(ii) provide continuing care and treatment to any patients during the course of an acute illness.
3. Confidentiality. The Restricted Parties each acknowledge that the Confidential Information is the property of the Company and following the Closing, Holdco and following the consummation of the Merger, Braves. Following the Closing, each Restricted Party shall, and shall direct its Affiliates and its and their respective employees, agents, and representatives to, maintain all Confidential Information in strict confidence and secrecy, and shall not, directly or indirectly, for itself or on behalf of any other Person (i) use or exploit any Confidential Information for any purpose or (ii) disclose any Confidential Information to any Person other than the Holdco Group. Notwithstanding anything herein to the contrary, the Restricted Parties may disclose Confidential Information, (a) to a Governmental Authority to the extent required by applicable, final, nonappealable order or Legal Requirement and (b) pursuant to valid legal process, deposition, interrogatory, request for documents, subpoena, civil investigative demand, administrative proceeding or similar process; provided, that with respect to clause (a) and clause (b), prior to making any such disclosure of Confidential Information subject to this Section 3, the Restricted Party shall, to the extent legally permissible, provide Holdco or Braves with reasonably prompt notice of such request or requirement of disclosure so that Holdco or Braves may seek, at its sole cost and expense, an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Section 3, and, in the absence of a protective order or other remedy, the Restricted Party may disclose that portion (and only that portion) of such information that, based on advice of counsel, the Restricted Party is legally required to disclose.
4. Non-Disparagement. Each Restricted Party agrees that such Restricted Party shall not, directly or indirectly (including through another Person, including its Family Group or any Affiliate) make, or cause to be made, any statement or communicate any information (whether oral or written) that disparages, defames, or harms the reputation or business of, any member of the Holdco Group or Persons who are former, present or future directors, managers, officers, equity holders, executives or related persons of the Holdco Group; provided, that such Restricted Party’s obligations under this paragraph shall not apply to disclosures required by applicable Legal Requirement.
5. Consideration. The execution and delivery of this Agreement by each Restricted Party is in consideration of Holdco’s consummation and closing of the transactions contemplated by this Agreement and the Merger Agreement and the consideration payable to such Restricted Party in connection therewith. Such Restricted Party acknowledges that Holdco would not engage in the transactions contemplated by this Agreement and Braves would not engage in the transactions contemplated by the Merger Agreement unless the Restricted Parties agree to the covenants, agreements, understandings and restrictions contained in this Agreement.
6. Remedies. Each Restricted Party acknowledges and agrees that any breach or threatened breach by such Restricted Party of any of the restrictive covenants in this Agreement could give rise to irreparable injury to Holdco and Braves and that the value of the transactions contemplated hereby and in the Merger Agreement to Holdco and Braves would be diminished, each of which might be inadequately compensable in monetary damages. Accordingly, Holdco may seek (a) equitable relief, including injunctive relief and specific performance, and (b) any other legal remedies which may be available under the terms of this Agreement, including, without limitation, recovery of all attorneys’ fees and costs incurred by Holdco in obtaining relief from such Restricted Party’s breach or threatened breach. Each Restricted Party further acknowledges that Holdco may pursue any remedy available hereunder concurrently or consecutively in any order as to any breach, violation, or threatened breach or violation, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. The duration of the Restricted Period shall be tolled and suspended for any period that a Restricted Party is in violation of these covenants, to the fullest extent allowed by Legal Requirement.
7. Severability. If any term or other provision of this Exhibit is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any of the Restricted Party or Holdco. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
| I-1 |
Exhibit J
Form of Lock-Up Agreement
LOCK-UP AGREEMENT1
This Lock-Up Agreement (this “Agreement”) is entered into as of [_____________] by and between the undersigned and Clinigence Holdings, Inc., a Delaware corporation (“Parent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as such term is defined below).
RECITALS
WHEREAS, prior to or concurrently with the execution of this Agreement, Nutex Health Holdco LLC, a Delaware limited liability company (the “Company”), Parent and [Nutex Acquisition LLC], a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), are entering into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), upon the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the Merger Agreement, each [unit] in the Company issued and outstanding immediately prior to the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or such later date or time as agreed by the Company and Parent in writing and specified in the certificate of merger in accordance with the Delaware General Corporation Law and Limited Liability Company Act of the State of Delaware, as amended, the “Effective Time”) but after the consummation of the Contribution Transaction shall be converted into the right to receive [_____] fully paid and nonassessable shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”); and
WHEREAS, pursuant to the Merger Agreement and as a condition to the willingness of Parent and Merger Sub to consummate the Merger, Parent and Merger Sub have required that the undersigned agree to enter into this Agreement, which, among other things, restricts the sale, assignment, transfer, encumbrance or other disposition of the Covered Securities (as such term is defined below).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up of Securities.
(a) Lock-Up. In recognition of the benefit that the Merger will confer upon the undersigned, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that:
(i) during the period commencing on the Effective Time and including the date that is six (6) months from the Effective Time (the “First Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Covered Securities whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Covered Securities, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise (each of the foregoing, a “Transfer”);
(ii) during the period commencing on the first calendar day following the end of the First Lock-Up Period to and including the date that is twelve (12) months from the Effective Time (the “Second Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than one-third (1/3) of the Covered Securities; and
(iii) during the period commencing on the first calendar day following the end of the Second Lock-Up Period to and including the date that is eighteen (18) months from the Effective Time (the “Third Lock-Up Period” and collectively with the First Lock-Up Period and Second Lock-Up Period, the “Lock-Up Periods”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than two-thirds (2/3) of the Covered Securities.
For the purposes of the Agreement, “Covered Securities” shall mean, with respect to the undersigned, any of the following: (i) any and all shares of Parent Common Stock which are owned by the undersigned as of the Effective Time, (ii) any shares of Parent Common Stock issuable upon exercise, conversion or exchange of any securities of the Parent which are owned by the undersigned as of the Effective Time, (iii) any securities of the Parent issued in respect of the shares of Parent Common Stock issued or issuable to the undersigned by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Parent Common Stock issuable upon conversion, exercise or exchange thereof, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time and (iv) any other securities of the Parent issued or issuable to undersigned that are convertible into or exercisable or exchangeable for Parent Common Stock, whether at the option of the undersigned or otherwise, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time.
(b) Permitted Transfers. Notwithstanding the foregoing, the undersigned may Transfer the Covered Securities to a Permitted Transferee without the prior written consent of Parent, provided that (i) Parent receives a signed lock-up agreement in substantially the same form as this Agreement for the balance of the Lock-Up Periods from each donee, trustee, distributee, or transferee, as the case may be, (ii) any such Transfer shall not involve a disposition for value, (iii)if any filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Parent Common Stock in connection with such Transfer shall be legally required prior to the expiration of the Third Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such Transfer, and (iv) the undersigned does not otherwise voluntarily effect any public filing or report regarding such Transfers. For the purposes of this Agreement, “Permitted Transferee” means (1) if the undersigned is an individual (x) a member of the undersigned’s immediate family (which shall mean any relationship by blood, not more remote than first cousin, marriage, domestic partnership or adoption) or a trust, corporation, partnership or limited liability company for the benefit of an immediate family member of the undersigned, all of the beneficial interests of which shall be held by the undersigned or one or more members of the undersigned’s immediate family and (y) the undersigned’s heirs, successors, administrators and executors and any beneficiary of the undersigned pursuant to will or other testamentary document or applicable laws of decent, (2) any Affiliate of the undersigned, (3) if the undersigned is a trust, to a trustee or beneficiary of the trust, or (4) if the undersigned is an individual, an entity or a trust, to any institution qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a bona fide gift or gifts.
(c) Stop Transfer. During the Lock-Up Periods, undersigned hereby authorizes Parent to cause any transfer agent for the Covered Securities subject to this Agreement to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities, subject to this Agreement for which the undersigned is the record holder and, in the case of Covered Securities subject to this Agreement for which the undersigned is the beneficial owner but not the record holder, agrees during the Lock-Up Periods to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities subject to this Agreement, if such transfer would constitute a violation or breach of this Agreement.
2. Termination. This Agreement shall automatically terminate and be of no further force or effect upon the earlier to occur of (i) the termination of the Merger Agreement and (ii) the first day following the expiration of the Third Lock-Up Period; provided that Sections 3 through 16 of this Agreement shall survive termination under this Section 2.
3. Transfer; Successor and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. As provided above, any Transfer of Parent Common Stock shall not be effective unless such transferee executes a lock-up agreement in substantially the same form as this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4. Compliance with Securities Laws. The undersigned shall not, at any time make any Transfer, except (i) Transfers pursuant to an effective registration statement under the Securities Act, (ii) Transfers pursuant to the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or (iii) if the undersigned shall have furnished Parent with an opinion of counsel, if reasonably requested by Parent, which opinion and counsel shall be reasonably satisfactory to Parent, to the effect that such Transfer is otherwise exempt from registration under the Securities Act, and in each of (i)-(iii), that such Transfer otherwise complies with the terms of this Agreement.
5. Other Restrictions.
(a) Legends. The undersigned hereby agrees that each outstanding certificate evidencing shares of Parent Common Stock issued to the undersigned shall bear legends reading substantially as follows:
(i) “THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(ii) “THE SALE OR TRANSFER OF THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF A LOCK-UP AGREEMENT DATED [_____________], BETWEEN THE COMPANY AND THE STOCKHOLDER LISTED ON THE FACE HEREOF. A COPY OF SUCH LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE HOLDER HEREOF UPON REQUEST THEREOF. NO TRANSFER OF THE SHARES EVIDENCED HEREBY WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP AGREEMENT.”
(b) Termination of Restrictive Legends. The restrictions referred to in Section 5(a)(i) hereof shall cease and terminate as to Parent Common Stock (i) when, in the opinion of counsel for Parent, such restriction is no longer required in order to assure compliance with the Securities Act or (ii) when such shares shall have been Transferred in accordance with and pursuant to Rule 144 under the Securities Act or effectively registered under the Securities Act. The restrictions referred to in Section 5(a)(ii) hereof shall cease and terminate at the end of the Lock-Up Periods. Whenever any restrictions under Section 5(a) shall cease and terminate as to any Parent Common Stock, the undersigned shall be entitled to receive from Parent, in exchange for a legended stock certificate then held thereby, without expense (other than applicable transfer fees and taxes, if any, if such unlegended shares are being delivered and Transferred to any person other than the registered holder thereof), a new stock certificate for the same number of shares of Parent Common Stock not bearing the legend set forth in Section 5(a) which have ceased and terminated. As a condition to providing any such new certificate without the legend set forth in Section 5(a)(i) hereof, Parent may require from the undersigned a certificate or an opinion of counsel of the undersigned with respect to any relevant matters in connection with removal of such legend, which certificate or opinion of counsel will be satisfactory to Parent.
(c) Copy of Agreement. A copy of this Agreement shall be filed with the corporate secretary of Parent, shall be kept with the records of Parent and shall be made available for inspection by any stockholder of Parent. In addition, a copy of this Agreement shall be filed with Parent’s transfer agent of record.
(d) Recordation. Parent shall not record upon its books any Transfer to any person except Transfers in accordance with this Agreement.
6. No Other Rights. The undersigned understands and agrees that Parent is under no obligation to register the sale, Transfer or other disposition of the undersigned’s Covered Securities under the Securities Act or to take any other action necessary in order to ensure compliance with an exemption from such registration is available.
7. Amendments and Waivers. This Agreement may not be amended, supplemented or modified except by an agreement in writing signed by the undersigned and Parent. Either party hereto may waive compliance by the other party hereto with any term or provision of this Agreement; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No such waiver shall be effective unless such waiver is in writing and is signed by the party hereto asserted to have granted such waiver.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
9. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures. This Agreement shall become effective when both parties hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party hereto has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party hereto shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
10. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
11. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) when delivered personally or by email (with confirmation of receipt), (ii) one (1) Business Day following the day when deposited with a reputable, established overnight courier service for delivery to the intended addressee, or (iii) three (3) Business Days following the day when deposited with the United States Postal Service as first class, registered or certified mail, postage prepaid and addressed as set forth on such party’s signature page hereto. Either party hereto may alter its notice address by notifying the other party hereto of such change of address in conformity with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
13. Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to as a remedy for any such breach, prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
14. Recapitalizations and Exchanges Affecting Shares. Except as otherwise provided in Section 1(b), the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Covered Securities, and to any and all shares of capital stock or equity securities of Parent which may be issued by reason of any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification or otherwise.
15. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party to this Agreement shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party to this Agreement of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder shall be cumulative and not alternative.
16. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
[Signature Page Follows]
| J-1 |
IN WITNESS WHEREOF, the parties hereto have executed this Lock-Up Agreement as of the date first written above.
PARENT:
CLINIGENCE HOLDINGS, INC.
By:
Name:
Title:
Address:
Facsimile:
Attention:
[_____________]:
(Signature)
Address:
Facsimile:
1 To be executed prior to the issuance of the shares in the Merger by owners of: (1) Mature hospitals (full issuance), (2) Ramping Hospital (initial issuance only) and (3) Under Construction Hospitals (initial issuance only)
| J-2 |
(Ramping Hospitals)
Contribution Agreement
By And Among
Nutex Health Holdco LLC,
The Owners Listed on the Signature Pages Attached Hereto
and
The Owners’ Representative
November 23, 2021
| i |
TABLE OF CONTENTS
| ARTICLE 1 DEFINITIONS | 1 |
| 1.1. Definitions | 1 |
| 1.2. Construction | 2 |
| ARTICLE 2 CONTRIBUTION; CLOSING | 2 |
| 2.1. Contribution | 2 |
| 2.2. Consideration | 2 |
| 2.3. Closing | 2 |
| 2.4. Closing Deliveries | 3 |
| 2.5. Merger Agreement | 4 |
| 2.6. Equity Consideration Adjustment—Updated Financial Information | 5 |
| 2.7. Equity Consideration Adjustment—Ramping Hospital | 5 |
| 2.8 Equity Consideration Adjustment — Debt | 5 |
| ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE OWNERS | 6 |
| 3.1. Authority; Enforceability | 6 |
| 3.2. No Conflict | 7 |
| 3.3. Ownership | 7 |
| 3.4. Accredited Investor Status; Investment Intent | 8 |
| ARTICLE 4 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND THE BUSINESS | 9 |
| 4.1. Organization | 9 |
| 4.2. Qualification | 9 |
| 4.3. No Conflict | 9 |
| 4.4. Capitalization | 10 |
| 4.5. Merger Agreement Representations | 10 |
| 4.6. Fees and Commissions | 11 |
| ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HOLDCO | 11 |
| 5.1. Organization; Authority | 11 |
| 5.2. No Conflict | 11 |
| 5.3. Fees and Commissions | 12 |
| ARTICLE 6 COVENANTS | 12 |
| 6.1. Covenants Regarding Conduct of the Company | 12 |
| 6.2. Information, Access and Assistance | 13 |
| 6.3. Public Announcements | 13 |
| 6.4. Consents; Further Assurances | 13 |
| 6.5. Waiver, Release and Discharge | 14 |
| 6.6. Consent and Waiver of Organizational Documents | 15 |
| 6.7. Transfer Taxes | 15 |
| 6.8. Restrictive Covenants | 15 |
| 6.9. Shift Guaranty Agreements | 15 |
| 6.10. Guaranty Obligations | 15 |
| ARTICLE 7 CONDITIONS TO CLOSING | 16 |
| 7.1. Holdco’s Closing Conditions | 16 |
| 7.2. The Owners’ Closing Conditions | 17 |
| ARTICLE 8 TERMINATION | 18 |
| 8.1. Termination Rights | 18 |
| 8.2. Effect of Termination | 19 |
| ARTICLE 9 INDEMNIFICATION | 19 |
| 9.1. Indemnification by the Owners | 19 |
| 9.2. Indemnification by Holdco | 20 |
| 9.3. Claim Procedures | 20 |
| 9.4. Third Party Claims and Direct Claims | 20 |
| 9.5. Survival | 22 |
| 9.6. Limitations | 23 |
| 9.7. Sources of Recovery | 23 |
| 9.8. Express Negligence; Limitations on Defense | 24 |
| 9.9. Exclusive Remedy | 24 |
| 9.10. Materiality Qualifiers | 24 |
| ARTICLE 10 OWNERS’ REPRESENTATIVE | 25 |
| 10.1. Appointment of Owners’ Representatives | 25 |
| 10.2 Additional Provisions | 26 |
| ARTICLE 11 MISCELLANEOUS | 27 |
| 11.1. Notices | 27 |
| 11.2. Headings | 28 |
| 11.3. Amendments | 28 |
| 11.4. Rights; No Waiver | 28 |
| 11.5. Entire Agreement | 28 |
| 11.6. Successors and Assigns; Assignment | 29 |
| 11.7. Counterparts | 29 |
| 11.8. Governing Law, Venue and Severability, Jury Trial Waiver | 29 |
| 11.9. Remedies | 30 |
| 11.10. Transaction Expenses | 30 |
| 11.11. Rules of Construction | 30 |
| ii |
(RAMPING Hospitals)
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Holdco”), each of the owners listed on the signature pages attached hereto (each, an “Owner” and collectively the “Owners”), and Thomas T. Vo as the Owners’ Representative (as hereinafter defined). Each of Holdco and the Owners is referred to individually herein as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, the Owners collectively own certain of the issued and outstanding Equity Interests of [______________], a [_________] limited liability company (the “Company”);
WHEREAS, the Company is currently engaged in the business of owning and operating a specialty hospital and/or stand-alone emergency room clinic and hospital located at [__________] (the “Business”);
WHEREAS, concurrently with the execution of this Agreement, Holdco is entering into a merger (the “Merger”) with Clinigence Holdings, Inc., a publicly traded Delaware corporation (“CLNH”), pursuant to the terms of the Merger Agreement;
WHEREAS, in accordance with and subject to the terms and conditions of this Agreement, at the Closing, each of the Owners desires to contribute to Holdco, and Holdco desires to accept, all of their respective Equity Interests in the Company listed on the signature pages attached hereto under the heading “Contributed Interests” (collectively, the “Membership Interests”) in exchange for the issuance by Holdco to each such Owner of certain Units in Holdco described in Section 2.2 hereto, subject to adjustment in accordance with the terms herein; and
WHEREAS, the Parties are making certain representations, warranties, covenants and indemnities herein as an inducement to the other Parties to enter into this Agreement.
NOW, THEREFORE, in consideration of the terms, provisions and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
AGREEMENTS
ARTICLE
1
DEFINITIONS
1.1. Definitions. In addition to the terms defined in the body of this Agreement, capitalized terms used herein shall have the meanings given to them in Exhibit A attached hereto.
| 1 |
1.2. Construction. Unless the context requires otherwise: (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine, and neuter; (b) references to Articles and Sections refer to articles and sections of this Agreement unless expressly provided otherwise; (c) references to Exhibits and Schedules are to exhibits and schedules attached to this Agreement, each of which is incorporated herein and made a part of this Agreement for all purposes; (d) references to money refer to legal currency of the United States of America; (e) words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires; (f) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (g) references to “have delivered to Holdco”, “have provided to Holdco” or “have made available to Holdco” (or similar references, and with any correlative word or phrase) means was provided directly to Holdco or its Representatives, in either tangible or electronic form, or made available to Holdco or its Representatives in a virtual data room made available for purposes of the transactions contemplated by this Agreement at least two (2) Business Days prior to the date hereof; and (h) with respect to the Business or the Company, the term “ordinary course of business” will be deemed to refer to the ordinary conduct of the Company’s business in a manner consistent with the past practices of the Owners. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.
ARTICLE
2
CONTRIBUTION; CLOSING
2.1. Contribution. Upon the terms and subject to the conditions of this Agreement, effective as of the Closing Date, in exchange for the consideration provided in Section 2.2 below, at the Closing, the Owners shall contribute, transfer, assign, convey and deliver to Holdco, and Holdco shall accept, receive and acquire from the Owners, all of the Membership Interests, free and clear of all Liens (other than any transfer restrictions imposed by any Legal Requirement or the Company’s Organizational Documents).
2.2. Consideration. As the aggregate consideration for the contribution of the Membership Interests by the Owners to Holdco, subject to Section 2.6, Section 2.7 and Section 2.8 hereof, Holdco shall issue at the Closing the number and class of Units to each Owner as set forth on Schedule 2.2 attached hereto and listed across from such Owner’s name, in each case subject to the terms and restrictions of the Holdco LLC Agreement (collectively, as the same may be adjusted pursuant to Section 2.6 and Section 2.8 hereof, and as it may be increased pursuant to Section 2.7 hereof, the “Equity Consideration”).
2.3. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Locke Lord LLP, 600 Travis Street, Suite 2800, Houston, Texas 77002, on the third (3rd) Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties set forth in Article 7 (other than those conditions that, by their nature, are to be satisfied only at the Closing Date, but subject to the satisfaction or valid waiver of such conditions at the Closing in accordance with this Agreement), or such other date as the Owners’ Representative and Holdco may mutually agree in writing (the date on which the Closing occurs is referred to herein as the “Closing Date”); provided, however, the Parties need not attend the Closing in person, and the delivery of all documents and funds as described in Section 2.4 may be handled by wire transfer and electronic mail or by facsimile transmission. The Closing shall be deemed effective immediately prior to the consummation of the Merger.
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2.4. Closing Deliveries.
(a) Owners’ Closing Deliveries. At the Closing, the Owners’ Representative, on behalf of the Owners, shall deliver, or cause to be delivered, to Holdco, as applicable:
(i) contribution and assignment agreements, in substantially the form attached hereto as Exhibit B, effecting the contribution and assignment by the Owners to Holdco of the Membership Interests (the “Assignment Agreements”), duly executed by each of the Owners;
(ii) a counterpart signature page or joinder agreement (in form and substance reasonably satisfactory to Holdco) to the Holdco LLC Agreement, duly executed by each of the Owners;
(iii) duly executed copies of the consents and approvals required for the consummation of the transactions contemplated by this Agreement, including those listed on Schedule 2.4(a)(iii);
(iv) certificates in the form prescribed by Treasury Regulation Section 1.1445-2(b)(2) and Section 1446(f)(2) to the effect that each of the Owners is not a foreign person, in substantially the form attached hereto as Exhibit D-1, D-2 or D-3, as applicable, duly executed by each of the Owners;
(v) a certificate from a duly authorized officer of the Company certifying to and providing copies of (A) the Company’s Organizational Documents as in effect at the Closing (including all amendments thereto); and (B) a good standing certificate or the equivalent issued by secretary of state of the jurisdiction of organization of the Company and in each jurisdiction in which the Company is qualified to do business, in each case, dated within ten (10) days of the Closing Date;
(vi) written resignations of the officers and directors or managers of the Company, dated effective as of the Closing Date;
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(vii) a certificate, dated as of the Closing Date, signed by the Owners’ Representative (on behalf of the Owners), certifying that the conditions set forth in Section 7.1(a), Section 7.1(b) and Section 7.1(c) have been satisfied;
(viii) a lock up agreement with CLNH, in substantially the form attached hereto as Exhibit J, duly executed by each of the Owners; and
(ix) such other documents as reasonably requested by Holdco or the Owners’ Representative or required to consummate the transactions contemplated by this Agreement or required in connection with the Merger Agreement.
(b) Holdco’s Closing Deliveries. At the Closing, Holdco will deliver, or cause to be delivered, the following:
(i) to the Owners, the Equity Consideration in accordance with Section 2.2;
(ii) to the Owners’ Representative, a certificate, dated as of the Closing Date, signed by an authorized representative of Holdco, certifying that the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied;
(iii) to the Owners, evidence of the assumption of the Guaranty Obligations by Holdco and a written guaranty in connection with the same, duly executed by Holdco, as applicable; and
(iv) such other documents as reasonably requested by the other Parties or required to consummate the transactions contemplated by this Agreement.
2.5. Merger Agreement.
(a) Each Owner has reviewed, and by his, her or its execution hereof, hereby approves and authorizes the Merger Agreement and the other transaction documents contemplated or referenced therein or otherwise required to consummate the transactions contemplated therein. Each Owner has reviewed the representations, warranties, covenants and indemnities and other terms and conditions set forth in the Merger Agreement and has provided to Holdco true, correct and complete disclosures required under the Merger Agreement with respect to the Company, as applicable. Each Owner, on his, her or its own behalf and on behalf of the Company, and, after the consummation of the transactions contemplated by this Agreement, on behalf of Holdco, hereby (i) deems it to be in the best interest of the Company and, after the consummation of the transactions contemplated by this Agreement, in the best interest of Holdco, for Holdco to enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement, including the Merger, (ii) consents to, votes for and raises no objections against the Merger or the process pursuant to which the Merger was arranged, (iii) waives any dissenters, appraisal and similar rights with respect to the Merger, if any, and (iv) agrees that he, she or it shall take all necessary and reasonably desirable actions in connection with the consummation of the transactions contemplated by the Merger Agreement, including the Merger in accordance with the terms and provisions of the Merger Agreement.
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(b) Each Owner shall (and shall cause the Company to) comply with all of the statements, covenants and obligations contained in Article IV of the Merger Agreement with respect to the Owners and/or the Company, as applicable.
2.6. Equity Consideration Adjustment—Updated Financial Information. The Parties acknowledge and agree that the Equity Consideration listed on Schedule 2.2 attached hereto was determined based on the Company’s internally prepared financial information for the twelve months ended September 30, 2021 and Holdco’s preliminary unaudited financial information as of September 30, 2021, both as available on the date of this Agreement (the “Preliminary Financial Information”) and set forth on Exhibit F attached hereto. The Parties further acknowledge and agree that such Preliminary Financial Information is subject to standard review by the Holdco’s independent outside auditors which is expected to be complete on or about December 15, 2021 (the “Updated Financial Information”). In connection therewith, the Parties acknowledge and agree that (a) to the extent that the Updated Financial Information results in adjustments or revisions to the Preliminary Financial Information and (b) such adjustments or revisions cause increases or decreases with respect to any individual Owner’s Equity Consideration by more than ten percent (10%) of the Equity Consideration of such Owner described on Schedule 2.2 attached hereto, then the Owners’ Representative shall provide written notice of such proposed change in such Owner’s Equity Consideration to such Owner(s) within ten (10) days of the receipt by the Owners’ Representative of the Updated Financial Information (such notice, an “Equity Consideration Adjustment Notice”). Each such Owner who receives an Equity Consideration Adjustment Notice shall have ten (10) days after receipt of the Equity Consideration Adjustment Notice to, by written notice to the Owners’ Representative, (i) elect to proceed with the consummation of the transactions contemplated by this Agreement and the Merger Agreement, in which case, (x) such Owner shall continue to be party and subject to and bound by all of the terms and provisions provided in this Agreement and (y) such Owner’s final Equity Consideration shall be updated based on the Updated Financial Information pursuant to this Section 2.6 accordingly, or (ii) elect to terminate such Owner’s participation in the transactions contemplated by this Agreement and the Merger Agreement, in which case such Owner shall continue to be bound by the terms and provisions provided in Section 6.5 and Section 6.6 hereof, which shall remain in full force and effect in respect of such Owner, notwithstanding anything herein to the contrary, but shall otherwise have no further rights or obligations in connection with this Agreement, the Merger Agreement or the transactions contemplated hereby or thereby.
2.7. Equity Consideration Adjustment—Ramping Hospital. The provisions of Exhibit H are incorporated herein by reference.
2.8. Equity Consideration Adjustment—Debt. To the extent that the Company has any Debt outstanding at or immediately prior to the Closing, the aggregate Equity Consideration shall be adjusted at the Closing downwards, pro-rata among the Owners, on a dollar for dollar basis based on the aggregate Debt outstanding.
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ARTICLE
3
REPRESENTATIONS AND WARRANTIES OF THE OWNERS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally, represents and warrants to Holdco that the statements contained in this Article 3 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
3.1. Authority; Enforceability. Such Owner that is not an individual is duly organized and validly existing under the laws of its jurisdiction of formation. Such Owner that is not an individual has the requisite limited partnership, limited liability company, or corporate power and authority, as applicable, to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Transaction Agreements to which such Owner is a party and the consummation by such Owner that is not an individual of the transactions contemplated hereunder and thereunder have been duly authorized and approved by all necessary partnership, company, or corporate action, as applicable, on the part of such Owner. Such Owner that is an individual has all necessary authority and legal capacity to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party by such Owner, the performance by such Owner of all the terms and conditions hereof and thereof to be performed by such Owner and the consummation of the transactions contemplated hereby and thereby by such Owner have been duly authorized and approved by all requisite action on the part of such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party have been duly executed and delivered by such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party constitute the valid and binding obligations of such Owner, each enforceable against such Owner in accordance with the terms thereof (assuming the due authorization, execution and delivery thereof by the other parties thereto), subject to applicable bankruptcy, insolvency or other similar laws relating to or affecting the enforcement of creditors’ rights generally and general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity) (collectively, the “Equitable Principles”).
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3.2. No Conflict.
(a) Except as set forth on Schedule 3.2, the execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of such Owner or any resolution or written consent adopted by the member, board of managers or other governing authority of such Owner, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which such Owner is a party or by which any assets of such Owner are bound, or cause the creation of any Lien upon such Owner or any of the assets of such Owner, including the Membership Interests; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by such Owner with any Governmental Authority pursuant to any Legal Requirement applicable to such Owner; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which such Owner is a party or by which such Owner or any of his, her or its respective assets are bound.
(b) Such Owner has obtained all necessary consents, authorizations, approvals and orders, and has made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by such Owner in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of such Owner, if applicable, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by such Owner in order to execute and deliver this Agreement and the Transaction Agreements to which such Owner is a party and to consummate the closing of the transactions contemplated herein and therein.
3.3. Ownership. Such Owner owns, legally and of record, all of the Equity Interests in the Company as set forth opposite such Owner’s name on Schedule 3.3, which such Equity Interests constitute in the aggregate all of the issued and outstanding Equity Interests of the Company owned by such Owner. With the exception of any liens or security interests set forth on Schedule 3.3 hereto, all of such Equity Interests have been duly authorized and validly issued and are fully paid and nonassessable. Such Owner does not own any other interests in the Company, nor does he, she or it have an option, warrant, equity appreciation right, convertible security or other contractual right or security (whether or not currently exercisable) to acquire any such interests.
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3.4. Accredited Investor Status; Investment Intent.
(a) Each of the Owners understands that the Units to be acquired by such Owner pursuant to this Agreement will not be registered under the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder. Such Owner also understands that such Units are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon such Owner’s representations contained in this Agreement.
(b) Such Owner represents that he, she or it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D of the Securities Act, or that such Owner (i) has adequate means of providing for current needs and personal contingencies and has no need to sell the Units in the foreseeable future (that is, at the time of this Agreement, such Owner can afford to hold the Units for an indefinite period of time); (ii) has sufficient knowledge and experience in business and financial matters to be able to evaluate the risks and merits of an investment in the Units, (iii) has the capacity to understand the merits and risks associated with an investment in the Units or (iv) is a member of Holdco’s management and/or is familiar with Holdco, its financial condition and operations. Such Owner understands that he, she or it must bear the economic risk of this investment indefinitely unless the Units are registered pursuant to the Securities Act, or an exemption from registration is available. Such Owner understands that Holdco has no present intention of registering the Units held by such Owner. Such Owner also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Owner to transfer all or any portion of the Units held by such Owner under the circumstances, in the amounts or at the times that such Owner might propose.
(c) With the exemption of the contemplated exchange of the Units in the Merger, the Units issued to such Owner are being acquired for such Owner’s own account and for the purpose of investment, and not with the view to, or for resale in connection with, any distribution or public offering thereof in violation of the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder.
(d) Such Owner has had sufficient time to review the Preliminary Financial Information, the Merger Agreement and the Risk Factors attached as Exhibit G hereto, has had ample opportunity to conduct inquiries and discussions satisfactory to such owner with respect to the transactions contemplated herein and in the Merger Agreement. Further, such owner acknowledges that such owner has the right to be represented by separate legal, financial and tax advisors.
(e) The representations of such Owner set forth in this Section 3.4 are made for the purpose of complying with Regulation D of the Securities Act.
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ARTICLE
4
REPRESENTATIONS AND WARRANTIES RELATING
TO THE COMPANY AND THE BUSINESS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally for or on behalf of any other Owner, represents and warrants to Holdco that the statements contained in this Article 4 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
4.1. Organization.
(a) The Company has been duly organized and validly formed as a limited liability company organized under the laws of the State of [_______] and is validly existing and in good standing thereunder. The Company has all requisite power and authority to own and operate its property and assets and to conduct the Business as it is currently being conducted. The Owners have made available to Holdco true and complete copies of each of the Company’s Organizational Documents. The Company does not have any direct or indirect Subsidiaries nor does it own, directly or indirectly, any capital of or other equity interest in or have any other investment in any other Entity.
(b) Except as set forth on Schedule 4.1(b), the Company has not conducted the Business under or otherwise used, for any purpose in any jurisdiction, any “d/b/a,” fictitious name, assumed name, trade name or other name.
4.2. Qualification. The Company is duly qualified and in good standing to do business in each jurisdiction in which the nature of the Business or the ownership, operation or leasing of its assets makes such qualification necessary.
4.3. No Conflict.
(a) Except as reflected on Schedule 4.3(a), the execution of this Agreement and the other Transaction Agreements and the performance of the transactions contemplated hereby and thereby will not: (i) violate, conflict with or result in a default of any provision the Company’s Organizational Documents; (ii) violate or conflict with, result in a default under (or an event which, with notice or lapse of time or both, would result in a default) under any material Contract to which the Company is a party or by which any of the assets of the Company are bound, or cause the creation of any Lien upon the Company’s Equity Interests or any of the assets or business of the Company; (iii) violate or result in a violation of, or constitute a default under, any Legal Requirement by the Owners or the Company; or (iv) accelerate any obligation under, or give rise to a right of termination of any material Contract or material Permit to which the Company is a party or by which any of the assets of the Company are bound.
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(b) Except as set forth on Schedule 4.3(b), there are no authorizations, approvals and orders and no registrations, qualifications, designations, declarations or filings with any federal, state, or other relevant Governmental Authorities, required by such Governmental Authorities to be obtained by the Owners or the Company in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except as set forth on Schedule 4.3(c), neither the execution of this Agreement and the other Transaction Agreements nor the performance of the transactions contemplated hereby and thereby will (i) give rise to an acceleration of any amount payable by, or give rise to any additional payment by the Company or (ii) pursuant to a preferential purchase right, right of first refusal or offer, buy-sell arrangement or other provision, give any Person the right to acquire all or any part of equity or any of the assets or business of the Company.
4.4. Capitalization.
(a) Schedule 4.4(a) lists all of the issued and outstanding Equity Interests of the Company and the Persons who hold legal and record title to such Equity Interests. The Equity Interests listed on Schedule 4.4(a) constitute all of the issued and outstanding Equity Interests in the Company as applicable. All of such Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable.
(b) Except as set forth on Schedule 4.4(b), there are no Contracts obligating the Company (i) to issue, sell, pledge, dispose of or encumber any of its Equity Interests, or any securities convertible, exercisable or exchangeable into any Equity Interests of the Company, (ii) to redeem, purchase or acquire in any manner any class of any equity of the Company or any securities that are convertible, exercisable or exchangeable into any Equity Interests of the Company, or (iii) to make a distribution of any kind with respect to any of the equity of the Company. There are no outstanding or authorized equity appreciation, phantom stock, preemptive rights, approval rights, proxies, rights of first refusal, profit participation rights or similar rights affecting the Equity Interests of the Company. There are no voting trusts, proxies, or other similar agreements or understandings with respect to the voting or registration of the Company.
4.5. Merger Agreement Representations. The statements contained in Article VII of the Merger Agreement with respect to the Owners and/or the Company are true, accurate and complete as of the date of the Merger Agreement and as of the Closing Date (as defined under the Merger Agreement) (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date).
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4.6. Fees and Commissions. Except as set forth on Schedule 4.6, none of the Company nor the Owners has retained, or otherwise authorized to act, any finder, broker, agent, financial advisor or other similar intermediary (collectively “Intermediary”) in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that has resulted or may result in an obligation by the Company or Holdco to pay any fees or commissions to any broker or finder as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
5
REPRESENTATIONS AND WARRANTIES OF HOLDCO
Holdco represents and warrants to the Owners that the statements contained in this Article 5 are true, accurate and complete as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
5.1. Organization; Authority. Holdco is a limited liability company that is duly organized, validly existing and in good standing under the laws of the State of Delaware. Holdco has all requisite limited liability company power and authority to execute and deliver this Agreement and the other Transaction Agreements contemplated herein, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof and thereof to be performed by Holdco, as applicable. The execution and delivery of this Agreement and the other Transaction Agreements by Holdco, the performance by Holdco of all the terms and conditions hereof and thereof to be performed by Holdco and the consummation of the transactions contemplated hereby and thereby by Holdco have been duly authorized and approved by all requisite action on the part of Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party have been duly executed and delivered by Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party constitute the legal, valid and binding obligations of Holdco (assuming the due authorization, execution and delivery thereof by the other Parties hereto and thereto other than Holdco), each enforceable against Holdco in accordance with the terms thereof, subject to Equitable Principles.
5.2. No Conflict.
(a) The execution and delivery of this Agreement and the other Transaction Agreements to which Holdco is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of Holdco or any resolution or written consent adopted by the member, board of managers or other governing authority of Holdco, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which Holdco is a party or by which any assets of Holdco are bound, or cause the creation of any Lien upon any of the assets or limited liability company interests of Holdco; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by Holdco with any Governmental Authority pursuant to any Legal Requirement applicable to Holdco; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which Holdco is a party or by which Holdco or any of its assets are bound.
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(b) Holdco has obtained all necessary consents, authorizations, approvals and orders, and have made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by Holdco in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of Holdco, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by Holdco in order to execute and deliver this Agreement and the Transaction Agreements to which Holdco is a party and to consummate the closing of the transactions contemplated herein and therein.
5.3. Fees and Commissions. Neither Holdco nor any of its Affiliates has retained, or otherwise authorized to act, any Intermediary in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that may result in an obligation for Owners, the Company or Holdco to pay any fees or commissions to any Intermediary as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
6
COVENANTS
6.1. Covenants Regarding Conduct of the Company. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing, except as (1) permitted or required by the other terms of this Agreement, the Transaction Agreements or the Merger Agreement, (2) described on Schedule 6.1, (3) required by any material Contract or material Permit, or (4) consented to or approved in writing by Holdco:
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(a) the Owners shall, and shall cause the Company to, adhere to Section 4.2(a) of the Merger Agreement with respect to the Company; and
(b) the Owners shall not and shall cause the Company not to, directly or indirectly, do or propose to do any of the items set forth in Section 4.2(b) of the Merger Agreement.
6.2. Information, Access and Assistance. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing Date, upon receipt of reasonable advance notice and in furtherance of Holdco’s investigation of the Company, the Owners will afford Holdco and its authorized Representatives reasonable access during normal business hours to the offices, properties, books and records, and Representatives of the Company who have significant responsibility in connection with the Business, and will furnish Holdco with such additional information directly concerning the Company’s businesses, properties and personnel as may reasonably be requested; provided further, Holdco shall, and shall cause its Representatives to, observe and comply with all material health, safety, and security requirements of the Company. Any inspection or investigation conducted by Holdco or its representatives prior to the Closing will be conducted in accordance with applicable Legal Requirements, and in such manner as not to interfere unreasonably with the business or operations of the Company.
6.3. Public Announcements. The Parties shall not, and shall not permit their Representatives to, make or release any public announcements or otherwise communicate with any news media with respect to this Agreement or the Merger Agreement, the consummation of the transactions contemplated herein or the Merger Agreement, including the Merger, the identity of the Parties or their Affiliates, or any of the agreements, documents and instruments to be entered into in connection herewith, in each case without the prior written approval of Holdco or the Owners’ Representative, as applicable. Notwithstanding the foregoing, (i) Holdco and its Representatives shall be entitled to disclose this Agreement or any of the agreements, documents and instruments to be entered into in connection herewith, to CLNH and its Representatives, and (ii) each Party may make such public announcement as its counsel or accountants reasonably believe is the minimum disclosure necessary to satisfy the Party’s or CLNH’s obligations under applicable securities law (in which case the disclosing Party shall advise the other Party and provide it with a copy of the proposed disclosure or filing prior to making the disclosure or filing).
6.4. Consents; Further Assurances. The Parties shall execute and deliver to the other, from and after the date hereof, any other agreement or instrument which may be reasonably requested by the other and which is reasonably appropriate to perfect or evidence any of the sales, assignments, contributions, transfers or conveyances contemplated by this Agreement or the Merger Agreement. From and after the date hereof, the Parties shall also cooperate with one another and use commercially reasonable efforts to obtain any third party consents and Permits necessary for Holdco and its Affiliates (including after the Closing, the Company) to continue to operate the Business in substantially the same manner operated by the Owners prior to the Closing Date, and to do any and all such further acts and things as may be reasonably necessary to effect completely the intent of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, to the extent the Parties consummate the transactions contemplated hereby prior to obtaining a third party consent required in connection with the other transactions contemplated by this Agreement, the Owners shall use commercially reasonable efforts to take such actions as may be possible without violation or breach of any such non-assignable material Contract or Permits to effectively provide Holdco with the economic benefits of such material Contracts and Permits.
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6.5. Waiver, Release and Discharge. Effective as of the Closing, except for (i) the Retained Rights and (ii) as set forth in this Section 6.5, each of the Owners does hereby unconditionally and irrevocably, on behalf of itself, and its Affiliates, shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, agents, advisors and each of their respective successors, assigns, and any other Person claiming by, through or under any of the foregoing (each, a “Releasing Party”), release, acquit and forever discharge Holdco and the Company and their respective past and present shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, advisors and each of their respective successors and assigns (the “Released Parties”), from any and all claims, actions, causes of action, suits, rights, debts, agreements, damages, injuries, losses, costs, expenses (including legal fees) and demands whatsoever and all consequences thereof, of every nature or description, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, whether existing as of the Closing or arising from actions or omissions occurring prior to the Closing, that any of Releasing Party ever had, now has or may in the future have against any of the Released Parties, in law or in equity, as a result of any act, transaction, agreement, event or omission (or any circumstances existing) on or prior to the Closing Date. Notwithstanding the foregoing to the contrary, the release set forth in this Section 6.5 shall not apply to (a) any rights, remedies, claims and causes of action related to the obligations of Holdco or the other Released Parties pursuant to this Agreement or the Transaction Agreements or any claims arising out of the transactions contemplated by this Agreement or (b) the Retained Rights. The term “Retained Rights” means, with respect to the Owners, (A) if such Owner is an employee of the Company, such Owner’s claims or rights to accrued compensation for services rendered to the Company in the ordinary course of business, (B) if such Owner is an employee of the Company, claims or rights to accrued compensation, benefits or other remuneration of the Owners, and (C) any claim arising from any rights of indemnification, contribution, advancement of expenses or insurance coverage or protection that the Owners have or had pursuant to the Organizational Documents of the Company. Each of the Owners understands that this is a full and final general release of all liabilities, duties and obligations of any nature whatsoever, whether or not known, suspected or claimed, that could have been asserted in any legal or equitable proceeding against the Released Parties to the extent relating to the matters in this Section 6.5.
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6.6. Consent and Waiver of Organizational Documents. By execution of this Agreement, each Owner hereby (a) approves, ratifies and consents to the transfer of the Membership Interest by each other Owner, as contemplated hereby, and (b) irrevocably WAIVES any and all rights of first refusal or other restrictions on transfer that such Owner may have pursuant to the Organizational Documents, or otherwise, and any notice rights or other similar rights associated therewith, with respect to the Membership Interest being transferred hereby.
6.7. Transfer Taxes. The Owners shall pay all Transfer Taxes, if any. Any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and timely filed by the Party required under applicable law to file such Tax Returns, and such Party shall provide such Tax Returns to the other Party at least ten (10) Business Days prior to the due date for such Tax Returns. The Parties shall cooperate in filing all necessary Tax Returns as relates to Transfer Taxes and providing each other with any appropriate resale exemption certifications and other similar documentation.
6.8. Restrictive Covenants. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees to be bound by the terms and provisions attached hereto as Exhibit I (collectively, the “Restrictive Covenants”).
6.9. Shift Guaranty Agreements. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees that he, she or it shall continue to be bound by and subject to and shall comply with the terms and provisions of Section 10.7 or 10.8 of the Operating Agreement and/or such other provisions in the Operating Agreement, as applicable, which address such Owner’s and/or Doctor-Owner’s shift obligations or performance of service obligations with respect to the Facility or related facilities, as applicable, as if such Owner and/or Doctor-Owner were still a party to and subject to the terms and conditions of the Operating Agreement in all respects (the “Shift Guaranty”).
6.10. Guaranty Obligations. In connection with and effective as of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, Holdco will guaranty a pro rata percentage of the obligations under the real estate leases to which the Company is a party based on Holdco’s pro rata ownership of the Company immediately after the consummation of the transactions contemplated by this Agreement (the “Guaranty Obligations”). For avoidance of doubt, no Party shall be required to pay or be responsible for more than its pro rata share portion (based on ownership of the Company immediately after consummation of the transactions contemplated by this Agreement) of the obligations under such real estate leases. In the event that any Party is required to pay more than its pro rata portion in connection with the obligations under such real estate leases, the other Parties shall be responsible for and contribute to the overpaying Parties their respective pro rata portions of such obligations.
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ARTICLE
7
CONDITIONS TO CLOSING
7.1. Holdco’s Closing Conditions. Holdco’s obligations to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by Holdco), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of the Owners in Articles 3 and 4 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of the Owners set forth in this Agreement shall be true and correct (without giving effect to any “materiality,” “in all material respects,” “Material Adverse Effect” or other materiality-based qualifiers) as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date) except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” qualifiers set forth therein) does not, and would not reasonably be expected to, individually or in the aggregate, constitute a Material Adverse Effect.
(b) The Owners will have performed or caused the Company to have performed and complied in all material respects with all of the covenants required by this Agreement to be performed or complied with by them or it on or prior to the Closing Date.
(c) No Material Adverse Effect shall have occurred since the date hereof.
(d) Holdco shall have received (or the Owners or the Owners’ Representative shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(a).
(e) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(f) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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7.2. The Owners’ Closing Conditions. The obligations of the Owners to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by the Owners), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of Holdco in Article 5 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of Holdco set forth in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” qualifiers set forth therein) does not and would not reasonably be expected to, individually or in the aggregate, constitute a material adverse effect on Holdco.
(b) Holdco will have performed and complied in all material respects with all the covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) The Owners shall have received (or Holdco shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(b).
(d) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(e) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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ARTICLE
8
TERMINATION
8.1. Termination Rights. This Agreement may be terminated and the transactions contemplated hereunder abandoned at any time prior to the Closing as follows:
(a) by mutual written consent of the Owners’ Representative (on behalf of the Owners) and Holdco;
(b) by the Owners’ Representative (on behalf of the Owners) or Holdco if there shall be in effect a final non-appealable Order of a Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to the Owners’ Representative (on behalf of the Owners), on the one hand, or Holdco, on the other hand, if such Order was primarily due to the failure of the Owners, on the one hand, or Holdco, on the other hand, to perform any of their respective obligations under this Agreement;
(c) by the Owners’ Representative (on behalf of the Owners) in the event that there will have been a breach or inaccuracy of Holdco’s representations and warranties in this Agreement or a failure by Holdco to perform its covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.2(a) or Section 7.2(b) would not be satisfied (provided that none of the representations and warranties set forth in Article 3 or Article 4 will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.1(a) not to be satisfied and there has been no failure by the Owners to perform their covenants in such a manner as would cause the condition set forth in Section 7.1(b) not to be satisfied); provided, however, that the Owners’ Representative (on behalf of the Owners) will provide notice to Holdco as soon as practicable after becoming aware of any such breach, inaccuracy or failure of Holdco; and provided further, that if such breach, inaccuracy or failure is curable by Holdco through the exercise of its commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Holdco receives written notice of such violation or breach and the Outside Date) from the date Holdco receives notice of such breach, inaccuracy or failure from the Owners’ Representative (on behalf of the Owners), as long as Holdco continues to exercise such commercially reasonable efforts, the Owners’ Representative (on behalf of the Owners) may not terminate this Agreement under this Section 8.1(c) prior to the later of (x) the Outside Date or (y) the end of such 30-day period;
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(d) by Holdco in the event that there has been a breach or inaccuracy of the representations and warranties set forth in Article 3 or Article 4 or a failure by the Owners to perform their covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.1(a) or Section 7.1(b) would not be satisfied (provided that none of the representations and warranties of Holdco will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.2(a) not to be satisfied and there has been no failure by Holdco to perform its covenants in such a manner as would cause the condition set forth in Section 7.2(b) not to be satisfied); provided, however, that Holdco will provide notice to the Owners’ Representative as soon as practicable after becoming aware of any such breach or inaccuracy of the Owners; and provided further, that if such breach or inaccuracy is curable by the Owners through the exercise of commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Owners’ Representative (on behalf of the Owners) receives written notice of such violation or breach and the Outside Date) from the date the Owner receives notice of such breach or inaccuracy from Holdco, as long as the Owners continue to exercise such commercially reasonable efforts, Holdco may not terminate this Agreement under this Section 8.1(d) prior to the later of (x) the Outside Date or (y) the end of such 30-day period; or
(e) by either the Owners’ Representative (on behalf of the Owners) or Holdco following the Outside Date (as the same may be extended pursuant to the terms of this Agreement by mutual written agreement of the Owners’ Representative (on behalf of the Owners) and Holdco); provided that the right to terminate this Agreement under this Section 8.1(e) will not be available to any Party whose breach of any representation, warranty or covenant contained in this Agreement will have been the cause of, or will have resulted in, the failure of the Closing to occur on or before the Outside Date.
8.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, all obligations of the Parties will terminate, except for the provisions of this Section 8.2 and Article 10.
ARTICLE
9
INDEMNIFICATION
9.1. Indemnification by the Owners. Subject to the limitations and other terms of this Article 9, from and after the Closing, each Owner, severally on such Owner’s own behalf (based on such Owner’s pro rata ownership of the Company) and not jointly and severally for or on behalf of any other Owner, hereby agrees to and shall indemnify, defend and hold harmless Holdco and its Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Holdco Indemnitees”) from and against any and all Losses incurred by Holdco Indemnitees arising out of or resulting from:
(a) the failure of such Owner’s representations or warranties contained in Article 3 and Article 4 or any other Transaction Agreement to be true and correct;
(b) the failure of such Owner to perform any of covenants or obligations to be performed by such Owner individually under this Agreement or any other Transaction Agreement; and
(c) if applicable, any Real Estate Guaranty.
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9.2. Indemnification by Holdco. Subject to the other terms of this Article 9, from and after the Closing, Holdco hereby unconditionally, absolutely and irrevocably agrees to and shall indemnify, defend and hold harmless the Owners and their respective Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Owner Indemnitees”), from and against any and all Losses arising out of or resulting from (a) the failure of Holdco’s representations or warranties contained in this Agreement or any other Transaction Agreement to be true and correct, and (b) the failure of Holdco to perform any of its covenants or obligations under this Agreement or any other Transaction Agreement.
9.3. Claim Procedures. Each Person entitled to be indemnified under this Article 9 (each, an “Indemnitee”) agrees that after it becomes aware of facts giving rise to a claim by it for indemnification pursuant to this Article 9, such Indemnitee must assert its claim for indemnification under this Article 9 (each, a “Claim”) by providing a written notice (a “Claim Notice”) to Holdco or to the Owners’ Representative, on behalf of Owners, as applicable, depending on which Parties are allegedly required to provide indemnification protection under this Article 9 (each, an “Indemnitor”), specifying, in reasonable detail, the nature and basis for such Claim and copies of all documents and a summary of all other information reasonably available in connection therewith. Notwithstanding the foregoing, an Indemnitee’s failure to send or delay in sending a Claim Notice will not relieve the Indemnitor from liability hereunder with respect to such Claim except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. The Indemnitor shall have thirty (30) days after its receipt of such notice to respond in writing to a Claim that is a third party claim. Indemnitee shall provide all information and copies of all documents reasonably requested by Indemnitor and shall reasonably cooperate with Indemnitor in connection with any Claim. If the Indemnitor does not respond to a third-party Claim Notice within such thirty (30)-day period, the Indemnitor shall be deemed to have rejected such Claim, in which case the Indemnitee shall be free to pursue such remedies as may be available to the Indemnitee on the terms and subject to the provisions of this Agreement.
9.4. Third Party Claims and Direct Claims.
(a) In the event of the assertion of any Claim for which, by the terms hereof, an Indemnitor is obligated to indemnify an Indemnitee where liability is assert against or sought to be collected from an Indemnitee by a third party (a “Third Party Claim”), the Indemnitor will have the right, at such Indemnitor’s expense, to assume the defense of same and, subject to the terms of this Section 9.4, the right to direct and control such defense, including the appointment and selection of counsel on behalf of the Indemnitee. Subject to Section 9.4(c), the Indemnitor will have the right to reasonably settle or compromise or take any corrective or remediation action with respect to any such Third Party Claim by all appropriate proceedings, which proceedings will be diligently and reasonably prosecuted by the Indemnitor to a final conclusion or settled at the discretion of the Indemnitor. The Indemnitee will be entitled, at its own cost, to participate with the Indemnitor in the defense of any such Third Party Claim.
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(b) If the Indemnitor accepts responsibility for any such Third Party Claim but fails to diligently prosecute such Claim, or if the Indemnitor does not accept responsibility for any such Third Party Claim, the Indemnitee may assume control of such defense and in the event it is finally determined by a court of competent jurisdiction that the Third Party Claim was a matter for which the Indemnitor is responsible under the terms of this Agreement, the Indemnitor will bear the reasonable costs and expenses of such defense (including reasonable fees and expenses of a single outside counsel).
(c) Notwithstanding anything to the contrary in this Agreement, the Indemnitor will not be permitted to settle, compromise, take any corrective or remedial action or enter into an agreed judgment or consent decree (a “Settlement”), in each case, that subjects the Indemnitee to any criminal liability, requires an admission of guilt or wrongdoing or violation of Legal Requirements or any Contract on the part of or by the Indemnitee or its Affiliates, or imposes injunctive relief or any continuing obligation on (including any restriction on the activity or conduct of an Indemnitee) or requires any payment from the Indemnitee without the Indemnitee’s prior written consent, which consent will not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate and shall cause its Affiliates to reasonably cooperate in the defense of any Third Party Claim, including by providing access to such personnel, support and relevant business records and other documents as may be reasonably requested by the Indemnitee in connection with such defense.
(d) The Owners’ Representative and Holdco shall cooperate and shall cause the other Parties to cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including providing access to applicable personnel and available records relating to such Third Party Claim and furnishing, without expense, to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Claim.
(e) Any claim for indemnification of Losses under this Article 9 that is not a Third Party Claim (a “Direct Claim”) by an Indemnitee shall be asserted by giving prompt written notice thereof, and in any event within thirty (30) days of discovery of such claim, to the Owners’ Representative (in the case of indemnification sought by Holdco) or Holdco (in the case of indemnification sought by the Owners’ Representative on behalf of Owners); provided, however, that any delay in providing, or the failure to provide such notification, shall not affect the right of the Indemnitee to indemnification hereunder except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. Such notice shall describe the Direct Claim in reasonable detail, including copies of any written documents in connection therewith and other reasonably available information and shall indicate the estimated amount of Losses, if reasonably determinable, sustained by the Indemnitee.
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(f) The Indemnitor shall not be bound to or obligated to pay any Direct Claim under this Agreement unless (i) a written instrument is executed by the Indemnitor (which shall be the Owners’ Representative on behalf of all Owners, if any or all of the foregoing are the Indemnitor, and Holdco, if any or all of the foregoing are the Indemnitor) pursuant to which such applicable Party agrees to indemnify the applicable Indemnitees for the applicable Losses, or (b) a court of competent jurisdiction has issued a final, non-appealable order, ruling, judgment or decree (“Order”) regarding the disposition of such Direct Claim. The Indemnitee (acting through the Owners’ Representative, for all Owners or Holdco will be free to pursue enforcement of any final, non-appealable Order as set forth above in any federal or state court of competent jurisdiction located in Harris County, Texas.
9.5. Survival. Subject to the limitations and other provisions of this Agreement, all of the representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement as set forth in this Section 9.5. The representations and warranties in this Agreement shall remain in effect until the date that is eighteen (18) months following the Closing Date, which shall constitute the Cutoff Date (as further defined below) with respect to such representations and warranties; provided that Section 3.1 (“Authority; Enforceability”), Section 3.2 (“No Conflict”), Section 3.3 (“Ownership”), Section 4.1 (“Organization”), Section 4.3 (“No Conflict”), Section 4.4 (“Capitalization”), Section 4.6 (“Fees and Commissions”), Section 5.1 (“Organization; Authority”), Section 5.2 (“No Conflict”), and Section 5.3 (“Fees and Commissions”) (collectively, the “Fundamental Representations”), shall survive indefinitely; provided, further, that Section 4.5 (Merger Agreement Representations) shall survive twenty-four (24) months following the Closing Date. The covenants and agreements of the Parties made herein shall survive until such covenants have been performed in accordance with the terms and provisions herein or for the period explicitly specified therein, and any Claims with respect to fraud shall survive until the statute of limitations applicable thereto expires. The date on which the survival of a representation, warranty, covenant or agreement ends pursuant to this Section 9.5, shall be the “Cutoff Date” with respect to such representation, warranty, covenant or agreement, as applicable, and the Parties’ right to assert Claims or commence Proceedings with respect thereto shall expire and terminate at such Cutoff Date; provided, however, that any representation or warranty or covenant that would otherwise terminate in accordance with this Section 9.5 will continue to survive if a notice of a claim (whether or not formal legal action shall have been commenced based upon such claim) shall have been given under Section 9.4 on or prior to such date on which it otherwise would terminate, until the related claim for indemnification has been satisfied or otherwise resolved as provided in this Article 9, but such survival shall only be with respect to the matters covered by or relating to such notice of claim.
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9.6. Limitations.
(a) No Owner will have any liability under Section 9.1(a) until Holdco has suffered Losses in excess of one percent (1%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Indemnity Threshold”) in the aggregate arising with respect to a Claim or series of related Claims if such Claim or series of related Claims arise out of the same or similar facts or circumstances under Section 9.1(a) and then the Owners will be responsible for all recoverable Losses under Section 9.1(a) (including the Losses making up the Indemnity Threshold); provided, however that the Indemnity Threshold shall not apply to any Claim based on Section 4.5 (Merger Agreement Representations), a breach of the Fundamental Representations or fraud by the Owners. Further, the Owners’ maximum indemnification liability with respect to any Losses under this Article 9 shall in no event exceed ten percent (10%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Cap”); provided, however that the Cap shall not apply to any Claim based on a breach of Section 4.5 (Merger Agreement Representations), the Fundamental Representations or fraud by the Owners.
(b) Notwithstanding anything to the contrary in this Article 9 or elsewhere in this Agreement, no Claim for indemnification under Section 9.1 may be asserted by any Indemnitee following the applicable Cutoff Date described in Section 9.5; provided, however, that such Cutoff Date shall not affect or limit any Claim asserted in good faith with reasonable specificity and in writing by notice the Indemnitee to the Indemnitor prior to such Cutoff Date which such Claims shall survive until finally resolved pursuant to the terms hereof.
9.7. Sources of Recovery. To the extent a monetary obligation or payment is due and owing by the Owners to any Holdco Indemnitee pursuant to this Article 9, at the Indemnitor’s option, any such indemnification payment may be satisfied, as applicable, (i) pursuant to a forfeiture of a corresponding amount of any shares of CLNH then held by such Indemnitor, based on the fair market value (calculated by taking the average of the highest and lowest selling prices of the shares of CLNH) of such shares of CLNH as of the date of determination that such indemnification obligation is due and owing (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee); and/or (ii) by wire transfer of immediately available funds to the account or accounts designated in writing by Holdco Indemnitee within five (5) Business Days after it is established (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee) that Holdco Indemnitee is entitled to such payment under this Article 9.
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9.8. Express Negligence; Limitations on Defense.
(a) THE FOREGOING INDEMNITIES SET FORTH IN THIS ARTICLE 9 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY INDEMNIFIED PARTIES. THE PARTIES HERETO ACKNOWLEDGE THAT THE INDEMNITIES SET FORTH HEREIN MAY RESULT IN THE INDEMNITY OF A PARTY FOR ITS SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF THE INDEMNIFIED PARTY.
(b) TO THE EXTENT THAT HOLDCO MAKES ANY CLAIMS AGAINST THE OWNERS UNDER THE PROVISIONS OF THIS ARTICLE 9, THE OWNERS MAY NOT ASSERT AND HEREBY EXPRESSLY WAIVE AS A DEFENSE, COUNTERCLAIM, OR OTHERWISE THAT HOLDCO AND ITS AFFILIATES OR REPRESENTATIVES HAVE BEEN NEGLIGENT IN CONDUCTING THEIR DUE DILIGENCE RELATING TO ANY ASPECT OF THE assets of the COMPANY AND/OR THE BUSINESS. THE RIGHT TO INDEMNIFICATION IN ACCORDANCE WITH THE PROVISIONS OF THIS ARTICLE 9 WILL NOT BE AFFECTED BY ANY INVESTIGATION CONDUCTED BY HOLDCO WITH RESPECT TO, OR ANY KNOWLEDGE ACQUIRED (OR CAPABLE OF BEING ACQUIRED) BY HOLDCO AT ANY TIME, WHETHER BEFORE OR AFTER THE CLOSING DATE, WITH RESPECT TO THE ACCURACY OR INACCURACY OF OR COMPLIANCE WITH, ANY REPRESENTATION, WARRANTY, COVENANT OR OBLIGATION SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION AGREEMENT.
9.9. Exclusive Remedy. The remedies available under this Article 9 and the Merger Agreement shall be the sole and exclusive remedies of Holdco (and any Holdco Indemnitee) for any Losses, damages, Claims, Proceedings, breaches, rights, claims and causes of action arising out of or in connection with this Agreement and/or the transactions contemplated hereby; provided, however, that this exclusivity shall not limit or apply to any rights or remedies available at law or in equity arising from fraud by the Owners.
9.10. Materiality Qualifiers. For purposes of determining whether there has been a breach of any Party’s representations and warranties herein for which the other Party hereto or any other indemnified Person is entitled to indemnification hereunder and the Losses resulting therefrom, any materiality qualifiers (including any Material Adverse Effect) contained in such Party’s representations or warranties shall be disregarded.
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ARTICLE
10
OWNERS’ REPRESENTATIVE
10.1. Appointment of Owners’ Representatives. Each Owner hereby irrevocably constitutes and appoints Thomas T. Vo (the “Owners’ Representative”) as such Owner’s true and lawful agent and attorney-in-fact, to execute documents, agreements and instruments in the name of such Owner and on such Owner’s behalf, to act in the name and on behalf of such Owner as set forth in this Section 10.1. Except as otherwise provided in this Agreement, any right or action that may be taken at the election of all or any of the Owners shall be taken solely by the Owners’ Representative on their behalf. Each Owner hereby authorizes the Owners’ Representative and Holdco to rely on any action taken by the Owners’ Representative as having been duly and validly authorized by such Owner. The Owners’ Representative shall have the power to execute documents, agreements and instruments in the name and stead of such Owner and on such Owner’s behalf and to act in the name and on behalf of such Owner as follows:
(a) as provided in and in accordance with Article VIII of the Merger Agreement;
(b) in connection with any claim for indemnification made under Article 9 or the Merger Agreement, to take any and all actions required or authorized to be taken by the Owners pursuant to Article 9, and to defend, compromise or settle any claim for indemnification made by an Indemnitee against such Owner under Article 9 or, in accordance with Article 9, any Third Party Claim that has given rise to an indemnity matter under Article 9;
(c) to receive and give receipt for all notices and other communications required or permitted to be given to or from such Owner under this Agreement or the Merger Agreement, including all notices under Article 9 relating to any indemnity matter;
(d) to act on such Owner’s behalf hereunder for all purposes specified herein, including determining, on behalf of any specific Owner or all Owners, whether to make any claim or institute any Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof, settling any claim or Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof or agreeing that any specific Owner or all Owners are responsible for or are not responsible for any indemnification obligations under this Agreement due to a breach or alleged breach of this Agreement or the Merger Agreement, subject to the caps and limitations set forth in this Agreement, with all of the foregoing decisions of the Owners’ Representative to be final, binding and not subject to dispute or appealable by any Owner;
(e) to take any other action authorized to be taken by the Owners’ Representative pursuant to the terms of this Agreement or the Merger Agreement;
(f) to agree with Holdco and all Owners as to any amendments to this Agreement or the Merger Agreement which the Owners’ Representative deems necessary or advisable;
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(g) to employ legal counsel on behalf of the Owners;
(h) to pay any legal and any other fees and expenses incurred by the Owners’ Representative in consummating the transactions contemplated by this Agreement or the Merger Agreement or in connection with carrying out the Owners’ Representative’s duties under this Agreement or the Merger Agreement, including on behalf of any or all Owners investigating, defending or pursuing any claims or Proceedings and managing matters associated with this Agreement or the Merger Agreement; and
(i) making, executing, acknowledging, and delivering all such contracts, orders, receipts, documents, instruments, notices, requests, instructions and certificates and doing all things and taking all actions which the Owners’ Representative, in its sole discretion, considers necessary or proper in connection with or to carry out the terms of this Agreement or the Merger Agreement, as fully as if such Owner were personally present and acting.
10.2. Additional Provisions.
(a) The Owners’ Representative will incur no liability to the Owners in connection with his services pursuant to this Agreement and any related agreements except to the extent resulting from his fraud, gross negligence or willful misconduct. The Owners’ Representative shall not be liable for any action or omission pursuant to the advice of counsel. Each Owner agrees on a several and not joint and several basis to defend, indemnify and hold the Owners’ Representative harmless from and against any and all Losses arising out of or in connection with this Agreement or the Merger Agreement or any related agreement incurred as a result of its position as the Owners’ Representative or any of his actions or inactions as such, except such Losses are finally adjudicated to have been caused by his fraud, gross negligence or willful breach of this Agreement or the Merger Agreement.
(b) The Owners’ Representative will promptly provide all notices received by the Owners’ Representative pursuant to this Agreement to the other Owners, if applicable to such Owner. Each Owner acknowledges that the powers and authority granted in Section 10.1 and in this Section 10.2 are irrevocable, coupled with an interest and shall not be terminated by any act of such Owner (including the death, disability, bankruptcy or insolvency of such Owner). The Owners agree to indemnify the Owners’ Representative against and hold the Owners’ Representative harmless from and against any and all losses, costs, judgments, settlements, damages of any kind or nature, expenses, claims, and attorneys’ fees and costs suffered or incurred by the Owners’ Representative as a result of, in connection with or arising from or out of the acts or omissions of the Owners’ Representative in the performance of his obligations contained in this Agreement and the Merger Agreement, except such acts or omissions as result from the Owners’ Representative’s willful breach of this Agreement or gross negligence. The foregoing indemnities will survive the Closing, the resignation or removal of the Owners’ Representative or the termination of this Agreement.
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(c) The Owners approve of the execution and delivery of the Disclosure Schedules and any other certificates, documents or instruments contemplated to be executed and delivered by the Owners’ Representative on behalf of the Owners pursuant to this Agreement or the Merger Agreement.
ARTICLE
11
MISCELLANEOUS
11.1. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be given (a) by U.S. Postal Service, registered or certified mail, first-class postage paid, return receipt requested, (b) sent by national reputable overnight delivery service such as Federal Express or United Parcel Service, (c) transmitted by electronic mail or (d) delivered by hand to the Persons and addresses, as the case may be, set forth below. Any notice shall be deemed to have been duly received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, when actually received, (ii) if sent by national reputable courier service, when actually received, (iii) if sent by electronic mail, when confirmation of receipt is received by sender, and (iv) if delivered by hand, on the date of receipt. The notice addresses and facsimile numbers of the Parties are as follows:
If to Holdco, to:
Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email:******
with a copy to (which shall not constitute notice):
Locke
Lord LLP
600 Travis Street, Suite 2800
Houston, TX 77002
Attention: Joe Perillo
Email: *****
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If to the Owners, to the Owners’ Representative as follows:
c/o Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email: *******
Any Party may change the address to which notices are to be sent by written notice given to the other Parties hereto.
11.2. Headings. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.
11.3. Amendments. This Agreement may only be amended pursuant to a written agreement executed by Holdco and the Owners’ Representative.
11.4. Rights; No Waiver. The failure of a Party to exercise any right granted hereunder will not impair nor be deemed a waiver of such Party’s privilege of exercising that right at any subsequent time or times, except as expressly provided herein. No waiver by a Party of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless expressly provided. No waiver will be effective unless made in writing and signed by the Party to be charged with such waiver.
11.5. Entire Agreement. This Agreement and the Merger Agreement, together with the Schedules and Exhibits attached hereto or thereto and hereby or thereby incorporated herein by reference, and the Transaction Agreements contain the entire agreement among the Parties with respect to the transactions contemplated hereby, and supersedes all negotiations, agreements, representations, warranties and commitments, whether in writing or oral, prior to the date hereof. Notwithstanding the above to the contrary, in the event that an Owner is not contributing one hundred percent (100%) of his, her or its equity interest in the Company to Nutex pursuant to this Agreement, such Owner shall continue to be bound by and subject to the terms and provisions of the Operating Agreement; provided that in the event of a conflict between the terms of this Agreement and the Operating Agreement, this Agreement shall control.
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11.6. Successors and Assigns; Assignment. Except as otherwise expressly provided in this Agreement, all of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted transferees of the Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or to give any Person not a Party any rights or remedies under or by reason of this Agreement, except for the indemnified parties expressly identified in this Agreement. No Owner may assign this agreement or any of his, her or its rights or obligations under this agreement without the prior written consent of Holdco; provided that Holdco may assign this agreement and/or any or all of its rights or obligations under this agreement to CLNH in connection with or after the consummation of the transactions contemplated under the Merger Agreement.
11.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute one instrument. Delivery of a copy of this Agreement bearing an original signature by facsimile transmission or by electronic mail in “portable document format” form shall have the same effect as physical delivery of the paper document bearing the original signature.
11.8. Governing Law, Venue and Severability, Jury Trial Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
| 29 |
11.9. Remedies. Each Party acknowledges that the remedies at law of the Parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any Party, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
11.10. Transaction Expenses. Except as otherwise contemplated in this Agreement or the other Transaction Agreements, all fees, costs and expenses incurred by the Parties hereto in connection with this Agreement and the transactions contemplated hereby including legal and accounting fees (“Transaction Expenses”) shall be borne by the Party incurring such Transaction Expenses; provided, however, that notwithstanding anything to the contrary herein, each Owner shall be responsible for and shall pay his, her or its pro rata share (based on each such Owner’s share of the aggregate Equity Consideration) of the Transaction Expenses incurred by the Company, Nutex Health LLC or Nutex in connection with the transactions contemplated herein and/or in connection with the Merger Agreement. For the avoidance of doubt, expenses incurred by any Owner on his, her or its own behalf (including the fees and disbursements of counsel, advisors and other Persons retained by such Owner) will not be considered fees or costs incurred by the Company, Nutex Health LLC or Nutex and will therefore be the sole responsibility of such Owner.
11.11. Rules of Construction. Each of the Parties has contributed to the drafting of this Agreement; accordingly, no rule of strict construction shall be applied against any Party.
[Signature Pages Follow]
| 30 |
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
HOLDCO:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
| 31 |
OWNERS:
| 32 |
| FULL LEGAL NAME OF OWNER [print]: | ||
| Form
of Legal Entity of Owner (for U.S. tax purposes) [check one]: ☐ Individual ☐ Corporation ☐ Estate ☐ Trust ☐ Partnership (includes limited liability companies, professional limited liability companies, professional associations, limited partnerships) ☐ Disregarded Entity ☐ Other: | ||
If OWNER IS an INDIVIDUAL: [signature of Owner] If OWNER IS an entity: By: [signature of authorized person] Name of Authorized Person: Title of Authorized Person: AND [signature of Doctor-Owner] |
||
| 33 |
INTERESTS: Name of Company or Facility: ______________________ |
||
Percent of Owner’s Total Ownership Percentage Owner will contribute to Holdco: _____% (the “Contributed Interests”) NOTICE INFORMATION: [please provide address and contact information] |
||
| E-mail Address: | ||
| 34 |
OWNERS’ REPRESENTATIVE:
______________________________________
THOMAS T. VO
| 35 |
EXHIBIT A
DEFINED TERMS
As used in the Agreement, the following terms shall have the respective meanings set forth below:
“Affiliate” means, with respect to any Person, any other person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, the term “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the Preamble.
“Assignment Agreements” has the meaning set forth in Section 2.4(a)(i).
“Business” has the meaning set forth in the Recitals.
“Business Day” means any day other than a Saturday, Sunday or federal bank holiday.
“Cap” has the meaning set forth in Section 9.6(a).
“Claim” has the meaning set forth in Section 9.3.
“Claim Notice” has the meaning set forth in Section 9.3.
“CLNH” has the meaning set forth in the Recitals.
“Closing” has the meaning set forth in Section 2.3.
“Closing Date” has the meaning set forth in Section 2.3.
“Company” has the meaning set forth in the Recitals.
“Confidentiality Agreements” means, collectively, the confidentiality agreements entered into and executed by each of the Owners and Nutex Health LLC in connection with and anticipation of the transactions contemplated herein.
“Contracts” means any and all assignments, deeds, contracts, commitments, agreements, franchises, understandings, obligations, letters of intent, indemnification agreements, arrangements, purchase orders, leases, subleases, licenses, registrations, authorizations, easements, servitudes, rights-of-way, mortgages, credit agreements or documents, bonds, notes, indentures, documents, and other instruments, whether written or unwritten, to which the applicable Person is party or by which it is bound, and all amendments thereof.
“Cutoff Date” has the meaning set forth in Section 9.5.
“Debt” means, with respect to any Person, as of any particular time, without duplication, (a) indebtedness of such Person for money borrowed from banks or similar financial institutions or evidenced by bonds, debentures, notes or other similar instruments or securities (and whether or not convertible into any other security), including the amount drawn on any letter of credit supporting the repayment of indebtedness for borrowed money issued for the account of such Person and obligations under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing; (b) obligations under any capital leases (as defined under GAAP); (c) obligations of such Person to pay the deferred purchase price or acquisition price of any asset, property, business or services (including obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable, (e) obligations for any accrued interest, prepayment premiums or penalties or other costs or expenses related to any of the foregoing and (d) guarantees of any of the foregoing on behalf of another Person.
“Direct Claim” has the meaning set forth in Section 9.4(e).
“Disclosure Schedule” or “Schedule” or “Schedules” means the disclosure schedule accompanying this Agreement.
“Doctor-Owner” means, if an Owner is an entity or a trust, the doctor or physician who owns or controls such Owner.
“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability company, joint venture, joint stock association, estate, trust, cooperative, foundation, union, syndicate, league, consortium, coalition, committee, society, firm or other enterprise, association, organization or entity of any nature, other than a Governmental Authority.
“Equitable Principles” has the meaning set forth in Section 3.1.
“Equity Consideration” has the meaning set forth in Section 2.2.
“Equity Consideration Adjustment Notice” has the meaning set forth in Section 2.6.
“Equity Interests” means any membership interests, limited liability company interests, partnership interests, shares, capital stock or other equity securities or ownership interests of a Person and securities exercisable or exchangeable for or convertible into, or other rights to acquire, membership interests, limited liability company interests, partnership interests, shares or capital stock or other equity securities or ownership interests of a Person.
“Fundamental Representations” has the meaning set forth in Section 9.5.
“GAAP” means United States generally accepted accounting principles consistently applied.
“Governmental Authority” means a federal, state, local or foreign governmental or quasi-governmental authority, a state, commonwealth, territory or district thereof; a county or parish; a city, town, township, village or other municipality; a district, ward or other subdivision of any of the foregoing; and any executive, legislative or other governing body or administrative authority of any of the foregoing.
“Guaranty Obligations” has the meaning set forth in Section 6.10.
“Holdco” has the meaning set forth in the Preamble.
“Holdco Indemnitees” has the meaning set forth in Section 9.1.
“Holdco LLC Agreement” means an Amended and Restated Limited Liability Company Agreement of Holdco, in substantially the form attached hereto as Exhibit C.
“Indemnitee” has the meaning set forth in Section 9.3.
“Indemnitor” has the meaning set forth in Section 9.3.
“Indemnity Threshold” has the meaning set forth in Section 9.6(a).
“Legal Requirements” means any and all applicable (a) federal, state, provincial, local and foreign laws, statutes, common law rulings, rules, regulations, codes, ordinances, Permits, bylaws, variances, policies, judgments, injunctions, orders, and conditions, including Environmental Laws, (b) non-appealable judgments of a court of competent jurisdiction which are binding on the applicable Person, (c) Contracts with any federal, state, local or foreign court, arbitrator or administrative or Governmental Authority relating to compliance with matters described in (a) or (b) above to which the applicable Person is party, and (d) consent decrees and similar arrangements to which the applicable Person is party.
“Liabilities” means all claims, Proceedings, costs, expenses, obligations or liabilities of any nature (including any undisclosed, unfixed, unknown, unliquidated, unsecured, unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied, vicarious, joint, several or secondary liabilities), regardless of whether required to be disclosed on a balance sheet prepared in accordance with GAAP or known as of the Closing.
“Liens” means any and all liens, mortgages, charges, financing statements, security interests, or other restrictive covenants, options or preferential purchase rights.
“Losses” means damages, claims, suits, liabilities, losses, costs and expenses (including reasonable fees and expenses of counsel and court costs).
“Material Adverse Effect” means any result, occurrence, fact, change, event, effect or condition that has had or could reasonably be expected to have a material adverse effect on the property, business, operations, assets, liabilities, financial condition, prospects or results of operations of the Company or the Business, individually or in the aggregate, except for (i) the effect of any change in the United States or foreign economies or securities or financial markets in general; (ii) the effect of any change that generally affects any industry in which the Company operates; (iii) the effect of any change arising in connection with earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions existing or underway as of the date hereof; or (iv) the effect of any changes in applicable Legal Requirements or GAAP; provided that with respect to (i) – (iv), such change shall not have a disproportionate effect on the Company.
“Membership Interests” has the meaning set forth in the Recitals.
“Merger” has the meaning set forth in the Recitals.
“Merger Agreement” means the Agreement and Plan of Merger, substantially in the form attached as Exhibit E hereto.
“Operating Agreement” means the company agreement or operating agreement of the Company to which the Owners or their Affiliates are a party or by which they are bound, as the same may be amended.
“Order” has the meaning set forth in Section 9.4(f).
“Organizational Documents” means the articles of incorporation, certificate of incorporation, articles or certificate of formation, articles or certificate of limited partnership, bylaws, operating agreement, partnership agreement, shareholders agreement, company agreement, limited liability company agreement, regulations, certificate of designations for preferred stock or other equity interests and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of an Entity, including all amendments thereto and restatements thereof.
“Outside Date” means September 30, 2022.
“Owner” or “Owners” has the meaning set forth in the Preamble.
“Owner Indemnitees” has the meaning set forth in Section 9.2.
“Owners’ Representative” has the meaning set forth in Section 10.1.
“Party” or “Parties” has the meaning set forth in the Preamble.
“Permit” means any permit, permit exception, license, registration, exemption, certificate, authorization and approval of any Governmental Authority.
“Person” means any individual, Entity or Governmental Authority.
“Preliminary Financial Information” has the meaning set forth in Section 2.6.
“Real Estate Guaranty” means any guaranty entered into or executed by the Company in connection with any Debt on any real property leased by the Company.
“Released Party” has the meaning set forth in Section 6.5.
“Releasing Party” has the meaning set forth in Section 6.5.
“Representative” means any officer, employee, director, member, manager, attorney, law firm, investment advisor, consultant, accountant, accounting firm, investment banker or other professional representing, providing services to or acting on behalf of any Party to this Agreement.
“Restrictive Covenants” has the meaning in Section 6.8.
“Retained Rights” has the meaning set forth in Section 6.5.
“Securities Act” means the Securities Act of 1933, as amended.
“Settlement” has the meaning set forth in Section 9.4(c).
“Shift Guaranty” has the meaning in Section 6.9.
“Subsidiaries” means, with respect to any Person of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the equity interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Entities owned by or controlled by that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).
“Tax” or “Taxes” means any taxes, assessments, charges, duties, fees, levies, imposts and other governmental charges imposed by any Governmental Authority, including without limitation income, franchise, profits, margins, gross receipts, capital gains, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, escheat, abandoned or unclaimed property, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, or other tax of any kind whatsoever, including any deficiency assessments, interest, penalty, or addition thereto, whether disputed or not.
“Taxing Authority” means, with respect to any Tax, the Governmental Authority that is responsible for the imposition and/or administration of such Tax, including any Governmental Authority that imposes, or is charged with collecting, social security or similar charges or premiums.
“Tax Return” means any return, declaration, report, claim for refund, election, estimated tax filing or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Third Party Claim” has the meaning set forth in Section 9.4(a).
“Transaction Agreements” means this Agreement, the Confidentiality Agreements, the Assignment Agreement, the Holdco LLC Agreement and any other ancillary documents contemplated by this Agreement to be delivered at Closing and to which a Party is a signatory thereto.
“Transaction Expenses” has the meaning set forth in Section 11.10.
“Transfer Taxes” means all transfer, documentary, sales, use, stamp, registration and other similar Taxes (other than income Taxes) and all conveyance fees, recording charges and other fees and charges imposed on the Company in connection with the consummation of the transactions contemplated by this Agreement.
“Units” has the meaning set forth in the Holdco LLC Agreement.
“Updated Financial Information” has the meaning set forth in Section 2.6.
| A-1 |
Exhibit B
Form of Assignment Agreement
CONTRIBUTION AND ASSIGNMENT AGREEMENT
THIS CONTRIBUTION AND ASSIGNMENT AGREEMENT (this “Assignment”), dated as of ______________, is made and entered into by and between the undersigned listed as Assignor on the signature page attached hereto (the “Assignor”), and Nutex Health Holdco LLC, a Delaware limited liability company (the “Assignee”). The Assignor and the Assignee may each be referred to herein as a “Party” and collectively as the “Parties.”
WHEREAS, the Assignor owns certain equity interests (the “Interests”) in the company and in the amounts as set forth on Exhibit A attached hereto;
WHEREAS, pursuant to the terms and provisions of that certain Contribution Agreement, dated as of November 23, 2021, by and among the Assignor, the Assignee and the other parties listed on the signature pages attached thereto (the “Contribution Agreement”), the Assignor desires to contribute, convey, transfer, assign and deliver to the Assignee, and the Assignee desires to receive and accept from the Assignor, the Interests;
WHEREAS, in order to effectuate the conveyance, transfer, assignment and delivery of the Interests to the Assignee, the Parties are executing and delivering this Assignment; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Contribution Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. Contribution of the Interests. The Assignor hereby CONTRIBUTES, CONVEYS, TRANSFERS, ASSIGNS AND DELIVERS unto the Assignee and its successors and assigns, and the Assignee hereby receives and accepts, all of the Assignor’s right, title and interest in and to the Interests.
2. Contribution Agreement. This Assignment is made effective as of the Closing and is expressly made subject to the terms, conditions and covenants of the Contribution Agreement. If there is a conflict between this Assignment and the Contribution Agreement, then the Contribution Agreement shall control in all respects. No provision of this Assignment shall in any way modify any of the provisions of the Contribution Agreement. This Assignment is intended solely to further effect the transfer of the Interests in accordance with the Contribution Agreement.
| B-1 |
3. Further Assurances. The Assignor covenants and agrees with the Assignee that the Assignor and its successors and assigns shall execute, acknowledge and deliver such other instruments of conveyance and transfer and take such other action as may reasonably be required to more effectively grant, convey, transfer, assign and deliver to and vest in the Assignee and its successors and assigns, and to put the Assignee and its successors and assigns in possession of, the Interests conveyed, transferred, assigned and delivered hereunder or to otherwise carry out the purposes of this Assignment.
4. Binding Effect. The terms and provisions of this Assignment extend to, bind and inure to the benefit of the Parties and their respective successors and permitted assigns.
5. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
6. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute but one and the same instrument. The delivery of copies of this Assignment, including executed signature pages by electronic transmission, will constitute effective delivery.
7. Successors and Assigns. This Assignment shall bind the Assignor and its successors and assigns and inure to the benefit of the Assignee and its successors and assigns.
8. Waiver; Amendment. None of the provisions of this Assignment may be waived, changed or altered except in a signed writing by the Party against whom enforcement of the same is sought.
| B-2 |
9. No Third-Party Beneficiaries. No provision of this Assignment is intended to confer upon any person other than the Parties any rights or remedies hereunder.
10. Entire Agreement. This Assignment, the Contribution Agreement and the other agreements and documents executed contemporaneously herewith and therewith or contemplated herein or therein, embody the entire agreement and understanding of the Parties with respect to the subject matter hereof. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein.
[Signature Page Follows]
| B-3 |
IN WITNESS WHEREOF, the Parties have executed this Assignment to be effective as of the date first above written.
| FULL LEGAL NAME OF ASSIGNOR (PRINT): | |
If an entity: By: Name: Title: If an INDIVIDUAL: Name: _______________________ |
|
| B-4 |
ASSIGNEE:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
| B-5 |
EXHIBIT A
INTERESTS
| A-1 |
Exhibit C
Form of Holdco LLC Agreement
| C-1 |
Exhibit D-1
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Entity)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor is not a disregarded entity as defined in Treasury Regulation Section 1.1445-2(b)(2)(iii);
3. Transferor’s U.S. taxpayer identification number is _________________; and
4. Transferor’s principal address is: ____________________________________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete, and the undersigned further declares that he has authority to sign this Certificate of Non-Foreign Status on behalf of Transferor.
Name of Transferor (Entity):____________________
By:
Name:
Title:
| D-1-1 |
Exhibit D-2
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Individual)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ___________________________; and
3. Transferor’s residential address is: ________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
____________________________________
Name: _________________
| D-2-1 |
Exhibit D-3
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Grantor Trust)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the trust listed below (“Seller”), and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Seller is a grantor trust under Code Sections 671-677, such that the transferor for U.S. federal income tax purposes is _________________ (the “Transferor”). Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ______ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ____________________________; and
3. Transferor’s residential address is: ________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
Name of Trust: ________________
____________________________________
Transferor: ____________
| D-3-1 |
Exhibit H
Equity Consideration Adjustment—Ramping Hospital
Defined Terms: The following terms have the meanings ascribed below. Capitalized terms used herein and not otherwise defined shall have the meanings to be ascribed to them in this Agreement to which this Exhibit is attached.
“Ancillary Services” means any services other than professional services personally performed by physicians.
“Earnout Representative” means such representative as selected by a majority of the Owners (other than Dr. Vo).
“EBITDA” means earnings of the Company before taxes, depreciation and amortization as calculated in accordance with GAAP; provided that notwithstanding anything to the contrary herein, all revenues from Ancillary Services, regardless of payor type or source of payment, shall be excluded from the calculation of EBITDA.
“Lock-Up Agreement” means a Lock-Up Agreement, in substantially the form attached hereto as Annex 1.
“Measurement Period” means, with respect to the Company, a period of twenty-four (24) months starting on the Opening Date of the Company.
“Opening Date” means the date on which the Company begins accepting patients.
“Parent Common Stock” shall have the meaning set forth in the Merger Agreement.
“Parent Stock Price Floor” means $2.80.
“Pro Rata Share” means, with respect to an Owner, the ownership percentage listed opposite such Owner’s name on Annex 2.
“TTM EBITDA” means EBITDA for the immediately preceding twelve (12) month period prior to the end of the Measurement Date.
Agreement: Holdco and the Owners acknowledge and agree as follows:
1. In connection with the closing of the Merger Agreement, Holdco and/or CLNH shall assume and/or payoff the aggregate Debt of the Company outstanding as of the Closing of the Merger Agreement.
2. Subject to the limitations set forth in this Agreement and the following terms and provisions, each Owner shall be eligible to receive a one-time additional issuance of Parent Common Stock based on such Owner’s Pro Rata Share of the TTM EBITDA of the Company; provided that such additional issuance shall be in addition to the initial issuance of shares of Parent Common Stock as provided in Section 2.2 and subject to Section 2.6 and Section 2.8. At the end of the applicable Measurement Period, such Owner(s), as applicable, shall be eligible to receive his, her or its Pro Rata Share of a number of shares of Parent Common Stock equal to (a)(i) the TTM EBITDA of the Company times (ii) ten (10) minus (iii) the initial equity value received at the Closing of the Merger Agreement minus (iv) such Owner’s Pro Rata Share of the aggregate Debt of the Company outstanding as of the Closing of the Merger divided by (b) the greater of (i) the price of the Parent Common Stock and (ii) the Parent Stock Price Floor, in each case (i.e., (a), (i), (ii), (iii), (iv) and (b)(i)), such amounts determined at the expiration of the applicable Measurement Period.
3. No later than thirty (30) days after the end of the applicable Measurement Period, Holdco shall prepare and deliver to the Earnout Representative, a statement (the “EBITDA Statement”) setting forth in reasonable detail the aggregate TTM EBITDA of the Company, as determined by Holdco in accordance with GAAP. The Earnout Representative shall have fifteen (15) days following Holdco’s delivery of the EBITDA Statement to review the EBITDA Statement (and the Earnout Representative shall have the right to examine the work papers used or generated in connection with the preparation of the EBITDA Statement and such other documents as the Earnout Representative may reasonably request in connection with his, her or its review of the EBITDA Statement) and to inform Holdco in writing of any good faith disagreement that he, she or it may have with the EBITDA Statement, which objection shall specify in reasonable detail the Earnout Representative’s disagreement with the EBITDA Statement (the “Objection”). If Holdco does not receive the Objection within such fifteen (15) day period, the EBITDA Statement shall be deemed to have been accepted by the Earnout Representative and shall become final and binding on the parties. If the Earnout Representative does timely deliver an Objection to Holdco, Holdco shall then have ten (10) days from the date of receipt of such Objection (the “Review Period”) to review and respond to the Objection. Holdco and the Earnout Representative shall attempt in good faith to resolve any disagreements with respect to the determination of the Company’s TTM EBITDA. If they are unable to resolve all of their disagreements with respect to the determination of the Company’s TTM EBITDA within ten (10) days following the expiration of the Review Period, they may refer, at the option of either party, their differences to a nationally recognized accounting firm, mutually agreeable to Holdco and the Earnout Representative (the “Neutral Arbitrator”), who shall determine only with respect to the differences so submitted, whether and to what extent, if any, the Company’s TTM EBITDA set forth in the EBITDA Statement should be adjusted. In submitting a dispute to the Neutral Arbitrator under this Section 3, each party shall prepare a detailed statement in support of their respective calculation of the Company’s TTM EBITDA. Holdco and the Earnout Representative shall make readily available to the Neutral Arbitrator, all relevant books and records relating to the EBITDA Statement and all other items reasonably requested. The Neutral Arbitrator shall be required to accept any determinations for which there is agreement between the parties, and will only decide upon matters on which there is a substantive dispute, which shall be decided based only upon the provisions of this Section 3 and the presentations by the parties (and not upon an independent review). Holdco, on the one hand, and the Owner(s), on the other hand, shall each pay one-half of the Neutral Arbitrator’s fees and expenses in connection with this Section 3; provided, however, that (i) if the aggregate estimate by Holdco of the disputed amount or amount differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then Holdco shall pay the entire amount of such cost, and (ii) if the aggregate estimate by the Earnout Representative of the disputed amount or amounts differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then the Owner(s) shall pay the entire amount of such cost; provided, further, however, if the aggregate estimates by both Holdco and the Earnout Representative of the disputed amount or amounts differs by ten percent (10%) or more from the determination of the Neutral Arbitrator, then the party whose estimate differs most greatly from the determination of the Neutral Arbitrator shall pay the entire amount of such cost. The Neutral Arbitrator’s determination shall be conclusive and binding upon the parties.
4. Upon the final resolution of the EBITDA Statement and related final issuance, if any, of the Parent Common Stock in accordance with Section 3, either pursuant to Holdco’s and the Earnout Representative’s mutual written agreement or the final determination by the Neutral Arbitrator, in each case, accordance with Section 3(such date, the “Final Settlement Date”), the additional shares of Parent Common Stock contemplated by Section 3, if any, will be issued to the applicable Owner within 10 business days following the Final Settlement Date.
5. To the extent required by the laws in effect at the time any additional shares of Parent Common Stock are issued pursuant to this agreement, Holdco shall withhold any taxes required to be withheld for federal, state or local governmental purposes.
6. Notwithstanding anything to the contrary herein, the Owner shall not be entitled to receive the one-time additional issuance of Parent Common Stock contemplated herein unless and until such Owner delivers a duly executed Lock-Up Agreement, in form and substance acceptable to Holdco and the Parent, to Holdco.
| H-1 |
ANNEX 1
Form of Lock-Up Agreement
(ADDITIONAL ISSUANCES)1
This Lock-Up Agreement (this “Agreement”) is entered into as of [_____________]2 by and between the undersigned and Nutex Health, Inc. (formerly known as Clinigence Holdings, Inc.), a Delaware corporation (“Parent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as such term is defined below).
RECITALS
WHEREAS, Nutex Health Holdco, LLC, a Delaware limited liability company (the “Company”), a wholly owned subsidiary of Parent, and the undersigned are party to that certain Contribution Agreement dated [•];
WHEREAS, on [•], the Company, Parent and Nutex Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which Merger Sub merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), upon the terms and subject to the conditions set forth therein; and
WHEREAS, as a condition to the willingness of Parent to issue to the undersigned additional fully paid and non-assessable shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”) in accordance and subject to the conditions set forth in Exhibit H to the Contribution Agreement (the “Additional Issuance”) Parent and the Company have required that the undersigned agree to enter into this Agreement, which, among other things, restricts the sale, assignment, transfer, encumbrance or other disposition of the Covered Securities (as such term is defined below).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up of Securities.
(a) Lock-Up. In recognition of the benefit that the Additional Issuance confers upon the undersigned, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that:
(i) during the period commencing on the date of the Additional Issuance and including the date that is six (6) months from the date of the Additional Issuance (the “First Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Covered Securities by the undersigned, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Covered Securities, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise (each of the foregoing, a “Transfer”);
(ii) during the period commencing on the first calendar day following the end of the First Lock-Up Period to and including the date that is twelve (12) months from the date of the Additional Issuance (the “Second Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than one-third (1/3) of the Covered Securities; and
(iii) during the period commencing on the first calendar day following the end of the Second Lock-Up Period to and including the date that is eighteen (18) months from the date if the Additional Issuance (the “Third Lock-Up Period” and collectively with the First Lock-Up Period and Second Lock-Up Period, the “Lock-Up Periods”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than two-thirds (2/3) of the Covered Securities.
For the purposes of the Agreement, “Covered Securities” shall mean, with respect to the undersigned, any of the following: (i) any and all shares of Parent Common Stock which are issued to the undersigned as of the date of the Additional Issuance (the “Additional Shares”), (ii) any shares of Parent Common Stock issuable upon exercise, conversion or exchange of the Additional Shares, (iii) any securities of the Parent issued in respect of the shares of Parent Common Stock issued or issuable to the undersigned by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Parent Common Stock issuable upon conversion, exercise or exchange thereof, in each case to the extent relating to the Additional Shares and (iv) any other securities of the Parent issued or issuable to undersigned that are convertible into or exercisable or exchangeable for Parent Common Stock, whether at the option of the undersigned or otherwise, in each case to the extent relating to the Additional Shares. For the avoidance of doubt, this Agreement shall not apply with respect to any shares of Parent Common Stock issued to the undersigned as of the Effective Time; provided that such shares may be subject to a Lock Up Agreement between the Company and the undersigned dated as of [ ].
(b) Permitted Transfers. Notwithstanding the foregoing, the undersigned may Transfer the Covered Securities to a Permitted Transferee without the prior written consent of Parent, provided that (i) Parent receives a signed lock-up agreement in substantially the same form as this Agreement for the balance of the Lock-Up Periods from each donee, trustee, distributee, or transferee, as the case may be, (ii) any such Transfer shall not involve a disposition for value, (iii)if any filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Parent Common Stock in connection with such Transfer shall be legally required prior to the expiration of the Third Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such Transfer, and (iv) the undersigned does not otherwise voluntarily effect any public filing or report regarding such Transfers. For the purposes of this Agreement, “Permitted Transferee” means (1) if the undersigned is an individual (x) a member of the undersigned’s immediate family (which shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin) or a trust, corporation, partnership or limited liability company for the benefit of an immediate family member of the undersigned, all of the beneficial interests of which shall be held by the undersigned or one or more members of the undersigned’s immediate family and (y) the undersigned’s heirs, successors, administrators and executors and any beneficiary of the undersigned pursuant to will or other testamentary document or applicable laws of decent, (2) any Affiliate of the undersigned, (3) if the undersigned is a trust, to a trustee or beneficiary of the trust, or (4) if the undersigned is an individual, an entity or a trust, to any institution qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a bona fide gift or gifts, or for bona fide estate planning purposes.
(c) Stop Transfer. During the Lock-Up Periods, undersigned hereby authorizes Parent to cause any transfer agent for the Covered Securities subject to this Agreement to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities, subject to this Agreement for which the undersigned is the record holder and, in the case of Covered Securities subject to this Agreement for which the undersigned is the beneficial owner but not the record holder, agrees during the Lock-Up Periods to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities subject to this Agreement, if such transfer would constitute a violation or breach of this Agreement.
2. Termination. This Agreement shall automatically terminate and be of no further force or effect upon the first day following the expiration of the Third Lock-Up Period.
3. Transfer; Successor and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. As provided above, any Transfer of Parent Common Stock shall not be effective unless such transferee executes a lock-up agreement in substantially the same form as this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4. Compliance with Securities Laws. The undersigned shall not, at any time make any Transfer, except (i) Transfers pursuant to an effective registration statement under the Securities Act, (ii) Transfers pursuant to the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or (iii) if the undersigned shall have furnished Parent with an opinion of counsel, if reasonably requested by Parent, which opinion and counsel shall be reasonably satisfactory to Parent, to the effect that such Transfer is otherwise exempt from registration under the Securities Act, and in each of (i)-(iii), that such Transfer otherwise complies with the terms of this Agreement.
5. Other Restrictions.
(a) Legends. The undersigned hereby agrees that each outstanding certificate evidencing shares of Parent Common Stock issued to the undersigned shall bear legends reading substantially as follows:
(i) “THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(ii) “THE SALE OR TRANSFER OF THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF A LOCK-UP AGREEMENT DATED [_____________], BETWEEN THE COMPANY AND THE STOCKHOLDER LISTED ON THE FACE HEREOF. A COPY OF SUCH LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE HOLDER HEREOF UPON REQUEST THEREOF. NO TRANSFER OF THE SHARES EVIDENCED HEREBY WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP AGREEMENT.”
(b) Termination of Restrictive Legends. The restrictions referred to in Section 5(a)(i) hereof shall cease and terminate as to Additional Shares (i) when, in the opinion of counsel for Parent, such restriction is no longer required in order to assure compliance with the Securities Act or (ii) when such shares shall have been Transferred in accordance with and pursuant to Rule 144 under the Securities Act or effectively registered under the Securities Act. The restrictions referred to in Section 5(a)(ii) hereof shall cease and terminate at the end of the Lock-Up Periods. Whenever any restrictions under Section 5(a) shall cease and terminate as to any Parent Common Stock, the undersigned shall be entitled to receive from Parent, in exchange for a legended stock certificate then held thereby, without expense (other than applicable transfer fees and taxes, if any, if such unlegended shares are being delivered and Transferred to any person other than the registered holder thereof), a new stock certificate for the same number of shares of Parent Common Stock not bearing the legend set forth in Section 5(a) which have ceased and terminated. As a condition to providing any such new certificate without the legend set forth in Section 5(a)(i) hereof, Parent may require from the undersigned a certificate or an opinion of counsel of the undersigned with respect to any relevant matters in connection with removal of such legend, which certificate or opinion of counsel will be satisfactory to Parent.
(c) Copy of Agreement. A copy of this Agreement shall be filed with the corporate secretary of Parent, shall be kept with the records of Parent and shall be made available for inspection by any stockholder of Parent. In addition, a copy of this Agreement shall be filed with Parent’s transfer agent of record.
(d) Recordation. Parent shall not record upon its books any Transfer to any person except Transfers in accordance with this Agreement.
6. No Other Rights. The undersigned understands and agrees that Parent is under no obligation to register the sale, Transfer or other disposition of the undersigned’s Covered Securities under the Securities Act or to take any other action necessary in order to ensure compliance with an exemption from such registration is available.
7. Amendments and Waivers. This Agreement may not be amended, supplemented or modified except by an agreement in writing signed by the undersigned and Parent. Either party hereto may waive compliance by the other party hereto with any term or provision of this Agreement; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No such waiver shall be effective unless such waiver is in writing and is signed by the party hereto asserted to have granted such waiver.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
9. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures. This Agreement shall become effective when both parties hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party hereto has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party hereto shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
10. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
11. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) when delivered personally or by email (with confirmation of receipt), (ii) one (1) Business Day following the day when deposited with a reputable, established overnight courier service for delivery to the intended addressee, or (iii) three (3) Business Days following the day when deposited with the United States Postal Service as first class, registered or certified mail, postage prepaid and addressed as set forth on such party’s signature page hereto. Either party hereto may alter its notice address by notifying the other party hereto of such change of address in conformity with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
13. Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to as a remedy for any such breach, prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
14. Recapitalizations and Exchanges Affecting Shares. Except as otherwise provided in Section 1(b), the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Covered Securities, and to any and all shares of capital stock or equity securities of Parent which may be issued by reason of any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification or otherwise.
15. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party to this Agreement shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party to this Agreement of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder shall be cumulative and not alternative.
16. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
[Signature Page Follows]
| ANNEX-1-1 |
IN WITNESS WHEREOF, the parties hereto have executed this Lock-Up Agreement as of the date first written above.
PARENT:
NUTEX HEALTH INC.
By:
Name:
Title:
Address:
Facsimile:
Attention:
[_____________]:
(Signature)
Address:
Facsimile:
1Not for Execution - To be used for (1) Ramping Hospital (additional issuance only) and (2) Under Construction Hospitals (additional issuance only)
2Date of issuance of additional shares in accordance with Exhibit H to the contribution agreements for Ramping and Under Construction hospitals.
| ANNEX-1-2 |
Exhibit I
Restrictive Covenants
Each of the parties hereto acknowledges the highly competitive nature of the Business and agrees that the goodwill of the Business is an integral component of the Business, and without such goodwill, the value of the transactions contemplated by this Agreement and the Merger Agreement will be greatly diminished and Holdco’s reasons for entering into this Agreement and Braves’ reasons for entering into the Merger Agreement and consummating the transactions contemplated herein and therein will be impaired.
Each of the parties hereto further acknowledges that as a result of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, each of the Restricted Parties shall receive certain direct or indirect consideration.
The parties hereto intend this Agreement, including this Exhibit, to evidence their understanding with respect to the restrictions on the Restricted Parties’ activities following consummation of the transactions contemplated by this Agreement and the Merger Agreement.
1. Defined Terms. For purposes of this Exhibit, the following terms have the respective meanings set forth below.
(a) “Business” has the meaning set forth in the recitals to this Agreement.
(b) “Confidential Information” includes but is not limited to: (i) any confidential or proprietary information of the Company or Holdco, whether or not marked or otherwise designated as confidential, whether tangible or intangible and in whatever form or medium, including, without limitation, information that is not generally known or readily ascertainable outside of the Company or Holdco regarding the Company or Holdco and relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, work-in-process, databases, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, revenue, costs, formulae, notes, communications, product plans, ideas, audiovisual programs, inventions, unpublished patent applications, discoveries, experimental processes, experimental results, specifications, and referral networks and sources, (ii) any information received by the Company or Holdco from third parties which the Company or Holdco is obligated to keep confidential, and (iii) all other information relating to the Company’s or Holdco’s business which is not common knowledge outside the Company or Holdco and which provides the Company or Holdco with a business advantage and/or would provide a business advantage to the Company’s or Holdco’s competitors.
(c) “Facility” means the stand-alone emergency room clinic and/or hospital described in the recitals to this Agreement.
(d) “Family Group” means a Person’s spouse, parents, siblings and descendants (whether by birth or adoption) and any trust or other estate planning vehicle solely for the benefit of such Person or such Person’s spouse, parents, siblings or descendants (whether by birth or adoption).
(e) “Holdco Group” means Holdco and its Affiliates, including the Company and after the consummation of the Merger, Braves.
(f) “Restricted Area” means a twenty-five (25) mile radius around the Facility.
(g) “Restricted Business” means any Person that engages in or is planning to engage in business activities that are substantially similar to or the functional equivalent of, and that are competitive with, any aspect of the Business in the Restricted Area, including (a) the owning or operating a facility at which physicians provide medical care, treatment or diagnosis on an urgent or emergency basis; or (b) leasing or subleasing a facility for those purposes.
(h) “Restricted Party” means the Owner or if such Owner is an entity or a trust, the Doctor-Owner affiliated with such Owner as listed on the signature pages attached to this Agreement.
(i) “Restricted Period” means the restrictive covenant period set forth in the Operating Agreement applicable to such Restricted Party; provided, however, that the period shall begin on the date on which the Restricted Party ceases to provide services to the Facility rather than the date on which such Restricted Party ceases to own equity interests in the Company.
2. Non-Competition.
(a) Such Restricted Party agrees that such Restricted Party shall not, at any time during the period of time during which such Restricted Party is providing services to the Facility and continuing during the Restricted Period, on such Restricted Party’s own behalf or on behalf of any other Person (other than Holdco Group), directly or indirectly (including through another Person, including its Family Group or any Affiliate) enter into or attempt to enter into any Restricted Business or own voting equity in, or form or operate as an owner, equity holder, interest holder, stockholder, officer, director, member, manager, partner, co-venturer, any business engaged in activities relating to any Restricted Business.
(b) Such Restricted Party acknowledges and agrees that, for purposes of this Agreement, indirect acts by such Restricted Party shall include, without limitation, an act by any Person directly or indirectly controlled by such Restricted Party.
(c) Such Restricted Party acknowledges that (i) the confidential and propriety information and the goodwill associated with the Business and its customers, suppliers, vendors and employees is an integral component of the value of the Business being acquired by Holdco in this Agreement and Braves in the Merger Agreement and that the obligations of such Restricted Party under this Agreement are a material inducement to Holdco’s execution and performance of this Agreement and Braves’ execution and performance of the Merger Agreement, (ii) at the time that these restrictive covenants are made, to the extent applicable to such Restricted Party, the limitations as to time, geographic scope and activity to be restrained, as described in this Section 2 are reasonable and do not impose a greater restraint than necessary to protect Holdco’s and Braves’ legitimate business interests and the value to Holdco and Braves of the transactions contemplated by this Agreement and the Merger Agreement, including, without limitation, the Confidential Information, the relationships with employees and customers, and/or the goodwill and business productivity of the Business, (iii) such Restricted Party has carefully read this Agreement and has given careful consideration to the restraints imposed upon such Restricted Party by this Agreement and consents to the terms of such restrictive covenants and (iv) the restrictions set forth in this Agreement are fair and reasonable in light of the nature of the operations of the Business and geographic scope, which reasonably correlates to the Restricted Area.
(d) Notwithstanding anything to the contrary in this Section 2, (a) the Restricted Parties may own or hold, solely as passive investments, securities of a publicly traded corporation involved in a Restricted Business; provided that, for each such investment, (i) the aggregate securities held by the Restricted Parties do not exceed three percent (3%) of the outstanding securities of such Restricted Business, and (ii) no Restricted Party, directly or indirectly, participates in, or attempts to influence, the management, direction or policies of such Restricted Business (other than through the exercise of any voting rights held by such Restricted Party in connection with such securities), (b) if the Restricted Party retains ownership in the Company following the Merger, the Restricted Party shall remain subject to the terms and conditions of the Operating Agreement of the Company, and (c) the Restricted Party may provide services for a Restricted Business within the Restricted Territory so long as the Restricted Party does not own or hold any securities in such Restricted Business.
(e) Notwithstanding anything to the contrary in this Section 2, a Restricted Party who is a licensed physician by the applicable state medical board in which such Restricted Party practices or in which such Facility is located may, at all times:
(i) have access to medical records of the physician's patients upon authorization of the pertinent patient and any copies of medical records to the extent permitted by applicable state and federal Legal Requirements upon payment of a reasonable fee when permitted by applicable Legal Requirements, which access will be in the format in which those records are normally maintained; and
(ii) provide continuing care and treatment to any patients during the course of an acute illness.
3. Confidentiality. The Restricted Parties each acknowledge that the Confidential Information is the property of the Company and following the Closing, Holdco and following the consummation of the Merger, Braves. Following the Closing, each Restricted Party shall, and shall direct its Affiliates and its and their respective employees, agents, and representatives to, maintain all Confidential Information in strict confidence and secrecy, and shall not, directly or indirectly, for itself or on behalf of any other Person (i) use or exploit any Confidential Information for any purpose or (ii) disclose any Confidential Information to any Person other than the Holdco Group. Notwithstanding anything herein to the contrary, the Restricted Parties may disclose Confidential Information, (a) to a Governmental Authority to the extent required by applicable, final, nonappealable order or Legal Requirement and (b) pursuant to valid legal process, deposition, interrogatory, request for documents, subpoena, civil investigative demand, administrative proceeding or similar process; provided, that with respect to clause (a) and clause (b), prior to making any such disclosure of Confidential Information subject to this Section 3, the Restricted Party shall, to the extent legally permissible, provide Holdco or Braves with reasonably prompt notice of such request or requirement of disclosure so that Holdco or Braves may seek, at its sole cost and expense, an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Section 3, and, in the absence of a protective order or other remedy, the Restricted Party may disclose that portion (and only that portion) of such information that, based on advice of counsel, the Restricted Party is legally required to disclose.
4. Non-Disparagement. Each Restricted Party agrees that such Restricted Party shall not, directly or indirectly (including through another Person, including its Family Group or any Affiliate) make, or cause to be made, any statement or communicate any information (whether oral or written) that disparages, defames, or harms the reputation or business of, any member of the Holdco Group or Persons who are former, present or future directors, managers, officers, equity holders, executives or related persons of the Holdco Group; provided, that such Restricted Party’s obligations under this paragraph shall not apply to disclosures required by applicable Legal Requirement.
5. Consideration. The execution and delivery of this Agreement by each Restricted Party is in consideration of Holdco’s consummation and closing of the transactions contemplated by this Agreement and the Merger Agreement and the consideration payable to such Restricted Party in connection therewith. Such Restricted Party acknowledges that Holdco would not engage in the transactions contemplated by this Agreement and Braves would not engage in the transactions contemplated by the Merger Agreement unless the Restricted Parties agree to the covenants, agreements, understandings and restrictions contained in this Agreement.
6. Remedies. Each Restricted Party acknowledges and agrees that any breach or threatened breach by such Restricted Party of any of the restrictive covenants in this Agreement could give rise to irreparable injury to Holdco and Braves and that the value of the transactions contemplated hereby and in the Merger Agreement to Holdco and Braves would be diminished, each of which might be inadequately compensable in monetary damages. Accordingly, Holdco may seek (a) equitable relief, including injunctive relief and specific performance, and (b) any other legal remedies which may be available under the terms of this Agreement, including, without limitation, recovery of all attorneys’ fees and costs incurred by Holdco in obtaining relief from such Restricted Party’s breach or threatened breach. Each Restricted Party further acknowledges that Holdco may pursue any remedy available hereunder concurrently or consecutively in any order as to any breach, violation, or threatened breach or violation, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. The duration of the Restricted Period shall be tolled and suspended for any period that a Restricted Party is in violation of these covenants, to the fullest extent allowed by Legal Requirement.
7. Severability. If any term or other provision of this Exhibit is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any of the Restricted Party or Holdco. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
| I-1 |
Exhibit J
Form of Lock-Up Agreement
LOCK-UP AGREEMENT1
This Lock-Up Agreement (this “Agreement”) is entered into as of [_____________] by and between the undersigned and Clinigence Holdings, Inc., a Delaware corporation (“Parent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as such term is defined below).
RECITALS
WHEREAS, prior to or concurrently with the execution of this Agreement, Nutex Health Holdco LLC, a Delaware limited liability company (the “Company”), Parent and [Nutex Acquisition LLC], a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), are entering into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), upon the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the Merger Agreement, each [unit] in the Company issued and outstanding immediately prior to the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or such later date or time as agreed by the Company and Parent in writing and specified in the certificate of merger in accordance with the Delaware General Corporation Law and Limited Liability Company Act of the State of Delaware, as amended, the “Effective Time”) but after the consummation of the Contribution Transaction shall be converted into the right to receive [_____] fully paid and nonassessable shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”); and
WHEREAS, pursuant to the Merger Agreement and as a condition to the willingness of Parent and Merger Sub to consummate the Merger, Parent and Merger Sub have required that the undersigned agree to enter into this Agreement, which, among other things, restricts the sale, assignment, transfer, encumbrance or other disposition of the Covered Securities (as such term is defined below).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up of Securities.
(a) Lock-Up. In recognition of the benefit that the Merger will confer upon the undersigned, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that:
(i) during the period commencing on the Effective Time and including the date that is six (6) months from the Effective Time (the “First Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Covered Securities whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Covered Securities, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise (each of the foregoing, a “Transfer”);
(ii) during the period commencing on the first calendar day following the end of the First Lock-Up Period to and including the date that is twelve (12) months from the Effective Time (the “Second Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than one-third (1/3) of the Covered Securities; and
(iii) during the period commencing on the first calendar day following the end of the Second Lock-Up Period to and including the date that is eighteen (18) months from the Effective Time (the “Third Lock-Up Period” and collectively with the First Lock-Up Period and Second Lock-Up Period, the “Lock-Up Periods”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than two-thirds (2/3) of the Covered Securities.
For the purposes of the Agreement, “Covered Securities” shall mean, with respect to the undersigned, any of the following: (i) any and all shares of Parent Common Stock which are owned by the undersigned as of the Effective Time, (ii) any shares of Parent Common Stock issuable upon exercise, conversion or exchange of any securities of the Parent which are owned by the undersigned as of the Effective Time, (iii) any securities of the Parent issued in respect of the shares of Parent Common Stock issued or issuable to the undersigned by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Parent Common Stock issuable upon conversion, exercise or exchange thereof, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time and (iv) any other securities of the Parent issued or issuable to undersigned that are convertible into or exercisable or exchangeable for Parent Common Stock, whether at the option of the undersigned or otherwise, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time.
(b) Permitted Transfers. Notwithstanding the foregoing, the undersigned may Transfer the Covered Securities to a Permitted Transferee without the prior written consent of Parent, provided that (i) Parent receives a signed lock-up agreement in substantially the same form as this Agreement for the balance of the Lock-Up Periods from each donee, trustee, distributee, or transferee, as the case may be, (ii) any such Transfer shall not involve a disposition for value, (iii)if any filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Parent Common Stock in connection with such Transfer shall be legally required prior to the expiration of the Third Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such Transfer, and (iv) the undersigned does not otherwise voluntarily effect any public filing or report regarding such Transfers. For the purposes of this Agreement, “Permitted Transferee” means (1) if the undersigned is an individual (x) a member of the undersigned’s immediate family (which shall mean any relationship by blood, not more remote than first cousin, marriage, domestic partnership or adoption) or a trust, corporation, partnership or limited liability company for the benefit of an immediate family member of the undersigned, all of the beneficial interests of which shall be held by the undersigned or one or more members of the undersigned’s immediate family and (y) the undersigned’s heirs, successors, administrators and executors and any beneficiary of the undersigned pursuant to will or other testamentary document or applicable laws of decent, (2) any Affiliate of the undersigned, (3) if the undersigned is a trust, to a trustee or beneficiary of the trust, or (4) if the undersigned is an individual, an entity or a trust, to any institution qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a bona fide gift or gifts.
(c) Stop Transfer. During the Lock-Up Periods, undersigned hereby authorizes Parent to cause any transfer agent for the Covered Securities subject to this Agreement to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities, subject to this Agreement for which the undersigned is the record holder and, in the case of Covered Securities subject to this Agreement for which the undersigned is the beneficial owner but not the record holder, agrees during the Lock-Up Periods to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities subject to this Agreement, if such transfer would constitute a violation or breach of this Agreement.
2. Termination. This Agreement shall automatically terminate and be of no further force or effect upon the earlier to occur of (i) the termination of the Merger Agreement and (ii) the first day following the expiration of the Third Lock-Up Period; provided that Sections 3 through 16 of this Agreement shall survive termination under this Section 2.
3. Transfer; Successor and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. As provided above, any Transfer of Parent Common Stock shall not be effective unless such transferee executes a lock-up agreement in substantially the same form as this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4. Compliance with Securities Laws. The undersigned shall not, at any time make any Transfer, except (i) Transfers pursuant to an effective registration statement under the Securities Act, (ii) Transfers pursuant to the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or (iii) if the undersigned shall have furnished Parent with an opinion of counsel, if reasonably requested by Parent, which opinion and counsel shall be reasonably satisfactory to Parent, to the effect that such Transfer is otherwise exempt from registration under the Securities Act, and in each of (i)-(iii), that such Transfer otherwise complies with the terms of this Agreement.
5. Other Restrictions.
(a) Legends. The undersigned hereby agrees that each outstanding certificate evidencing shares of Parent Common Stock issued to the undersigned shall bear legends reading substantially as follows:
(i) “THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(ii) “THE SALE OR TRANSFER OF THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF A LOCK-UP AGREEMENT DATED [_____________], BETWEEN THE COMPANY AND THE STOCKHOLDER LISTED ON THE FACE HEREOF. A COPY OF SUCH LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE HOLDER HEREOF UPON REQUEST THEREOF. NO TRANSFER OF THE SHARES EVIDENCED HEREBY WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP AGREEMENT.”
(b) Termination of Restrictive Legends. The restrictions referred to in Section 5(a)(i) hereof shall cease and terminate as to Parent Common Stock (i) when, in the opinion of counsel for Parent, such restriction is no longer required in order to assure compliance with the Securities Act or (ii) when such shares shall have been Transferred in accordance with and pursuant to Rule 144 under the Securities Act or effectively registered under the Securities Act. The restrictions referred to in Section 5(a)(ii) hereof shall cease and terminate at the end of the Lock-Up Periods. Whenever any restrictions under Section 5(a) shall cease and terminate as to any Parent Common Stock, the undersigned shall be entitled to receive from Parent, in exchange for a legended stock certificate then held thereby, without expense (other than applicable transfer fees and taxes, if any, if such unlegended shares are being delivered and Transferred to any person other than the registered holder thereof), a new stock certificate for the same number of shares of Parent Common Stock not bearing the legend set forth in Section 5(a) which have ceased and terminated. As a condition to providing any such new certificate without the legend set forth in Section 5(a)(i) hereof, Parent may require from the undersigned a certificate or an opinion of counsel of the undersigned with respect to any relevant matters in connection with removal of such legend, which certificate or opinion of counsel will be satisfactory to Parent.
(c) Copy of Agreement. A copy of this Agreement shall be filed with the corporate secretary of Parent, shall be kept with the records of Parent and shall be made available for inspection by any stockholder of Parent. In addition, a copy of this Agreement shall be filed with Parent’s transfer agent of record.
(d) Recordation. Parent shall not record upon its books any Transfer to any person except Transfers in accordance with this Agreement.
6. No Other Rights. The undersigned understands and agrees that Parent is under no obligation to register the sale, Transfer or other disposition of the undersigned’s Covered Securities under the Securities Act or to take any other action necessary in order to ensure compliance with an exemption from such registration is available.
7. Amendments and Waivers. This Agreement may not be amended, supplemented or modified except by an agreement in writing signed by the undersigned and Parent. Either party hereto may waive compliance by the other party hereto with any term or provision of this Agreement; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No such waiver shall be effective unless such waiver is in writing and is signed by the party hereto asserted to have granted such waiver.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
9. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures. This Agreement shall become effective when both parties hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party hereto has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party hereto shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
10. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
11. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) when delivered personally or by email (with confirmation of receipt), (ii) one (1) Business Day following the day when deposited with a reputable, established overnight courier service for delivery to the intended addressee, or (iii) three (3) Business Days following the day when deposited with the United States Postal Service as first class, registered or certified mail, postage prepaid and addressed as set forth on such party’s signature page hereto. Either party hereto may alter its notice address by notifying the other party hereto of such change of address in conformity with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
13. Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to as a remedy for any such breach, prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
14. Recapitalizations and Exchanges Affecting Shares. Except as otherwise provided in Section 1(b), the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Covered Securities, and to any and all shares of capital stock or equity securities of Parent which may be issued by reason of any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification or otherwise.
15. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party to this Agreement shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party to this Agreement of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder shall be cumulative and not alternative.
16. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
[Signature Page Follows]
| J-1 |
IN WITNESS WHEREOF, the parties hereto have executed this Lock-Up Agreement as of the date first written above.
PARENT:
CLINIGENCE HOLDINGS, INC.
By:
Name:
Title:
Address:
Facsimile:
Attention:
[_____________]:
(Signature)
Address:
Facsimile:
1 To be executed prior to the issuance of the shares in the Merger by owners of: (1) Mature hospitals (full issuance), (2) Ramping Hospital (initial issuance only) and (3) Under Construction Hospitals (initial issuance only)
| J-2 |
(Mature Hospitals)
Contribution Agreement
By And Among
Nutex Health Holdco LLC,
The Owners Listed on the Signature Pages Attached Hereto
and
The Owners’ Representative
November 23, 2021
| i |
TABLE OF CONTENTS
| ARTICLE 1 DEFINITIONS | 1 |
| 1.1. Definitions | 1 |
| 1.2. Construction | 2 |
| ARTICLE 2 CONTRIBUTION; CLOSING | 2 |
| 2.1. Contribution | 2 |
| 2.2. Consideration | 2 |
| 2.3. Closing | 2 |
| 2.4. Closing Deliveries | 3 |
| 2.5. Merger Agreement | 4 |
| 2.6. Equity Consideration Adjustment—Updated Financial Information | 5 |
| 2.7. Equity Consideration Adjustment—Debt | 5 |
| ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE OWNERS | 6 |
| 3.1. Authority; Enforceability | 6 |
| 3.2. No Conflict | 7 |
| 3.3. Ownership | 7 |
| 3.4. Accredited Investor Status; Investment Intent | 8 |
| ARTICLE 4 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND THE BUSINESS | 9 |
| 4.1. Organization | 9 |
| 4.2. Qualification | 9 |
| 4.3. No Conflict | 9 |
| 4.4. Capitalization | 10 |
| 4.5. Merger Agreement Representations | 10 |
| 4.6. Fees and Commissions | 11 |
| ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HOLDCO | 11 |
| 5.1. Organization; Authority | 11 |
| 5.2. No Conflict | 11 |
| 5.3. Fees and Commissions | 12 |
| ARTICLE 6 COVENANTS | 12 |
| 6.1. Covenants Regarding Conduct of the Company | 12 |
| 6.2. Information, Access and Assistance | 13 |
| 6.3. Public Announcements | 13 |
| 6.4. Consents; Further Assurances | 13 |
| 6.5. Waiver, Release and Discharge | 14 |
| 6.6. Consent and Waiver of Organizational Documents | 15 |
| 6.7. Transfer Taxes | 15 |
| 6.8. Restrictive Covenants | 15 |
| 6.9. Shift Guaranty Agreements | 15 |
| 6.10. Guaranty Obligations | 15 |
| ARTICLE 7 CONDITIONS TO CLOSING | 16 |
| 7.1. Holdco’s Closing Conditions | 16 |
| 7.2. The Owners’ Closing Conditions | 17 |
| ARTICLE 8 TERMINATION | 18 |
| 8.1. Termination Rights | 18 |
| 8.2. Effect of Termination | 19 |
| ARTICLE 9 INDEMNIFICATION | 19 |
| 9.1. Indemnification by the Owners | 19 |
| 9.2. Indemnification by Holdco | 20 |
| 9.3. Claim Procedures | 20 |
| 9.4. Third Party Claims and Direct Claims | 20 |
| 9.5. Survival | 22 |
| 9.6. Limitations | 23 |
| 9.7. Sources of Recovery | 23 |
| 9.8. Express Negligence; Limitations on Defense | 24 |
| 9.9. Exclusive Remedy | 24 |
| 9.10. Materiality Qualifiers | 24 |
| ARTICLE 10 OWNERS’ REPRESENTATIVE | 25 |
| 10.1. Appointment of Owners’ Representatives | 25 |
| 10.2 Additional Provisions | 26 |
| ARTICLE 11 MISCELLANEOUS | 27 |
| 11.1. Notices | 27 |
| 11.2. Headings | 28 |
| 11.3. Amendments | 28 |
| 11.4. Rights; No Waiver | 28 |
| 11.5. Entire Agreement | 28 |
| 11.6. Successors and Assigns; Assignment | 29 |
| 11.7. Counterparts | 29 |
| 11.8. Governing Law, Venue and Severability, Jury Trial Waiver | 29 |
| 11.9. Remedies | 30 |
| 11.10. Transaction Expenses | 30 |
| 11.11. Rules of Construction | 30 |
| ii |
(Mature Hospitals)
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Holdco”), each of the owners listed on the signature pages attached hereto (each, an “Owner” and collectively the “Owners”), and Thomas T. Vo as the Owners’ Representative (as hereinafter defined). Each of Holdco and the Owners is referred to individually herein as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, the Owners collectively own certain of the issued and outstanding Equity Interests of [______________], a [_________] limited liability company (the “Company”);
WHEREAS, the Company is currently engaged in the business of owning and operating a specialty hospital and/or stand-alone emergency room clinic and hospital located at [__________] (the “Business”);
WHEREAS, concurrently with the execution of this Agreement, Holdco is entering into a merger (the “Merger”) with Clinigence Holdings, Inc., a publicly traded Delaware corporation (“CLNH”), pursuant to the terms of the Merger Agreement;
WHEREAS, in accordance with and subject to the terms and conditions of this Agreement, at the Closing, each of the Owners desires to contribute to Holdco, and Holdco desires to accept, all of their respective Equity Interests in the Company listed on the signature pages attached hereto under the heading “Contributed Interests” (collectively, the “Membership Interests”) in exchange for the issuance by Holdco to each such Owner of certain Units in Holdco described in Section 2.2 hereto, subject to adjustment in accordance with the terms herein; and
WHEREAS, the Parties are making certain representations, warranties, covenants and indemnities herein as an inducement to the other Parties to enter into this Agreement.
NOW, THEREFORE, in consideration of the terms, provisions and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
AGREEMENTS
ARTICLE
1
DEFINITIONS
1.1. Definitions. In addition to the terms defined in the body of this Agreement, capitalized terms used herein shall have the meanings given to them in Exhibit A attached hereto.
| 1 |
1.2. Construction. Unless the context requires otherwise: (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine, and neuter; (b) references to Articles and Sections refer to articles and sections of this Agreement unless expressly provided otherwise; (c) references to Exhibits and Schedules are to exhibits and schedules attached to this Agreement, each of which is incorporated herein and made a part of this Agreement for all purposes; (d) references to money refer to legal currency of the United States of America; (e) words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires; (f) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (g) references to “have delivered to Holdco”, “have provided to Holdco” or “have made available to Holdco” (or similar references, and with any correlative word or phrase) means was provided directly to Holdco or its Representatives, in either tangible or electronic form, or made available to Holdco or its Representatives in a virtual data room made available for purposes of the transactions contemplated by this Agreement at least two (2) Business Days prior to the date hereof; and (h) with respect to the Business or the Company, the term “ordinary course of business” will be deemed to refer to the ordinary conduct of the Company’s business in a manner consistent with the past practices of the Owners. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.
ARTICLE
2
CONTRIBUTION; CLOSING
2.1. Contribution. Upon the terms and subject to the conditions of this Agreement, effective as of the Closing Date, in exchange for the consideration provided in Section 2.2 below, at the Closing, the Owners shall contribute, transfer, assign, convey and deliver to Holdco, and Holdco shall accept, receive and acquire from the Owners, all of the Membership Interests, free and clear of all Liens (other than any transfer restrictions imposed by any Legal Requirement or the Company’s Organizational Documents).
2.2. Consideration. As the aggregate consideration for the contribution of the Membership Interests by the Owners to Holdco, subject to Section 2.6 and Section 2.7 hereof, Holdco shall issue at the Closing the number and class of Units to each Owner as set forth on Schedule 2.2 attached hereto and listed across from such Owner’s name, in each case subject to the terms and restrictions of the Holdco LLC Agreement (collectively, as the same may be adjusted pursuant to Section 2.6 and Section 2.7 hereof, the “Equity Consideration”).
2.3. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Locke Lord LLP, 600 Travis Street, Suite 2800, Houston, Texas 77002, on the third (3rd) Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties set forth in Article 7 (other than those conditions that, by their nature, are to be satisfied only at the Closing Date, but subject to the satisfaction or valid waiver of such conditions at the Closing in accordance with this Agreement), or such other date as the Owners’ Representative and Holdco may mutually agree in writing (the date on which the Closing occurs is referred to herein as the “Closing Date”); provided, however, the Parties need not attend the Closing in person, and the delivery of all documents and funds as described in Section 2.4 may be handled by wire transfer and electronic mail or by facsimile transmission. The Closing shall be deemed effective immediately prior to the consummation of the Merger.
| 2 |
2.4. Closing Deliveries.
(a) Owners’ Closing Deliveries. At the Closing, the Owners’ Representative, on behalf of the Owners, shall deliver, or cause to be delivered, to Holdco, as applicable:
(i) contribution and assignment agreements, in substantially the form attached hereto as Exhibit B, effecting the contribution and assignment by the Owners to Holdco of the Membership Interests (the “Assignment Agreements”), duly executed by each of the Owners;
(ii) a counterpart signature page or joinder agreement (in form and substance reasonably satisfactory to Holdco) to the Holdco LLC Agreement, duly executed by each of the Owners;
(iii) duly executed copies of the consents and approvals required for the consummation of the transactions contemplated by this Agreement, including those listed on Schedule 2.4(a)(iii);
(iv) certificates in the form prescribed by Treasury Regulation Section 1.1445-2(b)(2) and Section 1446(f)(2) to the effect that each of the Owners is not a foreign person, in substantially the form attached hereto as Exhibit D-1, D-2 or D-3, as applicable, duly executed by each of the Owners;
(v) a certificate from a duly authorized officer of the Company certifying to and providing copies of (A) the Company’s Organizational Documents as in effect at the Closing (including all amendments thereto); and (B) a good standing certificate or the equivalent issued by secretary of state of the jurisdiction of organization of the Company and in each jurisdiction in which the Company is qualified to do business, in each case, dated within ten (10) days of the Closing Date;
(vi) written resignations of the officers and directors or managers of the Company, dated effective as of the Closing Date;
| 3 |
(vii) a certificate, dated as of the Closing Date, signed by the Owners’ Representative (on behalf of the Owners), certifying that the conditions set forth in Section 7.1(a), Section 7.1(b) and Section 7.1(c) have been satisfied; and
(viii) a lock up agreement with CLNH, in substantially the form attached hereto as Exhibit I, duly executed by each of the Owners;
(ix) such other documents as reasonably requested by Holdco or the Owners’ Representative or required to consummate the transactions contemplated by this Agreement or required in connection with the Merger Agreement.
(b) Holdco’s Closing Deliveries. At the Closing, Holdco will deliver, or cause to be delivered, the following:
(i) to the Owners, the Equity Consideration in accordance with Section 2.2;
(ii) to the Owners’ Representative, a certificate, dated as of the Closing Date, signed by an authorized representative of Holdco, certifying that the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied;
(iii) to the Owners, evidence of the assumption of the Guaranty Obligations by Holdco and a written guaranty in connection with the same, duly executed by Holdco, as applicable; and
(iv) such other documents as reasonably requested by the other Parties or required to consummate the transactions contemplated by this Agreement.
2.5. Merger Agreement.
(a) Each Owner has reviewed, and by his, her or its execution hereof, hereby approves and authorizes the Merger Agreement and the other transaction documents contemplated or referenced therein or otherwise required to consummate the transactions contemplated therein. Each Owner has reviewed the representations, warranties, covenants and indemnities and other terms and conditions set forth in the Merger Agreement and has provided to Holdco true, correct and complete disclosures required under the Merger Agreement with respect to the Company, as applicable. Each Owner, on his, her or its own behalf and on behalf of the Company, and, after the consummation of the transactions contemplated by this Agreement, on behalf of Holdco, hereby (i) deems it to be in the best interest of the Company and, after the consummation of the transactions contemplated by this Agreement, in the best interest of Holdco, for Holdco to enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement, including the Merger, (ii) consents to, votes for and raises no objections against the Merger or the process pursuant to which the Merger was arranged, (iii) waives any dissenters, appraisal and similar rights with respect to the Merger, if any, and (iv) agrees that he, she or it shall take all necessary and reasonably desirable actions in connection with the consummation of the transactions contemplated by the Merger Agreement, including the Merger in accordance with the terms and provisions of the Merger Agreement.
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(b) Each Owner shall (and shall cause the Company to) comply with all of the statements, covenants and obligations contained in Article IV of the Merger Agreement with respect to the Owners and/or the Company, as applicable.
2.6. Equity Consideration Adjustment—Updated Financial Information. The Parties acknowledge and agree that the Equity Consideration listed on Schedule 2.2 attached hereto was determined based on the Company’s internally prepared financial information for the twelve months ended September 30, 2021 and Holdco’s preliminary unaudited financial information as of September 30, 2021, both as available on the date of this Agreement (the “Preliminary Financial Information”) and set forth on Exhibit F attached hereto. The Parties further acknowledge and agree that such Preliminary Financial Information is subject to standard review by the Holdco’s independent outside auditors which is expected to be complete on or about December 15, 2021 (the “Updated Financial Information”). In connection therewith, the Parties acknowledge and agree that (a) to the extent that the Updated Financial Information results in adjustments or revisions to the Preliminary Financial Information and (b) such adjustments or revisions cause increases or decreases with respect to any individual Owner’s Equity Consideration by more than ten percent (10%) of the Equity Consideration of such Owner described on Schedule 2.2 attached hereto, then the Owners’ Representative shall provide written notice of such proposed change in such Owner’s Equity Consideration to such Owner(s) within ten (10) days of the receipt by the Owners’ Representative of the Updated Financial Information (such notice, an “Equity Consideration Adjustment Notice”). Each such Owner who receives an Equity Consideration Adjustment Notice shall have ten (10) days after receipt of the Equity Consideration Adjustment Notice to, by written notice to the Owners’ Representative, (i) elect to proceed with the consummation of the transactions contemplated by this Agreement and the Merger Agreement, in which case, (x) such Owner shall continue to be party and subject to and bound by all of the terms and provisions provided in this Agreement and (y) such Owner’s final Equity Consideration shall be updated based on the Updated Financial Information pursuant to this Section 2.6 accordingly, or (ii) elect to terminate such Owner’s participation in the transactions contemplated by this Agreement and the Merger Agreement, in which case such Owner shall continue to be bound by the terms and provisions provided in Section 6.5 and Section 6.6 hereof, which shall remain in full force and effect in respect of such Owner, notwithstanding anything herein to the contrary, but shall otherwise have no further rights or obligations in connection with this Agreement, the Merger Agreement or the transactions contemplated hereby or thereby.
2.7. Equity Consideration Adjustment—Debt. To the extent that the Company has any Debt outstanding at or immediately prior to the Closing, the aggregate Equity Consideration shall be adjusted at the Closing downwards, pro-rata among the Owners, on a dollar for dollar basis based on the aggregate Debt outstanding.
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ARTICLE
3
REPRESENTATIONS AND WARRANTIES OF THE OWNERS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally, represents and warrants to Holdco that the statements contained in this Article 3 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
3.1. Authority; Enforceability. Such Owner that is not an individual is duly organized and validly existing under the laws of its jurisdiction of formation. Such Owner that is not an individual has the requisite limited partnership, limited liability company, or corporate power and authority, as applicable, to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Transaction Agreements to which such Owner is a party and the consummation by such Owner that is not an individual of the transactions contemplated hereunder and thereunder have been duly authorized and approved by all necessary partnership, company, or corporate action, as applicable, on the part of such Owner. Such Owner that is an individual has all necessary authority and legal capacity to execute and deliver this Agreement and the Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party by such Owner, the performance by such Owner of all the terms and conditions hereof and thereof to be performed by such Owner and the consummation of the transactions contemplated hereby and thereby by such Owner have been duly authorized and approved by all requisite action on the part of such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party have been duly executed and delivered by such Owner. This Agreement and the other Transaction Agreements to which such Owner is a party constitute the valid and binding obligations of such Owner, each enforceable against such Owner in accordance with the terms thereof (assuming the due authorization, execution and delivery thereof by the other parties thereto), subject to applicable bankruptcy, insolvency or other similar laws relating to or affecting the enforcement of creditors’ rights generally and general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity) (collectively, the “Equitable Principles”).
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3.2. No Conflict.
(a) Except as set forth on Schedule 3.2, the execution and delivery of this Agreement and the other Transaction Agreements to which such Owner is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of such Owner or any resolution or written consent adopted by the member, board of managers or other governing authority of such Owner, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which such Owner is a party or by which any assets of such Owner are bound, or cause the creation of any Lien upon such Owner or any of the assets of such Owner, including the Membership Interests; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by such Owner with any Governmental Authority pursuant to any Legal Requirement applicable to such Owner; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which such Owner is a party or by which such Owner or any of his, her or its respective assets are bound.
(b) Such Owner has obtained all necessary consents, authorizations, approvals and orders, and has made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by such Owner in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of such Owner, if applicable, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by such Owner in order to execute and deliver this Agreement and the Transaction Agreements to which such Owner is a party and to consummate the closing of the transactions contemplated herein and therein.
3.3. Ownership. Such Owner owns, legally and of record, all of the Equity Interests in the Company as set forth opposite such Owner’s name on Schedule 3.3, which such Equity Interests constitute in the aggregate all of the issued and outstanding Equity Interests of the Company owned by such Owner. With the exception of any liens or security interests set forth on Schedule 3.3 hereto, all of such Equity Interests have been duly authorized and validly issued and are fully paid and nonassessable. Such Owner does not own any other interests in the Company, nor does he, she or it have an option, warrant, equity appreciation right, convertible security or other contractual right or security (whether or not currently exercisable) to acquire any such interests.
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3.4. Accredited Investor Status; Investment Intent.
(a) Each of the Owners understands that the Units to be acquired by such Owner pursuant to this Agreement will not be registered under the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder. Such Owner also understands that such Units are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon such Owner’s representations contained in this Agreement.
(b) Such Owner represents that he, she or it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D of the Securities Act, or that such Owner (i) has adequate means of providing for current needs and personal contingencies and has no need to sell the Units in the foreseeable future (that is, at the time of this Agreement, such Owner can afford to hold the Units for an indefinite period of time); (ii) has sufficient knowledge and experience in business and financial matters to be able to evaluate the risks and merits of an investment in the Units, (iii) has the capacity to understand the merits and risks associated with an investment in the Units or (iv) is a member of Holdco’s management and/or is familiar with Holdco, its financial condition and operations. Such Owner understands that he, she or it must bear the economic risk of this investment indefinitely unless the Units are registered pursuant to the Securities Act, or an exemption from registration is available. Such Owner understands that Holdco has no present intention of registering the Units held by such Owner. Such Owner also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Owner to transfer all or any portion of the Units held by such Owner under the circumstances, in the amounts or at the times that such Owner might propose.
(c) With the exemption of the contemplated exchange of the Units in the Merger, the Units issued to such Owner are being acquired for such Owner’s own account and for the purpose of investment, and not with the view to, or for resale in connection with, any distribution or public offering thereof in violation of the Securities Act or other applicable federal or state securities laws and the rules and regulations promulgated thereunder.
(d) Such Owner has had sufficient time to review the Preliminary Financial Information, the Merger Agreement and the Risk Factors attached as Exhibit G hereto, has had ample opportunity to conduct inquiries and discussions satisfactory to such owner with respect to the transactions contemplated herein and in the Merger Agreement. Further, such owner acknowledges that such owner has the right to be represented by separate legal, financial and tax advisors.
(e) The representations of such Owner set forth in this Section 3.4 are made for the purpose of complying with Regulation D of the Securities Act.
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ARTICLE
4
REPRESENTATIONS AND WARRANTIES RELATING
TO THE COMPANY AND THE BUSINESS
Except as otherwise described in the Disclosure Schedules attached hereto or the disclosure schedules attached to the Merger Agreement applicable to the Company, each Owner, severally on such Owner’s own behalf and not jointly and severally for or on behalf of any other Owner, represents and warrants to Holdco that the statements contained in this Article 4 are true and correct as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
4.1. Organization.
(a) The Company has been duly organized and validly formed as a limited liability company organized under the laws of the State of [_______] and is validly existing and in good standing thereunder. The Company has all requisite power and authority to own and operate its property and assets and to conduct the Business as it is currently being conducted. The Owners have made available to Holdco true and complete copies of each of the Company’s Organizational Documents. The Company does not have any direct or indirect Subsidiaries nor does it own, directly or indirectly, any capital of or other equity interest in or have any other investment in any other Entity.
(b) Except as set forth on Schedule 4.1(b), the Company has not conducted the Business under or otherwise used, for any purpose in any jurisdiction, any “d/b/a,” fictitious name, assumed name, trade name or other name.
4.2. Qualification. The Company is duly qualified and in good standing to do business in each jurisdiction in which the nature of the Business or the ownership, operation or leasing of its assets makes such qualification necessary.
4.3. No Conflict.
(a) Except as reflected on Schedule 4.3(a), the execution of this Agreement and the other Transaction Agreements and the performance of the transactions contemplated hereby and thereby will not: (i) violate, conflict with or result in a default of any provision the Company’s Organizational Documents; (ii) violate or conflict with, result in a default under (or an event which, with notice or lapse of time or both, would result in a default) under any material Contract to which the Company is a party or by which any of the assets of the Company are bound, or cause the creation of any Lien upon the Company’s Equity Interests or any of the assets or business of the Company; (iii) violate or result in a violation of, or constitute a default under, any Legal Requirement by the Owners or the Company; or (iv) accelerate any obligation under, or give rise to a right of termination of any material Contract or material Permit to which the Company is a party or by which any of the assets of the Company are bound.
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(b) Except as set forth on Schedule 4.3(b), there are no authorizations, approvals and orders and no registrations, qualifications, designations, declarations or filings with any federal, state, or other relevant Governmental Authorities, required by such Governmental Authorities to be obtained by the Owners or the Company in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except as set forth on Schedule 4.3(c), neither the execution of this Agreement and the other Transaction Agreements nor the performance of the transactions contemplated hereby and thereby will (i) give rise to an acceleration of any amount payable by, or give rise to any additional payment by the Company or (ii) pursuant to a preferential purchase right, right of first refusal or offer, buy-sell arrangement or other provision, give any Person the right to acquire all or any part of equity or any of the assets or business of the Company.
4.4. Capitalization.
(a) Schedule 4.4(a) lists all of the issued and outstanding Equity Interests of the Company and the Persons who hold legal and record title to such Equity Interests. The Equity Interests listed on Schedule 4.4(a) constitute all of the issued and outstanding Equity Interests in the Company as applicable. All of such Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable.
(b) Except as set forth on Schedule 4.4(b), there are no Contracts obligating the Company (i) to issue, sell, pledge, dispose of or encumber any of its Equity Interests, or any securities convertible, exercisable or exchangeable into any Equity Interests of the Company, (ii) to redeem, purchase or acquire in any manner any class of any equity of the Company or any securities that are convertible, exercisable or exchangeable into any Equity Interests of the Company, or (iii) to make a distribution of any kind with respect to any of the equity of the Company. There are no outstanding or authorized equity appreciation, phantom stock, preemptive rights, approval rights, proxies, rights of first refusal, profit participation rights or similar rights affecting the Equity Interests of the Company. There are no voting trusts, proxies, or other similar agreements or understandings with respect to the voting or registration of the Company.
4.5. Merger Agreement Representations. The statements contained in Article VII of the Merger Agreement with respect to the Owners and/or the Company are true, accurate and complete as of the date of the Merger Agreement and as of the Closing Date (as defined under the Merger Agreement) (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date).
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4.6. Fees and Commissions. Except as set forth on Schedule 4.6, none of the Company nor the Owners has retained, or otherwise authorized to act, any finder, broker, agent, financial advisor or other similar intermediary (collectively “Intermediary”) in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that has resulted or may result in an obligation by the Company or Holdco to pay any fees or commissions to any broker or finder as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
5
REPRESENTATIONS AND WARRANTIES OF HOLDCO
Holdco represents and warrants to the Owners that the statements contained in this Article 5 are true, accurate and complete as of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty is true and correct as of such specific date):
5.1. Organization; Authority. Holdco is a limited liability company that is duly organized, validly existing and in good standing under the laws of the State of Delaware. Holdco has all requisite limited liability company power and authority to execute and deliver this Agreement and the other Transaction Agreements contemplated herein, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof and thereof to be performed by Holdco, as applicable. The execution and delivery of this Agreement and the other Transaction Agreements by Holdco, the performance by Holdco of all the terms and conditions hereof and thereof to be performed by Holdco and the consummation of the transactions contemplated hereby and thereby by Holdco have been duly authorized and approved by all requisite action on the part of Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party have been duly executed and delivered by Holdco. This Agreement and the other Transaction Agreements to which Holdco is a party constitute the legal, valid and binding obligations of Holdco (assuming the due authorization, execution and delivery thereof by the other Parties hereto and thereto other than Holdco), each enforceable against Holdco in accordance with the terms thereof, subject to Equitable Principles.
5.2. No Conflict.
(a) The execution and delivery of this Agreement and the other Transaction Agreements to which Holdco is a party and the performance of the transactions contemplated hereby and thereby will not (i) with the giving of notice, the lapse of time or both (i) conflict with, breach or result in a violation of or default under the Organizational Documents of Holdco or any resolution or written consent adopted by the member, board of managers or other governing authority of Holdco, (ii) violate, conflict with, result in a default (or an event which, with notice or lapse of time or both, would result in a violation, conflict or default or require consent under) or require consent under any material Contract or arrangement to which Holdco is a party or by which any assets of Holdco are bound, or cause the creation of any Lien upon any of the assets or limited liability company interests of Holdco; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, or require any consent or approval of any Governmental Authority or the filing of any notice or other instrument by Holdco with any Governmental Authority pursuant to any Legal Requirement applicable to Holdco; or (iv) accelerate any obligation under, or give rise to a right of termination of, any material Contract, Permit, license or authorization to which Holdco is a party or by which Holdco or any of its assets are bound.
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(b) Holdco has obtained all necessary consents, authorizations, approvals and orders, and have made all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by Holdco in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements.
(c) Except for approvals by the member and board of managers or other governing authority of Holdco, all of which have been obtained prior to the Closing Date, no consents, notices, authorizations or approvals of any Person (including, without limitation, any Governmental Authority) are required to be obtained by Holdco in order to execute and deliver this Agreement and the Transaction Agreements to which Holdco is a party and to consummate the closing of the transactions contemplated herein and therein.
5.3. Fees and Commissions. Neither Holdco nor any of its Affiliates has retained, or otherwise authorized to act, any Intermediary in connection with the transactions contemplated by this Agreement or entered into any Contract or other arrangement or understanding (written or oral, express or implied) with an Intermediary that may result in an obligation for Owners, the Company or Holdco to pay any fees or commissions to any Intermediary as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement.
ARTICLE
6
COVENANTS
6.1. Covenants Regarding Conduct of the Company. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing, except as (1) permitted or required by the other terms of this Agreement, the Transaction Agreements or the Merger Agreement, (2) described on Schedule 6.1, (3) required by any material Contract or material Permit, or (4) consented to or approved in writing by Holdco:
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(a) the Owners shall, and shall cause the Company to, adhere to Section 4.2(a) of the Merger Agreement with respect to the Company; and
(b) the Owners shall not and shall cause the Company not to, directly or indirectly, do or propose to do any of the items set forth in Section 4.2(b) of the Merger Agreement.
6.2. Information, Access and Assistance. From the date hereof through the earlier of the termination of this Agreement pursuant to Article 8 and the Closing Date, upon receipt of reasonable advance notice and in furtherance of Holdco’s investigation of the Company, the Owners will afford Holdco and its authorized Representatives reasonable access during normal business hours to the offices, properties, books and records, and Representatives of the Company who have significant responsibility in connection with the Business, and will furnish Holdco with such additional information directly concerning the Company’s businesses, properties and personnel as may reasonably be requested; provided further, Holdco shall, and shall cause its Representatives to, observe and comply with all material health, safety, and security requirements of the Company. Any inspection or investigation conducted by Holdco or its representatives prior to the Closing will be conducted in accordance with applicable Legal Requirements, and in such manner as not to interfere unreasonably with the business or operations of the Company.
6.3. Public Announcements. The Parties shall not, and shall not permit their Representatives to, make or release any public announcements or otherwise communicate with any news media with respect to this Agreement or the Merger Agreement, the consummation of the transactions contemplated herein or the Merger Agreement, including the Merger, the identity of the Parties or their Affiliates, or any of the agreements, documents and instruments to be entered into in connection herewith, in each case without the prior written approval of Holdco or the Owners’ Representative, as applicable. Notwithstanding the foregoing, (i) Holdco and its Representatives shall be entitled to disclose this Agreement or any of the agreements, documents and instruments to be entered into in connection herewith, to CLNH and its Representatives, and (ii) each Party may make such public announcement as its counsel or accountants reasonably believe is the minimum disclosure necessary to satisfy the Party’s or CLNH’s obligations under applicable securities law (in which case the disclosing Party shall advise the other Party and provide it with a copy of the proposed disclosure or filing prior to making the disclosure or filing).
6.4. Consents; Further Assurances. The Parties shall execute and deliver to the other, from and after the date hereof, any other agreement or instrument which may be reasonably requested by the other and which is reasonably appropriate to perfect or evidence any of the sales, assignments, contributions, transfers or conveyances contemplated by this Agreement or the Merger Agreement. From and after the date hereof, the Parties shall also cooperate with one another and use commercially reasonable efforts to obtain any third party consents and Permits necessary for Holdco and its Affiliates (including after the Closing, the Company) to continue to operate the Business in substantially the same manner operated by the Owners prior to the Closing Date, and to do any and all such further acts and things as may be reasonably necessary to effect completely the intent of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, to the extent the Parties consummate the transactions contemplated hereby prior to obtaining a third party consent required in connection with the other transactions contemplated by this Agreement, the Owners shall use commercially reasonable efforts to take such actions as may be possible without violation or breach of any such non-assignable material Contract or Permits to effectively provide Holdco with the economic benefits of such material Contracts and Permits.
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6.5. Waiver, Release and Discharge. Effective as of the Closing, except for (i) the Retained Rights and (ii) as set forth in this Section 6.5, each of the Owners does hereby unconditionally and irrevocably, on behalf of itself, and its Affiliates, shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, agents, advisors and each of their respective successors, assigns, and any other Person claiming by, through or under any of the foregoing (each, a “Releasing Party”), release, acquit and forever discharge Holdco and the Company and their respective past and present shareholders, members, partners, equityholders, owners, officers, directors, managers, representatives, employees, advisors and each of their respective successors and assigns (the “Released Parties”), from any and all claims, actions, causes of action, suits, rights, debts, agreements, damages, injuries, losses, costs, expenses (including legal fees) and demands whatsoever and all consequences thereof, of every nature or description, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, whether existing as of the Closing or arising from actions or omissions occurring prior to the Closing, that any of Releasing Party ever had, now has or may in the future have against any of the Released Parties, in law or in equity, as a result of any act, transaction, agreement, event or omission (or any circumstances existing) on or prior to the Closing Date. Notwithstanding the foregoing to the contrary, the release set forth in this Section 6.5 shall not apply to (a) any rights, remedies, claims and causes of action related to the obligations of Holdco or the other Released Parties pursuant to this Agreement or the Transaction Agreements or any claims arising out of the transactions contemplated by this Agreement or (b) the Retained Rights. The term “Retained Rights” means, with respect to the Owners, (A) if such Owner is an employee of the Company, such Owner’s claims or rights to accrued compensation for services rendered to the Company in the ordinary course of business, (B) if such Owner is an employee of the Company, claims or rights to accrued compensation, benefits or other remuneration of the Owners, and (C) any claim arising from any rights of indemnification, contribution, advancement of expenses or insurance coverage or protection that the Owners have or had pursuant to the Organizational Documents of the Company. Each of the Owners understands that this is a full and final general release of all liabilities, duties and obligations of any nature whatsoever, whether or not known, suspected or claimed, that could have been asserted in any legal or equitable proceeding against the Released Parties to the extent relating to the matters in this Section 6.5.
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6.6. Consent and Waiver of Organizational Documents. By execution of this Agreement, each Owner hereby (a) approves, ratifies and consents to the transfer of the Membership Interest by each other Owner, as contemplated hereby, and (b) irrevocably WAIVES any and all rights of first refusal or other restrictions on transfer that such Owner may have pursuant to the Organizational Documents, or otherwise, and any notice rights or other similar rights associated therewith, with respect to the Membership Interest being transferred hereby.
6.7. Transfer Taxes. The Owners shall pay all Transfer Taxes, if any. Any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and timely filed by the Party required under applicable law to file such Tax Returns, and such Party shall provide such Tax Returns to the other Party at least ten (10) Business Days prior to the due date for such Tax Returns. The Parties shall cooperate in filing all necessary Tax Returns as relates to Transfer Taxes and providing each other with any appropriate resale exemption certifications and other similar documentation.
6.8. Restrictive Covenants. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees to be bound by the terms and provisions attached hereto as Exhibit H (collectively, the “Restrictive Covenants”).
6.9. Shift Guaranty Agreements. Each of the Owners, and to the extent applicable, the Doctor-Owner affiliated with such Owner and listed on the signature pages attached hereto, acknowledges and agrees that he, she or it shall continue to be bound by and subject to and shall comply with the terms and provisions of Section 10.7 or 10.8 of the Operating Agreement and/or such other provisions in the Operating Agreement, as applicable, which address such Owner’s and/or Doctor-Owner’s shift obligations or performance of service obligations with respect to the Facility or related facilities, as applicable, as if such Owner and/or Doctor-Owner were still a party to and subject to the terms and conditions of the Operating Agreement in all respects (the “Shift Guaranty”).
6.10. Guaranty Obligations. In connection with and effective as of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, Holdco will guaranty a pro rata percentage of the obligations under the real estate leases to which the Company is a party based on Holdco’s pro rata ownership of the Company immediately after the consummation of the transactions contemplated by this Agreement (the “Guaranty Obligations”). For avoidance of doubt, no Party shall be required to pay or be responsible for more than its pro rata share portion (based on ownership of the Company immediately after consummation of the transactions contemplated by this Agreement) of the obligations under such real estate leases. In the event that any Party is required to pay more than its pro rata portion in connection with the obligations under such real estate leases, the other Parties shall be responsible for and contribute to the overpaying Parties their respective pro rata portions of such obligations.
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ARTICLE
7
CONDITIONS TO CLOSING
7.1. Holdco’s Closing Conditions. Holdco’s obligations to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by Holdco), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of the Owners in Articles 3 and 4 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of the Owners set forth in this Agreement shall be true and correct (without giving effect to any “materiality,” “in all material respects,” “Material Adverse Effect” or other materiality-based qualifiers) as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date) except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” qualifiers set forth therein) does not, and would not reasonably be expected to, individually or in the aggregate, constitute a Material Adverse Effect.
(b) The Owners will have performed or caused the Company to have performed and complied in all material respects with all of the covenants required by this Agreement to be performed or complied with by them or it on or prior to the Closing Date.
(c) No Material Adverse Effect shall have occurred since the date hereof.
(d) Holdco shall have received (or the Owners or the Owners’ Representative shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(a).
(e) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(f) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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7.2. The Owners’ Closing Conditions. The obligations of the Owners to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or to the extent permitted by Legal Requirement, waiver by the Owners), at or prior to the Closing, of each of the following conditions:
(a) (i) The Fundamental Representations of Holdco in Article 5 shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), and (ii) all other representations and warranties of Holdco set forth in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties expressly speak as of a specified date, in which case such representations and warranties shall be true and correct in all respects on and as of such specified date), except in the case of clause (ii) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” qualifiers set forth therein) does not and would not reasonably be expected to, individually or in the aggregate, constitute a material adverse effect on Holdco.
(b) Holdco will have performed and complied in all material respects with all the covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) The Owners shall have received (or Holdco shall be ready, willing and able to deliver) all of the closing deliveries listed in Section 2.4(b).
(d) There will not be any action or proceeding before any Governmental Authority with respect to which an unfavorable Order would prohibit the consummation of the transactions contemplated by this Agreement or declare the consummation of the transactions unlawful or require the consummation of the transactions to be rescinded.
(e) The shareholders of CLNH shall have approved the Merger and CLNH shall be ready and willing to consummate the Merger subject only to the Closing of this Agreement or Holdco shall have entered into an alternative transaction with CLNH or a different third party and such third party is ready and willing to consummate the transaction prior to the Outside Date.
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ARTICLE
8
TERMINATION
8.1. Termination Rights. This Agreement may be terminated and the transactions contemplated hereunder abandoned at any time prior to the Closing as follows:
(a) by mutual written consent of the Owners’ Representative (on behalf of the Owners) and Holdco;
(b) by the Owners’ Representative (on behalf of the Owners) or Holdco if there shall be in effect a final non-appealable Order of a Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to the Owners’ Representative (on behalf of the Owners), on the one hand, or Holdco, on the other hand, if such Order was primarily due to the failure of the Owners, on the one hand, or Holdco, on the other hand, to perform any of their respective obligations under this Agreement;
(c) by the Owners’ Representative (on behalf of the Owners) in the event that there will have been a breach or inaccuracy of Holdco’s representations and warranties in this Agreement or a failure by Holdco to perform its covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.2(a) or Section 7.2(b) would not be satisfied (provided that none of the representations and warranties set forth in Article 3 or Article 4 will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.1(a) not to be satisfied and there has been no failure by the Owners to perform their covenants in such a manner as would cause the condition set forth in Section 7.1(b) not to be satisfied); provided, however, that the Owners’ Representative (on behalf of the Owners) will provide notice to Holdco as soon as practicable after becoming aware of any such breach, inaccuracy or failure of Holdco; and provided further, that if such breach, inaccuracy or failure is curable by Holdco through the exercise of its commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Holdco receives written notice of such violation or breach and the Outside Date) from the date Holdco receives notice of such breach, inaccuracy or failure from the Owners’ Representative (on behalf of the Owners), as long as Holdco continues to exercise such commercially reasonable efforts, the Owners’ Representative (on behalf of the Owners) may not terminate this Agreement under this Section 8.1(c) prior to the later of (x) the Outside Date or (y) the end of such 30-day period;
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(d) by Holdco in the event that there has been a breach or inaccuracy of the representations and warranties set forth in Article 3 or Article 4 or a failure by the Owners to perform their covenants in this Agreement, in any such case in a manner that the conditions to the Closing set forth in Section 7.1(a) or Section 7.1(b) would not be satisfied (provided that none of the representations and warranties of Holdco will have become and continue to be untrue in a manner that would cause the condition set forth in Section 7.2(a) not to be satisfied and there has been no failure by Holdco to perform its covenants in such a manner as would cause the condition set forth in Section 7.2(b) not to be satisfied); provided, however, that Holdco will provide notice to the Owners’ Representative as soon as practicable after becoming aware of any such breach or inaccuracy of the Owners; and provided further, that if such breach or inaccuracy is curable by the Owners through the exercise of commercially reasonable efforts then, for up to thirty (30) days (or any shorter period of time that remains between the date the Owners’ Representative (on behalf of the Owners) receives written notice of such violation or breach and the Outside Date) from the date the Owner receives notice of such breach or inaccuracy from Holdco, as long as the Owners continue to exercise such commercially reasonable efforts, Holdco may not terminate this Agreement under this Section 8.1(d) prior to the later of (x) the Outside Date or (y) the end of such 30-day period; or
(e) by either the Owners’ Representative (on behalf of the Owners) or Holdco following the Outside Date (as the same may be extended pursuant to the terms of this Agreement by mutual written agreement of the Owners’ Representative (on behalf of the Owners) and Holdco); provided that the right to terminate this Agreement under this Section 8.1(e) will not be available to any Party whose breach of any representation, warranty or covenant contained in this Agreement will have been the cause of, or will have resulted in, the failure of the Closing to occur on or before the Outside Date.
8.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, all obligations of the Parties will terminate, except for the provisions of this Section 8.2 and Article 10.
ARTICLE
9
INDEMNIFICATION
9.1. Indemnification by the Owners. Subject to the limitations and other terms of this Article 9, from and after the Closing, each Owner, severally on such Owner’s own behalf (based on such Owner’s pro rata ownership of the Company) and not jointly and severally for or on behalf of any other Owner, hereby agrees to and shall indemnify, defend and hold harmless Holdco and its Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Holdco Indemnitees”) from and against any and all Losses incurred by Holdco Indemnitees arising out of or resulting from:
(a) the failure of such Owner’s representations or warranties contained in Article 3 and Article 4 or any other Transaction Agreement to be true and correct;
(b) the failure of such Owner to perform any of covenants or obligations to be performed by such Owner individually under this Agreement or any other Transaction Agreement; and
(c) if applicable, any Real Estate Guaranty.
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9.2. Indemnification by Holdco. Subject to the other terms of this Article 9, from and after the Closing, Holdco hereby unconditionally, absolutely and irrevocably agrees to and shall indemnify, defend and hold harmless the Owners and their respective Affiliates and the partners, members, managers, directors, officers, shareholders, equityholders, employees, successors and assigns of the foregoing (collectively, the “Owner Indemnitees”), from and against any and all Losses arising out of or resulting from (a) the failure of Holdco’s representations or warranties contained in this Agreement or any other Transaction Agreement to be true and correct, and (b) the failure of Holdco to perform any of its covenants or obligations under this Agreement or any other Transaction Agreement.
9.3. Claim Procedures. Each Person entitled to be indemnified under this Article 9 (each, an “Indemnitee”) agrees that after it becomes aware of facts giving rise to a claim by it for indemnification pursuant to this Article 9, such Indemnitee must assert its claim for indemnification under this Article 9 (each, a “Claim”) by providing a written notice (a “Claim Notice”) to Holdco or to the Owners’ Representative, on behalf of Owners, as applicable, depending on which Parties are allegedly required to provide indemnification protection under this Article 9 (each, an “Indemnitor”), specifying, in reasonable detail, the nature and basis for such Claim and copies of all documents and a summary of all other information reasonably available in connection therewith. Notwithstanding the foregoing, an Indemnitee’s failure to send or delay in sending a Claim Notice will not relieve the Indemnitor from liability hereunder with respect to such Claim except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. The Indemnitor shall have thirty (30) days after its receipt of such notice to respond in writing to a Claim that is a third party claim. Indemnitee shall provide all information and copies of all documents reasonably requested by Indemnitor and shall reasonably cooperate with Indemnitor in connection with any Claim. If the Indemnitor does not respond to a third-party Claim Notice within such thirty (30)-day period, the Indemnitor shall be deemed to have rejected such Claim, in which case the Indemnitee shall be free to pursue such remedies as may be available to the Indemnitee on the terms and subject to the provisions of this Agreement.
9.4. Third Party Claims and Direct Claims.
(a) In the event of the assertion of any Claim for which, by the terms hereof, an Indemnitor is obligated to indemnify an Indemnitee where liability is assert against or sought to be collected from an Indemnitee by a third party (a “Third Party Claim”), the Indemnitor will have the right, at such Indemnitor’s expense, to assume the defense of same and, subject to the terms of this Section 9.4, the right to direct and control such defense, including the appointment and selection of counsel on behalf of the Indemnitee. Subject to Section 9.4(c), the Indemnitor will have the right to reasonably settle or compromise or take any corrective or remediation action with respect to any such Third Party Claim by all appropriate proceedings, which proceedings will be diligently and reasonably prosecuted by the Indemnitor to a final conclusion or settled at the discretion of the Indemnitor. The Indemnitee will be entitled, at its own cost, to participate with the Indemnitor in the defense of any such Third Party Claim.
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(b) If the Indemnitor accepts responsibility for any such Third Party Claim but fails to diligently prosecute such Claim, or if the Indemnitor does not accept responsibility for any such Third Party Claim, the Indemnitee may assume control of such defense and in the event it is finally determined by a court of competent jurisdiction that the Third Party Claim was a matter for which the Indemnitor is responsible under the terms of this Agreement, the Indemnitor will bear the reasonable costs and expenses of such defense (including reasonable fees and expenses of a single outside counsel).
(c) Notwithstanding anything to the contrary in this Agreement, the Indemnitor will not be permitted to settle, compromise, take any corrective or remedial action or enter into an agreed judgment or consent decree (a “Settlement”), in each case, that subjects the Indemnitee to any criminal liability, requires an admission of guilt or wrongdoing or violation of Legal Requirements or any Contract on the part of or by the Indemnitee or its Affiliates, or imposes injunctive relief or any continuing obligation on (including any restriction on the activity or conduct of an Indemnitee) or requires any payment from the Indemnitee without the Indemnitee’s prior written consent, which consent will not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate and shall cause its Affiliates to reasonably cooperate in the defense of any Third Party Claim, including by providing access to such personnel, support and relevant business records and other documents as may be reasonably requested by the Indemnitee in connection with such defense.
(d) The Owners’ Representative and Holdco shall cooperate and shall cause the other Parties to cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including providing access to applicable personnel and available records relating to such Third Party Claim and furnishing, without expense, to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Claim.
(e) Any claim for indemnification of Losses under this Article 9 that is not a Third Party Claim (a “Direct Claim”) by an Indemnitee shall be asserted by giving prompt written notice thereof, and in any event within thirty (30) days of discovery of such claim, to the Owners’ Representative (in the case of indemnification sought by Holdco) or Holdco (in the case of indemnification sought by the Owners’ Representative on behalf of Owners); provided, however, that any delay in providing, or the failure to provide such notification, shall not affect the right of the Indemnitee to indemnification hereunder except in the event and only to the extent that the Indemnitor is materially prejudiced by such failure or delay. Such notice shall describe the Direct Claim in reasonable detail, including copies of any written documents in connection therewith and other reasonably available information and shall indicate the estimated amount of Losses, if reasonably determinable, sustained by the Indemnitee.
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(f) The Indemnitor shall not be bound to or obligated to pay any Direct Claim under this Agreement unless (i) a written instrument is executed by the Indemnitor (which shall be the Owners’ Representative on behalf of all Owners, if any or all of the foregoing are the Indemnitor, and Holdco, if any or all of the foregoing are the Indemnitor) pursuant to which such applicable Party agrees to indemnify the applicable Indemnitees for the applicable Losses, or (b) a court of competent jurisdiction has issued a final, non-appealable order, ruling, judgment or decree (“Order”) regarding the disposition of such Direct Claim. The Indemnitee (acting through the Owners’ Representative, for all Owners or Holdco will be free to pursue enforcement of any final, non-appealable Order as set forth above in any federal or state court of competent jurisdiction located in Harris County, Texas.
9.5. Survival. Subject to the limitations and other provisions of this Agreement, all of the representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement as set forth in this Section 9.5. The representations and warranties in this Agreement shall remain in effect until the date that is eighteen (18) months following the Closing Date, which shall constitute the Cutoff Date (as further defined below) with respect to such representations and warranties; provided that Section 3.1 (“Authority; Enforceability”), Section 3.2 (“No Conflict”), Section 3.3 (“Ownership”), Section 4.1 (“Organization”), Section 4.3 (“No Conflict”), Section 4.4 (“Capitalization”), Section 4.6 (“Fees and Commissions”), Section 5.1 (“Organization; Authority”), Section 5.2 (“No Conflict”), and Section 5.3 (“Fees and Commissions”) (collectively, the “Fundamental Representations”), shall survive indefinitely; provided, further, that Section 4.5 (Merger Agreement Representations) shall survive twenty-four (24) months following the Closing Date. The covenants and agreements of the Parties made herein shall survive until such covenants have been performed in accordance with the terms and provisions herein or for the period explicitly specified therein, and any Claims with respect to fraud shall survive until the statute of limitations applicable thereto expires. The date on which the survival of a representation, warranty, covenant or agreement ends pursuant to this Section 9.5, shall be the “Cutoff Date” with respect to such representation, warranty, covenant or agreement, as applicable, and the Parties’ right to assert Claims or commence Proceedings with respect thereto shall expire and terminate at such Cutoff Date; provided, however, that any representation or warranty or covenant that would otherwise terminate in accordance with this Section 9.5 will continue to survive if a notice of a claim (whether or not formal legal action shall have been commenced based upon such claim) shall have been given under Section 9.4 on or prior to such date on which it otherwise would terminate, until the related claim for indemnification has been satisfied or otherwise resolved as provided in this Article 9, but such survival shall only be with respect to the matters covered by or relating to such notice of claim.
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9.6. Limitations.
(a) No Owner will have any liability under Section 9.1(a) until Holdco has suffered Losses in excess of one percent (1%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Indemnity Threshold”) in the aggregate arising with respect to a Claim or series of related Claims if such Claim or series of related Claims arise out of the same or similar facts or circumstances under Section 9.1(a) and then the Owners will be responsible for all recoverable Losses under Section 9.1(a) (including the Losses making up the Indemnity Threshold); provided, however that the Indemnity Threshold shall not apply to any Claim based on Section 4.5 (Merger Agreement Representations), a breach of the Fundamental Representations or fraud by the Owners. Further, the Owners’ maximum indemnification liability with respect to any Losses under this Article 9 shall in no event exceed ten percent (10%) of the value of the aggregate Equity Consideration (determined as of the time of Closing) (the “Cap”); provided, however that the Cap shall not apply to any Claim based on a breach of Section 4.5 (Merger Agreement Representations), the Fundamental Representations or fraud by the Owners.
(b) Notwithstanding anything to the contrary in this Article 9 or elsewhere in this Agreement, no Claim for indemnification under Section 9.1 may be asserted by any Indemnitee following the applicable Cutoff Date described in Section 9.5; provided, however, that such Cutoff Date shall not affect or limit any Claim asserted in good faith with reasonable specificity and in writing by notice the Indemnitee to the Indemnitor prior to such Cutoff Date which such Claims shall survive until finally resolved pursuant to the terms hereof.
9.7. Sources of Recovery. To the extent a monetary obligation or payment is due and owing by the Owners to any Holdco Indemnitee pursuant to this Article 9, at the Indemnitor’s option, any such indemnification payment may be satisfied, as applicable, (i) pursuant to a forfeiture of a corresponding amount of any shares of CLNH then held by such Indemnitor, based on the fair market value (calculated by taking the average of the highest and lowest selling prices of the shares of CLNH) of such shares of CLNH as of the date of determination that such indemnification obligation is due and owing (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee); and/or (ii) by wire transfer of immediately available funds to the account or accounts designated in writing by Holdco Indemnitee within five (5) Business Days after it is established (by final nonappealable court order or agreement of the Indemnitor and Holdco Indemnitee) that Holdco Indemnitee is entitled to such payment under this Article 9.
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9.8. Express Negligence; Limitations on Defense.
(a) THE FOREGOING INDEMNITIES SET FORTH IN THIS ARTICLE 9 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY INDEMNIFIED PARTIES. THE PARTIES HERETO ACKNOWLEDGE THAT THE INDEMNITIES SET FORTH HEREIN MAY RESULT IN THE INDEMNITY OF A PARTY FOR ITS SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF THE INDEMNIFIED PARTY.
(b) TO THE EXTENT THAT HOLDCO MAKES ANY CLAIMS AGAINST THE OWNERS UNDER THE PROVISIONS OF THIS ARTICLE 9, THE OWNERS MAY NOT ASSERT AND HEREBY EXPRESSLY WAIVE AS A DEFENSE, COUNTERCLAIM, OR OTHERWISE THAT HOLDCO AND ITS AFFILIATES OR REPRESENTATIVES HAVE BEEN NEGLIGENT IN CONDUCTING THEIR DUE DILIGENCE RELATING TO ANY ASPECT OF THE assets of the COMPANY AND/OR THE BUSINESS. THE RIGHT TO INDEMNIFICATION IN ACCORDANCE WITH THE PROVISIONS OF THIS ARTICLE 9 WILL NOT BE AFFECTED BY ANY INVESTIGATION CONDUCTED BY HOLDCO WITH RESPECT TO, OR ANY KNOWLEDGE ACQUIRED (OR CAPABLE OF BEING ACQUIRED) BY HOLDCO AT ANY TIME, WHETHER BEFORE OR AFTER THE CLOSING DATE, WITH RESPECT TO THE ACCURACY OR INACCURACY OF OR COMPLIANCE WITH, ANY REPRESENTATION, WARRANTY, COVENANT OR OBLIGATION SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION AGREEMENT.
9.9. Exclusive Remedy. The remedies available under this Article 9 and the Merger Agreement shall be the sole and exclusive remedies of Holdco (and any Holdco Indemnitee) for any Losses, damages, Claims, Proceedings, breaches, rights, claims and causes of action arising out of or in connection with this Agreement and/or the transactions contemplated hereby; provided, however, that this exclusivity shall not limit or apply to any rights or remedies available at law or in equity arising from fraud by the Owners.
9.10. Materiality Qualifiers. For purposes of determining whether there has been a breach of any Party’s representations and warranties herein for which the other Party hereto or any other indemnified Person is entitled to indemnification hereunder and the Losses resulting therefrom, any materiality qualifiers (including any Material Adverse Effect) contained in such Party’s representations or warranties shall be disregarded.
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ARTICLE
10
OWNERS’ REPRESENTATIVE
10.1. Appointment of Owners’ Representatives. Each Owner hereby irrevocably constitutes and appoints Thomas T. Vo (the “Owners’ Representative”) as such Owner’s true and lawful agent and attorney-in-fact, to execute documents, agreements and instruments in the name of such Owner and on such Owner’s behalf, to act in the name and on behalf of such Owner as set forth in this Section 10.1. Except as otherwise provided in this Agreement, any right or action that may be taken at the election of all or any of the Owners shall be taken solely by the Owners’ Representative on their behalf. Each Owner hereby authorizes the Owners’ Representative and Holdco to rely on any action taken by the Owners’ Representative as having been duly and validly authorized by such Owner. The Owners’ Representative shall have the power to execute documents, agreements and instruments in the name and stead of such Owner and on such Owner’s behalf and to act in the name and on behalf of such Owner as follows:
(a) as provided in and in accordance with Article VIII of the Merger Agreement;
(b) in connection with any claim for indemnification made under Article 9 or the Merger Agreement, to take any and all actions required or authorized to be taken by the Owners pursuant to Article 9, and to defend, compromise or settle any claim for indemnification made by an Indemnitee against such Owner under Article 9 or, in accordance with Article 9, any Third Party Claim that has given rise to an indemnity matter under Article 9;
(c) to receive and give receipt for all notices and other communications required or permitted to be given to or from such Owner under this Agreement or the Merger Agreement, including all notices under Article 9 relating to any indemnity matter;
(d) to act on such Owner’s behalf hereunder for all purposes specified herein, including determining, on behalf of any specific Owner or all Owners, whether to make any claim or institute any Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof, settling any claim or Proceeding in connection with this Agreement, the Merger Agreement or the breach hereof or thereof or agreeing that any specific Owner or all Owners are responsible for or are not responsible for any indemnification obligations under this Agreement due to a breach or alleged breach of this Agreement or the Merger Agreement, subject to the caps and limitations set forth in this Agreement, with all of the foregoing decisions of the Owners’ Representative to be final, binding and not subject to dispute or appealable by any Owner;
(e) to take any other action authorized to be taken by the Owners’ Representative pursuant to the terms of this Agreement or the Merger Agreement;
(f) to agree with Holdco and all Owners as to any amendments to this Agreement or the Merger Agreement which the Owners’ Representative deems necessary or advisable;
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(g) to employ legal counsel on behalf of the Owners;
(h) to pay any legal and any other fees and expenses incurred by the Owners’ Representative in consummating the transactions contemplated by this Agreement or the Merger Agreement or in connection with carrying out the Owners’ Representative’s duties under this Agreement or the Merger Agreement, including on behalf of any or all Owners investigating, defending or pursuing any claims or Proceedings and managing matters associated with this Agreement or the Merger Agreement; and
(i) making, executing, acknowledging, and delivering all such contracts, orders, receipts, documents, instruments, notices, requests, instructions and certificates and doing all things and taking all actions which the Owners’ Representative, in its sole discretion, considers necessary or proper in connection with or to carry out the terms of this Agreement or the Merger Agreement, as fully as if such Owner were personally present and acting.
10.2. Additional Provisions.
(a) The Owners’ Representative will incur no liability to the Owners in connection with his services pursuant to this Agreement and any related agreements except to the extent resulting from his fraud, gross negligence or willful misconduct. The Owners’ Representative shall not be liable for any action or omission pursuant to the advice of counsel. Each Owner agrees on a several and not joint and several basis to defend, indemnify and hold the Owners’ Representative harmless from and against any and all Losses arising out of or in connection with this Agreement or the Merger Agreement or any related agreement incurred as a result of its position as the Owners’ Representative or any of his actions or inactions as such, except such Losses are finally adjudicated to have been caused by his fraud, gross negligence or willful breach of this Agreement or the Merger Agreement.
(b) The Owners’ Representative will promptly provide all notices received by the Owners’ Representative pursuant to this Agreement to the other Owners, if applicable to such Owner. Each Owner acknowledges that the powers and authority granted in Section 10.1 and in this Section 10.2 are irrevocable, coupled with an interest and shall not be terminated by any act of such Owner (including the death, disability, bankruptcy or insolvency of such Owner). The Owners agree to indemnify the Owners’ Representative against and hold the Owners’ Representative harmless from and against any and all losses, costs, judgments, settlements, damages of any kind or nature, expenses, claims, and attorneys’ fees and costs suffered or incurred by the Owners’ Representative as a result of, in connection with or arising from or out of the acts or omissions of the Owners’ Representative in the performance of his obligations contained in this Agreement and the Merger Agreement, except such acts or omissions as result from the Owners’ Representative’s willful breach of this Agreement or gross negligence. The foregoing indemnities will survive the Closing, the resignation or removal of the Owners’ Representative or the termination of this Agreement.
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(c) The Owners approve of the execution and delivery of the Disclosure Schedules and any other certificates, documents or instruments contemplated to be executed and delivered by the Owners’ Representative on behalf of the Owners pursuant to this Agreement or the Merger Agreement.
ARTICLE
11
MISCELLANEOUS
11.1. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be given (a) by U.S. Postal Service, registered or certified mail, first-class postage paid, return receipt requested, (b) sent by national reputable overnight delivery service such as Federal Express or United Parcel Service, (c) transmitted by electronic mail or (d) delivered by hand to the Persons and addresses, as the case may be, set forth below. Any notice shall be deemed to have been duly received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, when actually received, (ii) if sent by national reputable courier service, when actually received, (iii) if sent by electronic mail, when confirmation of receipt is received by sender, and (iv) if delivered by hand, on the date of receipt. The notice addresses and facsimile numbers of the Parties are as follows:
If to Holdco, to:
Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email:******
with a copy to (which shall not constitute notice):
Locke
Lord LLP
600 Travis Street, Suite 2800
Houston, TX 77002
Attention: Joe Perillo
Email: *****
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If to the Owners, to the Owners’ Representative as follows:
c/o Nutex Health Holdco LLC
6030 S. Rice Ave, Suite C
Houston, Texas 77081
Attention: Tom Vo, MD, MBA
Email: *******
Any Party may change the address to which notices are to be sent by written notice given to the other Parties hereto.
11.2. Headings. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.
11.3. Amendments. This Agreement may only be amended pursuant to a written agreement executed by Holdco and the Owners’ Representative.
11.4. Rights; No Waiver. The failure of a Party to exercise any right granted hereunder will not impair nor be deemed a waiver of such Party’s privilege of exercising that right at any subsequent time or times, except as expressly provided herein. No waiver by a Party of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless expressly provided. No waiver will be effective unless made in writing and signed by the Party to be charged with such waiver.
11.5. Entire Agreement. This Agreement and the Merger Agreement, together with the Schedules and Exhibits attached hereto or thereto and hereby or thereby incorporated herein by reference, and the Transaction Agreements contain the entire agreement among the Parties with respect to the transactions contemplated hereby, and supersedes all negotiations, agreements, representations, warranties and commitments, whether in writing or oral, prior to the date hereof. Notwithstanding the above to the contrary, in the event that an Owner is not contributing one hundred percent (100%) of his, her or its equity interest in the Company to Nutex pursuant to this Agreement, such Owner shall continue to be bound by and subject to the terms and provisions of the Operating Agreement; provided that in the event of a conflict between the terms of this Agreement and the Operating Agreement, this Agreement shall control.
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11.6. Successors and Assigns; Assignment. Except as otherwise expressly provided in this Agreement, all of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted transferees of the Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or to give any Person not a Party any rights or remedies under or by reason of this Agreement, except for the indemnified parties expressly identified in this Agreement. No Owner may assign this agreement or any of his, her or its rights or obligations under this agreement without the prior written consent of Holdco; provided that Holdco may assign this agreement and/or any or all of its rights or obligations under this agreement to CLNH in connection with or after the consummation of the transactions contemplated under the Merger Agreement.
11.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute one instrument. Delivery of a copy of this Agreement bearing an original signature by facsimile transmission or by electronic mail in “portable document format” form shall have the same effect as physical delivery of the paper document bearing the original signature.
11.8. Governing Law, Venue and Severability, Jury Trial Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
| 29 |
11.9. Remedies. Each Party acknowledges that the remedies at law of the Parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any Party, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
11.10. Transaction Expenses. Except as otherwise contemplated in this Agreement or the other Transaction Agreements, all fees, costs and expenses incurred by the Parties hereto in connection with this Agreement and the transactions contemplated hereby including legal and accounting fees (“Transaction Expenses”) shall be borne by the Party incurring such Transaction Expenses; provided, however, that notwithstanding anything to the contrary herein, each Owner shall be responsible for and shall pay his, her or its pro rata share (based on each such Owner’s share of the aggregate Equity Consideration) of the Transaction Expenses incurred by the Company, Nutex Health LLC or Nutex in connection with the transactions contemplated herein and/or in connection with the Merger Agreement. For the avoidance of doubt, expenses incurred by any Owner on his, her or its own behalf (including the fees and disbursements of counsel, advisors and other Persons retained by such Owner) will not be considered fees or costs incurred by the Company, Nutex Health LLC or Nutex and will therefore be the sole responsibility of such Owner.
11.11. Rules of Construction. Each of the Parties has contributed to the drafting of this Agreement; accordingly, no rule of strict construction shall be applied against any Party.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
HOLDCO:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
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OWNERS:
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| FULL LEGAL NAME OF OWNER [print]: | ||
| Form
of Legal Entity of Owner (for U.S. tax purposes) [check one]: ☐ Individual ☐ Corporation ☐ Estate ☐ Trust ☐ Partnership (includes limited liability companies, professional limited liability companies, professional associations, limited partnerships) ☐ Disregarded Entity ☐ Other: | ||
If OWNER IS an INDIVIDUAL: [signature of Owner] If OWNER IS an entity: By: [signature of authorized person] Name of Authorized Person: Title of Authorized Person: AND [signature of Doctor-Owner] |
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INTERESTS: Name of Company or Facility: ______________________ |
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Percent of Owner’s Total Ownership Percentage Owner will contribute to Holdco: _____% (the “Contributed Interests”) NOTICE INFORMATION: [please provide address and contact information] |
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| E-mail Address: | ||
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OWNERS’ REPRESENTATIVE:
______________________________________
THOMAS T. VO
| 35 |
EXHIBIT A
DEFINED TERMS
As used in the Agreement, the following terms shall have the respective meanings set forth below:
“Affiliate” means, with respect to any Person, any other person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, the term “control” (including with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the Preamble.
“Assignment Agreements” has the meaning set forth in Section 2.4(a)(i).
“Business” has the meaning set forth in the Recitals.
“Business Day” means any day other than a Saturday, Sunday or federal bank holiday.
“Cap” has the meaning set forth in Section 9.6(a).
“Claim” has the meaning set forth in Section 9.3.
“Claim Notice” has the meaning set forth in Section 9.3.
“CLNH” has the meaning set forth in the Recitals.
“Closing” has the meaning set forth in Section 2.3.
“Closing Date” has the meaning set forth in Section 2.3.
“Company” has the meaning set forth in the Recitals.
“Confidentiality Agreements” means, collectively, the confidentiality agreements entered into and executed by each of the Owners and Nutex Health LLC in connection with and anticipation of the transactions contemplated herein.
“Contracts” means any and all assignments, deeds, contracts, commitments, agreements, franchises, understandings, obligations, letters of intent, indemnification agreements, arrangements, purchase orders, leases, subleases, licenses, registrations, authorizations, easements, servitudes, rights-of-way, mortgages, credit agreements or documents, bonds, notes, indentures, documents, and other instruments, whether written or unwritten, to which the applicable Person is party or by which it is bound, and all amendments thereof.
“Cutoff Date” has the meaning set forth in Section 9.5.
“Debt” means, with respect to any Person, as of any particular time, without duplication, (a) indebtedness of such Person for money borrowed from banks or similar financial institutions or evidenced by bonds, debentures, notes or other similar instruments or securities (and whether or not convertible into any other security), including the amount drawn on any letter of credit supporting the repayment of indebtedness for borrowed money issued for the account of such Person and obligations under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing; (b) obligations under any capital leases (as defined under GAAP); (c) obligations of such Person to pay the deferred purchase price or acquisition price of any asset, property, business or services (including obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable, (e) obligations for any accrued interest, prepayment premiums or penalties or other costs or expenses related to any of the foregoing and (d) guarantees of any of the foregoing on behalf of another Person.
“Direct Claim” has the meaning set forth in Section 9.4(e).
“Disclosure Schedule” or “Schedule” or “Schedules” means the disclosure schedule accompanying this Agreement.
“Doctor-Owner” means, if an Owner is an entity or a trust, the doctor or physician who owns or controls such Owner.
“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability company, joint venture, joint stock association, estate, trust, cooperative, foundation, union, syndicate, league, consortium, coalition, committee, society, firm or other enterprise, association, organization or entity of any nature, other than a Governmental Authority.
“Equitable Principles” has the meaning set forth in Section 3.1.
“Equity Consideration” has the meaning set forth in Section 2.2.
“Equity Consideration Adjustment Notice” has the meaning set forth in Section 2.6.
“Equity Interests” means any membership interests, limited liability company interests, partnership interests, shares, capital stock or other equity securities or ownership interests of a Person and securities exercisable or exchangeable for or convertible into, or other rights to acquire, membership interests, limited liability company interests, partnership interests, shares or capital stock or other equity securities or ownership interests of a Person.
“Fundamental Representations” has the meaning set forth in Section 9.5.
“GAAP” means United States generally accepted accounting principles consistently applied.
“Governmental Authority” means a federal, state, local or foreign governmental or quasi-governmental authority, a state, commonwealth, territory or district thereof; a county or parish; a city, town, township, village or other municipality; a district, ward or other subdivision of any of the foregoing; and any executive, legislative or other governing body or administrative authority of any of the foregoing.
“Guaranty Obligations” has the meaning set forth in Section 6.10.
“Holdco” has the meaning set forth in the Preamble.
“Holdco Indemnitees” has the meaning set forth in Section 9.1.
“Holdco LLC Agreement” means an Amended and Restated Limited Liability Company Agreement of Holdco, in substantially the form attached hereto as Exhibit C.
“Indemnitee” has the meaning set forth in Section 9.3.
“Indemnitor” has the meaning set forth in Section 9.3.
“Indemnity Threshold” has the meaning set forth in Section 9.6(a).
“Legal Requirements” means any and all applicable (a) federal, state, provincial, local and foreign laws, statutes, common law rulings, rules, regulations, codes, ordinances, Permits, bylaws, variances, policies, judgments, injunctions, orders, and conditions, including Environmental Laws, (b) non-appealable judgments of a court of competent jurisdiction which are binding on the applicable Person, (c) Contracts with any federal, state, local or foreign court, arbitrator or administrative or Governmental Authority relating to compliance with matters described in (a) or (b) above to which the applicable Person is party, and (d) consent decrees and similar arrangements to which the applicable Person is party.
“Liabilities” means all claims, Proceedings, costs, expenses, obligations or liabilities of any nature (including any undisclosed, unfixed, unknown, unliquidated, unsecured, unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied, vicarious, joint, several or secondary liabilities), regardless of whether required to be disclosed on a balance sheet prepared in accordance with GAAP or known as of the Closing.
“Liens” means any and all liens, mortgages, charges, financing statements, security interests, or other restrictive covenants, options or preferential purchase rights.
“Losses” means damages, claims, suits, liabilities, losses, costs and expenses (including reasonable fees and expenses of counsel and court costs).
“Material Adverse Effect” means any result, occurrence, fact, change, event, effect or condition that has had or could reasonably be expected to have a material adverse effect on the property, business, operations, assets, liabilities, financial condition, prospects or results of operations of the Company or the Business, individually or in the aggregate, except for (i) the effect of any change in the United States or foreign economies or securities or financial markets in general; (ii) the effect of any change that generally affects any industry in which the Company operates; (iii) the effect of any change arising in connection with earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions existing or underway as of the date hereof; or (iv) the effect of any changes in applicable Legal Requirements or GAAP; provided that with respect to (i) – (iv), such change shall not have a disproportionate effect on the Company.
“Membership Interests” has the meaning set forth in the Recitals.
“Merger” has the meaning set forth in the Recitals.
“Merger Agreement” means the Agreement and Plan of Merger, substantially in the form attached as Exhibit E hereto.
“Operating Agreement” means the company agreement or operating agreement of the Company to which the Owners or their Affiliates are a party or by which they are bound, as the same may be amended.
“Order” has the meaning set forth in Section 9.4(f).
“Organizational Documents” means the articles of incorporation, certificate of incorporation, articles or certificate of formation, articles or certificate of limited partnership, bylaws, operating agreement, partnership agreement, shareholders agreement, company agreement, limited liability company agreement, regulations, certificate of designations for preferred stock or other equity interests and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of an Entity, including all amendments thereto and restatements thereof.
“Outside Date” means September 30, 2022.
“Owner” or “Owners” has the meaning set forth in the Preamble.
“Owner Indemnitees” has the meaning set forth in Section 9.2.
“Owners’ Representative” has the meaning set forth in Section 10.1.
“Party” or “Parties” has the meaning set forth in the Preamble.
“Permit” means any permit, permit exception, license, registration, exemption, certificate, authorization and approval of any Governmental Authority.
“Person” means any individual, Entity or Governmental Authority.
“Preliminary Financial Information” has the meaning set forth in Section 2.6.
“Real Estate Guaranty” means any guaranty entered into or executed by the Company in connection with any Debt on any real property leased by the Company.
“Released Party” has the meaning set forth in Section 6.5.
“Releasing Party” has the meaning set forth in Section 6.5.
“Representative” means any officer, employee, director, member, manager, attorney, law firm, investment advisor, consultant, accountant, accounting firm, investment banker or other professional representing, providing services to or acting on behalf of any Party to this Agreement.
“Restrictive Covenants” has the meaning in Section 6.8.
“Retained Rights” has the meaning set forth in Section 6.5.
“Securities Act” means the Securities Act of 1933, as amended.
“Settlement” has the meaning set forth in Section 9.4(c).
“Shift Guaranty” has the meaning in Section 6.9.
“Subsidiaries” means, with respect to any Person of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the equity interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Entities owned by or controlled by that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).
“Tax” or “Taxes” means any taxes, assessments, charges, duties, fees, levies, imposts and other governmental charges imposed by any Governmental Authority, including without limitation income, franchise, profits, margins, gross receipts, capital gains, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, escheat, abandoned or unclaimed property, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, or other tax of any kind whatsoever, including any deficiency assessments, interest, penalty, or addition thereto, whether disputed or not.
“Taxing Authority” means, with respect to any Tax, the Governmental Authority that is responsible for the imposition and/or administration of such Tax, including any Governmental Authority that imposes, or is charged with collecting, social security or similar charges or premiums.
“Tax Return” means any return, declaration, report, claim for refund, election, estimated tax filing or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Third Party Claim” has the meaning set forth in Section 9.4(a).
“Transaction Agreements” means this Agreement, the Confidentiality Agreements, the Assignment Agreement, the Holdco LLC Agreement and any other ancillary documents contemplated by this Agreement to be delivered at Closing and to which a Party is a signatory thereto.
“Transaction Expenses” has the meaning set forth in Section 11.10.
“Transfer Taxes” means all transfer, documentary, sales, use, stamp, registration and other similar Taxes (other than income Taxes) and all conveyance fees, recording charges and other fees and charges imposed on the Company in connection with the consummation of the transactions contemplated by this Agreement.
“Units” has the meaning set forth in the Holdco LLC Agreement.
“Updated Financial Information” has the meaning set forth in Section 2.6.
| A-1 |
Exhibit B
Form of Assignment Agreement
CONTRIBUTION AND ASSIGNMENT AGREEMENT
THIS CONTRIBUTION AND ASSIGNMENT AGREEMENT (this “Assignment”), dated as of ______________, is made and entered into by and between the undersigned listed as Assignor on the signature page attached hereto (the “Assignor”), and Nutex Health Holdco LLC, a Delaware limited liability company (the “Assignee”). The Assignor and the Assignee may each be referred to herein as a “Party” and collectively as the “Parties.”
WHEREAS, the Assignor owns certain equity interests (the “Interests”) in the company and in the amounts as set forth on Exhibit A attached hereto;
WHEREAS, pursuant to the terms and provisions of that certain Contribution Agreement, dated as of November 23, 2021, by and among the Assignor, the Assignee and the other parties listed on the signature pages attached thereto (the “Contribution Agreement”), the Assignor desires to contribute, convey, transfer, assign and deliver to the Assignee, and the Assignee desires to receive and accept from the Assignor, the Interests;
WHEREAS, in order to effectuate the conveyance, transfer, assignment and delivery of the Interests to the Assignee, the Parties are executing and delivering this Assignment; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Contribution Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. Contribution of the Interests. The Assignor hereby CONTRIBUTES, CONVEYS, TRANSFERS, ASSIGNS AND DELIVERS unto the Assignee and its successors and assigns, and the Assignee hereby receives and accepts, all of the Assignor’s right, title and interest in and to the Interests.
2. Contribution Agreement. This Assignment is made effective as of the Closing and is expressly made subject to the terms, conditions and covenants of the Contribution Agreement. If there is a conflict between this Assignment and the Contribution Agreement, then the Contribution Agreement shall control in all respects. No provision of this Assignment shall in any way modify any of the provisions of the Contribution Agreement. This Assignment is intended solely to further effect the transfer of the Interests in accordance with the Contribution Agreement.
| B-1 |
3. Further Assurances. The Assignor covenants and agrees with the Assignee that the Assignor and its successors and assigns shall execute, acknowledge and deliver such other instruments of conveyance and transfer and take such other action as may reasonably be required to more effectively grant, convey, transfer, assign and deliver to and vest in the Assignee and its successors and assigns, and to put the Assignee and its successors and assigns in possession of, the Interests conveyed, transferred, assigned and delivered hereunder or to otherwise carry out the purposes of this Assignment.
4. Binding Effect. The terms and provisions of this Assignment extend to, bind and inure to the benefit of the Parties and their respective successors and permitted assigns.
5. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the internal laws of the State of Texas, without regard to principles of conflicts of law. (i) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED WITHIN HARRIS COUNTY, TEXAS OVER ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH DISPUTE OR ANY SUIT, ACTION OR PROCEEDING RELATED THERETO SHALL BE HEARD AND DETERMINED IN SUCH COURTS; (ii) THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE; (iii) THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
6. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute but one and the same instrument. The delivery of copies of this Assignment, including executed signature pages by electronic transmission, will constitute effective delivery.
7. Successors and Assigns. This Assignment shall bind the Assignor and its successors and assigns and inure to the benefit of the Assignee and its successors and assigns.
8. Waiver; Amendment. None of the provisions of this Assignment may be waived, changed or altered except in a signed writing by the Party against whom enforcement of the same is sought.
| B-2 |
9. No Third-Party Beneficiaries. No provision of this Assignment is intended to confer upon any person other than the Parties any rights or remedies hereunder.
10. Entire Agreement. This Assignment, the Contribution Agreement and the other agreements and documents executed contemporaneously herewith and therewith or contemplated herein or therein, embody the entire agreement and understanding of the Parties with respect to the subject matter hereof. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein.
[Signature Page Follows]
| B-3 |
IN WITNESS WHEREOF, the Parties have executed this Assignment to be effective as of the date first above written.
| FULL LEGAL NAME OF ASSIGNOR (PRINT): | |
If an entity: By: Name: Title: If an INDIVIDUAL: Name: _______________________ |
|
| B-4 |
ASSIGNEE:
NUTEX HEALTH HOLDCO LLC,
a Delaware limited liability company
By:
Name:
Title:
| B-5 |
Exhibit D-1
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Entity)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor is not a disregarded entity as defined in Treasury Regulation Section 1.1445-2(b)(2)(iii);
3. Transferor’s U.S. taxpayer identification number is _________________; and
4. Transferor’s principal address is: ____________________________________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete, and the undersigned further declares that he has authority to sign this Certificate of Non-Foreign Status on behalf of Transferor.
Name of Transferor (Entity):____________________
By:
Name:
Title:
| D-1-1 |
Exhibit D-2
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Individual)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the undersigned (“Transferor”) and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ________ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ___________________________; and
3. Transferor’s residential address is: ________________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
____________________________________
Name: _________________
| D-2-1 |
Exhibit D-3
Form of FIRPTA
CERTIFICATE OF NON-FOREIGN STATUS
(Grantor Trust)
This Certificate of Non-Foreign Status is being delivered in connection with that certain Contribution Agreement, dated of November 23, 2021, by and among Nutex Health Holdco LLC, a Delaware limited liability company (“Transferee”), the trust listed below (“Seller”), and the other parties listed on the signature pages attached thereto. Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee (i.e., buyer) of a U.S. real property interest must withhold tax if the transferor (i.e., seller) is a foreign person. Seller is a grantor trust under Code Sections 671-677, such that the transferor for U.S. federal income tax purposes is _________________ (the “Transferor”). Section 1446(f)(2) of the Code provides that no person shall be required to deduct and withhold any amount under Section 1446(f)(1) of the Code with respect to any disposition of an interest in a partnership if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's U.S. taxpayer identification number and that the transferor is not a foreign person. To inform the Transferee that withholding of tax is not required upon the disposition to the Transferee of a U.S. real property interest by Transferor, the undersigned hereby certifies the following, as of ______ ___, 202__:
1. Transferor is not a foreign person (as such term is defined in the Code and the Treasury Regulations promulgated thereunder);
2. Transferor’s U.S. taxpayer identification number (social security number) is: ____________________________; and
3. Transferor’s residential address is: ________________________.
Transferor understands that this Certificate of Non-Foreign Status may be disclosed to the Internal Revenue Service by the Transferees and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the undersigned has examined this Certificate of Non-Foreign Status and, to the best of the undersigned’s knowledge and belief, it is true, correct and complete.
Name of Trust: ________________
____________________________________
Transferor: ____________
| D-3-1 |
Exhibit H
Restrictive Covenants
Each of the parties hereto acknowledges the highly competitive nature of the Business and agrees that the goodwill of the Business is an integral component of the Business, and without such goodwill, the value of the transactions contemplated by this Agreement and the Merger Agreement will be greatly diminished and Holdco’s reasons for entering into this Agreement and Braves’ reasons for entering into the Merger Agreement and consummating the transactions contemplated herein and therein will be impaired.
Each of the parties hereto further acknowledges that as a result of the consummation of the transactions contemplated by this Agreement and the Merger Agreement, each of the Restricted Parties shall receive certain direct or indirect consideration.
The parties hereto intend this Agreement, including this Exhibit, to evidence their understanding with respect to the restrictions on the Restricted Parties’ activities following consummation of the transactions contemplated by this Agreement and the Merger Agreement.
1. Defined Terms. For purposes of this Exhibit, the following terms have the respective meanings set forth below.
(a) “Business” has the meaning set forth in the recitals to this Agreement.
(b) “Confidential Information” includes but is not limited to: (i) any confidential or proprietary information of the Company or Holdco, whether or not marked or otherwise designated as confidential, whether tangible or intangible and in whatever form or medium, including, without limitation, information that is not generally known or readily ascertainable outside of the Company or Holdco regarding the Company or Holdco and relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, work-in-process, databases, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, revenue, costs, formulae, notes, communications, product plans, ideas, audiovisual programs, inventions, unpublished patent applications, discoveries, experimental processes, experimental results, specifications, and referral networks and sources, (ii) any information received by the Company or Holdco from third parties which the Company or Holdco is obligated to keep confidential, and (iii) all other information relating to the Company’s or Holdco’s business which is not common knowledge outside the Company or Holdco and which provides the Company or Holdco with a business advantage and/or would provide a business advantage to the Company’s or Holdco’s competitors.
(c) “Facility” means the stand-alone emergency room clinic and/or hospital described in the recitals to this Agreement.
(d) “Family Group” means a Person’s spouse, parents, siblings and descendants (whether by birth or adoption) and any trust or other estate planning vehicle solely for the benefit of such Person or such Person’s spouse, parents, siblings or descendants (whether by birth or adoption).
(e) “Holdco Group” means Holdco and its Affiliates, including the Company and after the consummation of the Merger, Braves.
(f) “Restricted Area” means a twenty-five (25) mile radius around the Facility.
(g) “Restricted Business” means any Person that engages in or is planning to engage in business activities that are substantially similar to or the functional equivalent of, and that are competitive with, any aspect of the Business in the Restricted Area, including (a) the owning or operating a facility at which physicians provide medical care, treatment or diagnosis on an urgent or emergency basis; or (b) leasing or subleasing a facility for those purposes.
(h) “Restricted Party” means the Owner or if such Owner is an entity or a trust, the Doctor-Owner affiliated with such Owner as listed on the signature pages attached to this Agreement.
(i) “Restricted Period” means the restrictive covenant period set forth in the Operating Agreement applicable to such Restricted Party; provided, however, that the period shall begin on the date on which the Restricted Party ceases to provide services to the Facility rather than the date on which such Restricted Party ceases to own equity interests in the Company.
2. Non-Competition.
(a) Such Restricted Party agrees that such Restricted Party shall not, at any time during the period of time during which such Restricted Party is providing services to the Facility and continuing during the Restricted Period, on such Restricted Party’s own behalf or on behalf of any other Person (other than Holdco Group), directly or indirectly (including through another Person, including its Family Group or any Affiliate) enter into or attempt to enter into any Restricted Business or own voting equity in, or form or operate as an owner, equity holder, interest holder, stockholder, officer, director, member, manager, partner, co-venturer, any business engaged in activities relating to any Restricted Business.
(b) Such Restricted Party acknowledges and agrees that, for purposes of this Agreement, indirect acts by such Restricted Party shall include, without limitation, an act by any Person directly or indirectly controlled by such Restricted Party.
(c) Such Restricted Party acknowledges that (i) the confidential and propriety information and the goodwill associated with the Business and its customers, suppliers, vendors and employees is an integral component of the value of the Business being acquired by Holdco in this Agreement and Braves in the Merger Agreement and that the obligations of such Restricted Party under this Agreement are a material inducement to Holdco’s execution and performance of this Agreement and Braves’ execution and performance of the Merger Agreement, (ii) at the time that these restrictive covenants are made, to the extent applicable to such Restricted Party, the limitations as to time, geographic scope and activity to be restrained, as described in this Section 2 are reasonable and do not impose a greater restraint than necessary to protect Holdco’s and Braves’ legitimate business interests and the value to Holdco and Braves of the transactions contemplated by this Agreement and the Merger Agreement, including, without limitation, the Confidential Information, the relationships with employees and customers, and/or the goodwill and business productivity of the Business, (iii) such Restricted Party has carefully read this Agreement and has given careful consideration to the restraints imposed upon such Restricted Party by this Agreement and consents to the terms of such restrictive covenants and (iv) the restrictions set forth in this Agreement are fair and reasonable in light of the nature of the operations of the Business and geographic scope, which reasonably correlates to the Restricted Area.
(d) Notwithstanding anything to the contrary in this Section 2, (a) the Restricted Parties may own or hold, solely as passive investments, securities of a publicly traded corporation involved in a Restricted Business; provided that, for each such investment, (i) the aggregate securities held by the Restricted Parties do not exceed three percent (3%) of the outstanding securities of such Restricted Business, and (ii) no Restricted Party, directly or indirectly, participates in, or attempts to influence, the management, direction or policies of such Restricted Business (other than through the exercise of any voting rights held by such Restricted Party in connection with such securities), (b) if the Restricted Party retains ownership in the Company following the Merger, the Restricted Party shall remain subject to the terms and conditions of the Operating Agreement of the Company, and (c) the Restricted Party may provide services for a Restricted Business within the Restricted Territory so long as the Restricted Party does not own or hold any securities in such Restricted Business.
(e) Notwithstanding anything to the contrary in this Section 2, a Restricted Party who is a licensed physician by the applicable state medical board in which such Restricted Party practices or in which such Facility is located may, at all times:
(i) have access to medical records of the physician's patients upon authorization of the pertinent patient and any copies of medical records to the extent permitted by applicable state and federal Legal Requirements upon payment of a reasonable fee when permitted by applicable Legal Requirements, which access will be in the format in which those records are normally maintained; and
(ii) provide continuing care and treatment to any patients during the course of an acute illness.
3. Confidentiality. The Restricted Parties each acknowledge that the Confidential Information is the property of the Company and following the Closing, Holdco and following the consummation of the Merger, Braves. Following the Closing, each Restricted Party shall, and shall direct its Affiliates and its and their respective employees, agents, and representatives to, maintain all Confidential Information in strict confidence and secrecy, and shall not, directly or indirectly, for itself or on behalf of any other Person (i) use or exploit any Confidential Information for any purpose or (ii) disclose any Confidential Information to any Person other than the Holdco Group. Notwithstanding anything herein to the contrary, the Restricted Parties may disclose Confidential Information, (a) to a Governmental Authority to the extent required by applicable, final, nonappealable order or Legal Requirement and (b) pursuant to valid legal process, deposition, interrogatory, request for documents, subpoena, civil investigative demand, administrative proceeding or similar process; provided, that with respect to clause (a) and clause (b), prior to making any such disclosure of Confidential Information subject to this Section 3, the Restricted Party shall, to the extent legally permissible, provide Holdco or Braves with reasonably prompt notice of such request or requirement of disclosure so that Holdco or Braves may seek, at its sole cost and expense, an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Section 3, and, in the absence of a protective order or other remedy, the Restricted Party may disclose that portion (and only that portion) of such information that, based on advice of counsel, the Restricted Party is legally required to disclose.
4. Non-Disparagement. Each Restricted Party agrees that such Restricted Party shall not, directly or indirectly (including through another Person, including its Family Group or any Affiliate) make, or cause to be made, any statement or communicate any information (whether oral or written) that disparages, defames, or harms the reputation or business of, any member of the Holdco Group or Persons who are former, present or future directors, managers, officers, equity holders, executives or related persons of the Holdco Group; provided, that such Restricted Party’s obligations under this paragraph shall not apply to disclosures required by applicable Legal Requirement.
5. Consideration. The execution and delivery of this Agreement by each Restricted Party is in consideration of Holdco’s consummation and closing of the transactions contemplated by this Agreement and the Merger Agreement and the consideration payable to such Restricted Party in connection therewith. Such Restricted Party acknowledges that Holdco would not engage in the transactions contemplated by this Agreement and Braves would not engage in the transactions contemplated by the Merger Agreement unless the Restricted Parties agree to the covenants, agreements, understandings and restrictions contained in this Agreement.
6. Remedies. Each Restricted Party acknowledges and agrees that any breach or threatened breach by such Restricted Party of any of the restrictive covenants in this Agreement could give rise to irreparable injury to Holdco and Braves and that the value of the transactions contemplated hereby and in the Merger Agreement to Holdco and Braves would be diminished, each of which might be inadequately compensable in monetary damages. Accordingly, Holdco may seek (a) equitable relief, including injunctive relief and specific performance, and (b) any other legal remedies which may be available under the terms of this Agreement, including, without limitation, recovery of all attorneys’ fees and costs incurred by Holdco in obtaining relief from such Restricted Party’s breach or threatened breach. Each Restricted Party further acknowledges that Holdco may pursue any remedy available hereunder concurrently or consecutively in any order as to any breach, violation, or threatened breach or violation, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. The duration of the Restricted Period shall be tolled and suspended for any period that a Restricted Party is in violation of these covenants, to the fullest extent allowed by Legal Requirement.
7. Severability. If any term or other provision of this Exhibit is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any of the Restricted Party or Holdco. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
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Exhibit I
Form of Lock-Up Agreement
LOCK-UP AGREEMENT1
This Lock-Up Agreement (this “Agreement”) is entered into as of [_____________] by and between the undersigned and Clinigence Holdings, Inc., a Delaware corporation (“Parent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as such term is defined below).
RECITALS
WHEREAS, prior to or concurrently with the execution of this Agreement, Nutex Health Holdco LLC, a Delaware limited liability company (the “Company”), Parent and [Nutex Acquisition LLC], a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”), are entering into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), upon the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the Merger Agreement, each [unit] in the Company issued and outstanding immediately prior to the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or such later date or time as agreed by the Company and Parent in writing and specified in the certificate of merger in accordance with the Delaware General Corporation Law and Limited Liability Company Act of the State of Delaware, as amended, the “Effective Time”) but after the consummation of the Contribution Transaction shall be converted into the right to receive [_____] fully paid and nonassessable shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”); and
WHEREAS, pursuant to the Merger Agreement and as a condition to the willingness of Parent and Merger Sub to consummate the Merger, Parent and Merger Sub have required that the undersigned agree to enter into this Agreement, which, among other things, restricts the sale, assignment, transfer, encumbrance or other disposition of the Covered Securities (as such term is defined below).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up of Securities.
(a) Lock-Up. In recognition of the benefit that the Merger will confer upon the undersigned, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees that:
(i) during the period commencing on the Effective Time and including the date that is six (6) months from the Effective Time (the “First Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Covered Securities whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Covered Securities, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise (each of the foregoing, a “Transfer”);
(ii) during the period commencing on the first calendar day following the end of the First Lock-Up Period to and including the date that is twelve (12) months from the Effective Time (the “Second Lock-Up Period”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than one-third (1/3) of the Covered Securities; and
(iii) during the period commencing on the first calendar day following the end of the Second Lock-Up Period to and including the date that is eighteen (18) months from the Effective Time (the “Third Lock-Up Period” and collectively with the First Lock-Up Period and Second Lock-Up Period, the “Lock-Up Periods”), the undersigned will not, without the prior written consent of Parent, directly or indirectly, Transfer more than two-thirds (2/3) of the Covered Securities.
For the purposes of the Agreement, “Covered Securities” shall mean, with respect to the undersigned, any of the following: (i) any and all shares of Parent Common Stock which are owned by the undersigned as of the Effective Time, (ii) any shares of Parent Common Stock issuable upon exercise, conversion or exchange of any securities of the Parent which are owned by the undersigned as of the Effective Time, (iii) any securities of the Parent issued in respect of the shares of Parent Common Stock issued or issuable to the undersigned by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Parent Common Stock issuable upon conversion, exercise or exchange thereof, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time and (iv) any other securities of the Parent issued or issuable to undersigned that are convertible into or exercisable or exchangeable for Parent Common Stock, whether at the option of the undersigned or otherwise, in each case to the extent relating to any securities of the Parent which were owned by the undersigned as of the Effective Time.
(b) Permitted Transfers. Notwithstanding the foregoing, the undersigned may Transfer the Covered Securities to a Permitted Transferee without the prior written consent of Parent, provided that (i) Parent receives a signed lock-up agreement in substantially the same form as this Agreement for the balance of the Lock-Up Periods from each donee, trustee, distributee, or transferee, as the case may be, (ii) any such Transfer shall not involve a disposition for value, (iii)if any filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Parent Common Stock in connection with such Transfer shall be legally required prior to the expiration of the Third Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such Transfer, and (iv) the undersigned does not otherwise voluntarily effect any public filing or report regarding such Transfers. For the purposes of this Agreement, “Permitted Transferee” means (1) if the undersigned is an individual (x) a member of the undersigned’s immediate family (which shall mean any relationship by blood, not more remote than first cousin, marriage, domestic partnership or adoption) or a trust, corporation, partnership or limited liability company for the benefit of an immediate family member of the undersigned, all of the beneficial interests of which shall be held by the undersigned or one or more members of the undersigned’s immediate family and (y) the undersigned’s heirs, successors, administrators and executors and any beneficiary of the undersigned pursuant to will or other testamentary document or applicable laws of decent, (2) any Affiliate of the undersigned, (3) if the undersigned is a trust, to a trustee or beneficiary of the trust, or (4) if the undersigned is an individual, an entity or a trust, to any institution qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a bona fide gift or gifts.
(c) Stop Transfer. During the Lock-Up Periods, undersigned hereby authorizes Parent to cause any transfer agent for the Covered Securities subject to this Agreement to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities, subject to this Agreement for which the undersigned is the record holder and, in the case of Covered Securities subject to this Agreement for which the undersigned is the beneficial owner but not the record holder, agrees during the Lock-Up Periods to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to the Covered Securities subject to this Agreement, if such transfer would constitute a violation or breach of this Agreement.
2. Termination. This Agreement shall automatically terminate and be of no further force or effect upon the earlier to occur of (i) the termination of the Merger Agreement and (ii) the first day following the expiration of the Third Lock-Up Period; provided that Sections 3 through 16 of this Agreement shall survive termination under this Section 2.
3. Transfer; Successor and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. As provided above, any Transfer of Parent Common Stock shall not be effective unless such transferee executes a lock-up agreement in substantially the same form as this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4. Compliance with Securities Laws. The undersigned shall not, at any time make any Transfer, except (i) Transfers pursuant to an effective registration statement under the Securities Act, (ii) Transfers pursuant to the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or (iii) if the undersigned shall have furnished Parent with an opinion of counsel, if reasonably requested by Parent, which opinion and counsel shall be reasonably satisfactory to Parent, to the effect that such Transfer is otherwise exempt from registration under the Securities Act, and in each of (i)-(iii), that such Transfer otherwise complies with the terms of this Agreement.
5. Other Restrictions.
(a) Legends. The undersigned hereby agrees that each outstanding certificate evidencing shares of Parent Common Stock issued to the undersigned shall bear legends reading substantially as follows:
“THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
“THE SALE OR TRANSFER OF THE SHARES EVIDENCED HEREBY IS SUBJECT TO THE TERMS AND CONDITIONS OF A LOCK-UP AGREEMENT DATED [_____________], BETWEEN THE COMPANY AND THE STOCKHOLDER LISTED ON THE FACE HEREOF. A COPY OF SUCH LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED TO THE HOLDER HEREOF UPON REQUEST THEREOF. NO TRANSFER OF THE SHARES EVIDENCED HEREBY WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH LOCK-UP AGREEMENT.”
(b) Termination of Restrictive Legends. The restrictions referred to in Section 5(a)(i) hereof shall cease and terminate as to Parent Common Stock (i) when, in the opinion of counsel for Parent, such restriction is no longer required in order to assure compliance with the Securities Act or (ii) when such shares shall have been Transferred in accordance with and pursuant to Rule 144 under the Securities Act or effectively registered under the Securities Act. The restrictions referred to in Section 5(a)(ii) hereof shall cease and terminate at the end of the Lock-Up Periods. Whenever any restrictions under Section 5(a) shall cease and terminate as to any Parent Common Stock, the undersigned shall be entitled to receive from Parent, in exchange for a legended stock certificate then held thereby, without expense (other than applicable transfer fees and taxes, if any, if such unlegended shares are being delivered and Transferred to any person other than the registered holder thereof), a new stock certificate for the same number of shares of Parent Common Stock not bearing the legend set forth in Section 5(a) which have ceased and terminated. As a condition to providing any such new certificate without the legend set forth in Section 5(a)(i) hereof, Parent may require from the undersigned a certificate or an opinion of counsel of the undersigned with respect to any relevant matters in connection with removal of such legend, which certificate or opinion of counsel will be satisfactory to Parent.
(c) Copy of Agreement. A copy of this Agreement shall be filed with the corporate secretary of Parent, shall be kept with the records of Parent and shall be made available for inspection by any stockholder of Parent. In addition, a copy of this Agreement shall be filed with Parent’s transfer agent of record.
(d) Recordation. Parent shall not record upon its books any Transfer to any person except Transfers in accordance with this Agreement.
6. No Other Rights. The undersigned understands and agrees that Parent is under no obligation to register the sale, Transfer or other disposition of the undersigned’s Covered Securities under the Securities Act or to take any other action necessary in order to ensure compliance with an exemption from such registration is available.
7. Amendments and Waivers. This Agreement may not be amended, supplemented or modified except by an agreement in writing signed by the undersigned and Parent. Either party hereto may waive compliance by the other party hereto with any term or provision of this Agreement; provided, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No such waiver shall be effective unless such waiver is in writing and is signed by the party hereto asserted to have granted such waiver.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
9. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures. This Agreement shall become effective when both parties hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party hereto has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party hereto shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
10. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
11. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) when delivered personally or by email (with confirmation of receipt), (ii) one (1) Business Day following the day when deposited with a reputable, established overnight courier service for delivery to the intended addressee, or (iii) three (3) Business Days following the day when deposited with the United States Postal Service as first class, registered or certified mail, postage prepaid and addressed as set forth on such party’s signature page hereto. Either party hereto may alter its notice address by notifying the other party hereto of such change of address in conformity with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
13. Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to as a remedy for any such breach, prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.
14. Recapitalizations and Exchanges Affecting Shares. Except as otherwise provided in Section 1(b), the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Covered Securities, and to any and all shares of capital stock or equity securities of Parent which may be issued by reason of any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification or otherwise.
15. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party to this Agreement shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party to this Agreement of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder shall be cumulative and not alternative.
16. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
[Signature Page Follows]
| I-1 |
IN WITNESS WHEREOF, the parties hereto have executed this Lock-Up Agreement as of the date first written above.
PARENT:
CLINIGENCE HOLDINGS, INC.
By:
Name:
Title:
Address:
Facsimile:
Attention:
[_____________]:
(Signature)
Address:
Facsimile:
| I-2 |
Footnotes
1 To be executed prior to the issuance of the shares in the Merger by owners of: (1) Mature hospitals (full issuance), (2) Ramping Hospital (initial issuance only) and (3) Under Construction Hospitals (initial issuance only)
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