Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
DATED AS OF
SEPTEMBER 20, 2004
BY AND AMONG
HEALTHSCRIBE, INC.,
MTS GROUP HOLDINGS, INC.
AND
HSI MERGER SUB, INC.
TABLE OF CONTENTS
ARTICLE I -- CERTAIN DEFINITIONS........................................... 1
Section 1.1 Certain Definitions....................................... 1
Section 1.2 Interpretation............................................ 14
Section 1.3 Accounting Terms.......................................... 14
ARTICLE II -- THE MERGER................................................... 14
Section 2.1 The Merger................................................ 14
Section 2.2 Certificate of Merger..................................... 15
Section 2.3 Certificate of Incorporation.............................. 15
Section 2.4 By-laws................................................... 15
Section 2.5 Officers.................................................. 15
Section 2.6 Directors................................................. 15
Section 2.7 Preferred Purchase Price; Common Stock Consideration;
Escrow Amount............................................. 15
Section 2.8 Conversion of Shares...................................... 21
Section 2.9 Exchange of Certificates.................................. 23
Section 2.10 Dissenting Shares......................................... 25
Section 2.11 Series C Preferred Stock Warrants and Series D Preferred
Stock Warrants............................................ 25
Section 2.12 Common Stock Options...................................... 26
Section 2.13 Closing................................................... 26
Section 2.14 Withholding Taxes......................................... 26
Section 2.15 Seller Expenses; Series E Seller Paper Amount............. 27
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 27
Section 3.1 Organization and Qualification; Subsidiaries.............. 27
Section 3.2 Authorization............................................. 27
Section 3.3 Non-contravention......................................... 28
Section 3.4 Consents.................................................. 28
Section 3.5 Capitalization; Subsidiaries.............................. 28
Section 3.6 Financial Statements; Liabilities......................... 29
Section 3.7 Absence of Certain Developments........................... 30
Section 3.8 Compliance with Laws; Governmental Authorizations;
Licenses; Etc............................................. 32
Section 3.9 Litigation................................................ 32
Section 3.10 Taxes..................................................... 32
Section 3.11 Environmental Matters..................................... 34
Section 3.12 Employee Matters.......................................... 35
Section 3.13 Employee Benefit Plans.................................... 36
Section 3.14 Intellectual Property Rights.............................. 37
Section 3.15 Contracts................................................. 38
Section 3.16 Insurance................................................. 40
Section 3.17 Real Property............................................. 41
Section 3.18 Transaction With Affiliates............................... 42
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Section 3.19 Brokers................................................... 42
Section 3.20 HIPAA..................................................... 42
Section 3.21 Compliance with Healthcare Laws and Regulations........... 43
Section 3.22 Government Contracts...................................... 43
Section 3.23 Customers and Suppliers................................... 44
Section 3.24 Assets.................................................... 45
Section 3.25 Notes and Accounts Receivable............................. 45
Section 3.26 HealthScribe India........................................ 45
Section 3.27 Advanta Acquisition....................................... 45
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO........... 45
Section 4.1 Organization.............................................. 45
Section 4.2 Authorization............................................. 45
Section 4.3 Non-contravention......................................... 46
Section 4.4 No Consents............................................... 46
Section 4.5 Litigation................................................ 46
Section 4.6 Brokers................................................... 46
Section 4.7 Parent and Newco Board.................................... 46
Section 4.8 Stockholder Approval...................................... 46
Section 4.9 No Other Representation................................... 47
ARTICLE V -- COVENANTS AND AGREEMENTS...................................... 47
Section 5.1 Stockholder Matters....................................... 47
Section 5.2 Access and Information.................................... 47
Section 5.3 Conduct of Business by the Company........................ 47
Section 5.4 Closing Documents......................................... 50
Section 5.5 Efforts; Further Assurances............................... 50
Section 5.6 Public Announcements...................................... 52
Section 5.7 Exclusive Dealing......................................... 52
Section 5.8 Financial Statements...................................... 53
Section 5.9 Spheris Business.......................................... 53
Section 5.10 HealthScribe India Private Limited Ownership.............. 54
Section 5.11 Advanta Acquisition....................................... 54
Section 5.12 FIRPTA.................................................... 54
Section 5.13 Tax Agreements............................................ 54
Section 5.14 Tax Matters............................................... 54
Section 5.15 Director and Officer Indemnification...................... 55
ARTICLE VI -- CONDITIONS TO CLOSING........................................ 55
Section 6.1 Mutual Conditions......................................... 55
Section 6.2 Conditions to the Obligations of Parent and Newco......... 56
Section 6.3 Conditions to the Obligations of the Company.............. 58
ARTICLE VII -- TERMINATION AMENDMENT AND WAIVER............................ 59
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Section 7.1 Termination............................................... 59
Section 7.2 Effect of Termination..................................... 60
ARTICLE VIII -- SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............... 60
Section 8.1 Survival of Representations............................... 60
Section 8.2 General Indemnification................................... 60
Section 8.3 Indemnification Claims.................................... 61
Section 8.4 Limitations on Indemnification Obligations................ 65
Section 8.5 Exclusive Remedy.......................................... 65
Section 8.6 Treatment of Indemnity Payments........................... 65
Section 8.7 Subrogation............................................... 66
Section 8.8 No Double Recovery........................................ 66
ARTICLE IX -- REPRESENTATIVE OF THE HOLDERS OF PREFERRED STOCK............. 66
Section 9.1 Authorization of Representative........................... 66
ARTICLE X -- MISCELLANEOUS................................................. 69
Section 10.1 Notices................................................... 69
Section 10.2 Exhibits and Schedules.................................... 69
Section 10.3 Computation of Time....................................... 70
Section 10.4 Expenses.................................................. 70
Section 10.5 Governing Law............................................. 70
Section 10.6 Assignment; Successors and Assigns; No Third Party
Rights.................................................... 70
Section 10.7 Counterparts.............................................. 71
Section 10.8 Titles and Headings....................................... 71
Section 10.9 Entire Agreement.......................................... 71
Section 10.10 Severability.............................................. 71
Section 10.11 No Strict Construction.................................... 71
Section 10.12 Specific Performance...................................... 71
Section 10.13 Waiver of Jury Trial...................................... 71
Section 10.14 Failure or Indulgence not Waiver.......................... 72
Section 10.15 Amendments................................................ 72
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EXHIBITS & SCHEDULES
EXHIBIT A NET WORKING CAPITAL AS OF DECEMBER 31, 2003
EXHIBIT B CERTIFICATE OF MERGER
EXHIBIT C FORM OF ESCROW AGREEMENT
EXHIBIT D FORM OF LEGAL OPINION OF COMPANY COUNSEL
EXHIBIT 6.2(C) COMPANY REQUIRED CONSENTS
EXHIBIT 6.2(K) EMPLOYMENT AGREEMENTS
EXHIBIT 6.3(B) PARENT AND NEWCO REQUIRED CONSENTS
SCHEDULE A LIST OF OPTION AGREEMENTS
SCHEDULE 3.1 JURISDICTIONS OF INCORPORATION
SCHEDULE 3.3 NON-CONTRAVENTION
SCHEDULE 3.4 CONSENTS
SCHEDULE 3.5(A) CAPITALIZATION
SCHEDULE 3.5(B) SUBSIDIARIES
SCHEDULE 3.6(A) FINANCIAL STATEMENTS
SCHEDULE 3.6(C) LETTERS OF CREDIT AND GUARANTEES
SCHEDULE 3.6(D) LIABILITIES
SCHEDULE 3.7 ABSENCE OF CERTAIN DEVELOPMENTS
SCHEDULE 3.8(A) COMPLIANCE WITH LAWS
SCHEDULE 3.8(B) GOVERNMENTAL AUTHORIZATIONS
SCHEDULE 3.8(C) GOVERNMENTAL ACTIONS
SCHEDULE 3.9 LITIGATION
SCHEDULE 3.10 TAXES
SCHEDULE 3.11 ENVIRONMENTAL MATTERS
SCHEDULE 3.12(A) EMPLOYEE MATTERS
SCHEDULE 3.12(C) CLASSIFICATION OF EMPLOYEES
SCHEDULE 3.13(A) EMPLOYEE BENEFIT PLANS
SCHEDULE 3.13(B) MULTIEMPLOYER BENEFIT PLANS
SCHEDULE 3.13(C) EMPLOYEE BENEFIT PLAN COMPLIANCE
SCHEDULE 3.13(H) EFFECTS OF MERGER ON EMPLOYEE BENEFIT PLANS
SCHEDULE 3.14(A) LIST OF INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 3.14(B) OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 3.14(C) INTELLECTUAL PROPERTY RIGHTS CLAIMS
SCHEDULE 3.14(D) INTERNAL SYSTEMS
SCHEDULE 3.15 CONTRACTS
SCHEDULE 3.16 INSURANCE
SCHEDULE 3.17 REAL PROPERTY
SCHEDULE 3.18 TRANSACTIONS WITH AFFILIATES
SCHEDULE 3.19 BROKERS
SCHEDULE 3.22 CUSTOMERS AND SUPPLIERS
SCHEDULE 3.28 SELLER EXPENSES
SCHEDULE 4.4 PARENT AND NEWCO CONSENTS
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated September 20,
2004, is by and among MTS Group Holdings, Inc., a Delaware corporation
("Parent"); HSI Merger Sub, Inc., a Delaware corporation ("Newco"); and
HealthScribe, Inc., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Newco and the
Company have approved the merger of Newco with and into the Company on the terms
and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, the Boards of Directors of each of Parent,
Newco and the Company have approved this Agreement and the Merger (as defined
below), upon the terms of and subject to the conditions set forth in this
Agreement;
WHEREAS, pursuant to the Merger, shares of Common Stock (as defined below)
and Preferred Stock (as defined below) will be converted into the Common Stock
Consideration (as defined below) and the Preferred Stock Consideration (as
defined below), respectively, in the manner set forth herein; and
WHEREAS, each of (a) Blue Chip Capital Fund II Limited Partnership, Miami
Valley Venture Fund, L.P. and Blue Xxxx XX Limited Partnership; (b) VIMAC Early
Stage Fund L.P., Venture Investment Management Company LLC, VIMAC HSI Limited
Partnership, VIMAC HSI2 Limited Partnership, VIMAC HSI3 Limited Partnership,
VIMAC HSI4 Limited Partnership, VIMAC HSI5 Limited Partnership, VIMAC 96 Vintage
Trust Limited Partnership and VIMAC 98 Vintage Trust Limited Partnership; (c)
Artal Services, N.V.; (d) Psilos Group Partners, L.P. and CCP/Psilos
HealthScribe, LLC; and (e) Grotech Partners V, L.P. have entered into certain
letter agreements with Parent as of the date hereof, whereby each such party has
agreed to certain covenants with Parent.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound, the parties hereto agree as follows:
ARTICLE I -- CERTAIN DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the following
terms have the respective meanings set forth below.
"Actual Adjustment" means (x) the Preferred Purchase Price as set forth on
the Final Statement of Preferred Purchase Price (as herein defined) minus (y)
the Estimated Preferred Purchase Price.
"Affiliate" means, with respect to any Person, any other Person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlled" and "controlling" have meanings correlative thereto.
"Agreed Amount" means, with respect to any Claimed Amount, that portion of
such Claimed Amount that the applicable Responsible Party agrees in a Response
is payable pursuant to the provisions of Article VIII, as the case may be.
"Balance Sheet Adjustment" means (i) if the Balance Sheet Components are
equal to or less than $1,800,000, then an amount equal to the Balance Sheet
Components, (ii) if the Balance Sheet Components are greater than $1,800,000 and
less than $3,600,000, then $1,800,000 and (iii) if the Balance Sheet Components
are equal to or greater than $3,600,000, then an amount equal to (x) the Balance
Sheet Components minus (y) $1,800,000; provided, however, that in no event will
the Balance Sheet Adjustment exceed $2,300,000.
"Balance Sheet Components" means the sum of (i) the Net Working Capital
Adjustment, if any, plus (ii) the amount of Closing Date Funded Indebtedness,
plus (iii) the amount of Seller Expenses.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of
business.
"Cash and Cash Equivalents" means the sum of the fair market value
(expressed in United States dollars) of all cash and cash equivalents (including
marketable securities and short term investments) of the Company and the
Subsidiaries (as herein defined) as of immediately prior to the Closing
(including any such cash which may have been received by the Company in
connection with the exercise of any outstanding options or warrants to purchase
the Company's equity securities).
"Certificate of Incorporation" means the Sixth Amended and Restated
Certificate of Incorporation of the Company, dated as of March 18, 2002, as
amended.
"Certificates" means the outstanding certificates which immediately prior
to the Effective Time represent shares of Common Stock or shares of Preferred
Stock, as applicable.
"Claim Notice" shall mean written notification which contains (i) a
description of the Losses incurred or reasonably expected to be incurred by the
Indemnified Party and the Claimed Amount of such Losses, to the extent then
known, (ii) a statement that the Indemnified Party is entitled to
indemnification under Article VIII for such Losses and a reasonable explanation
of the basis therefor, and (iii) a demand for payment in the amount of such
Losses.
"Claimed Amount" shall mean the amount of any Losses incurred or reasonably
expected to be incurred by the Indemnified Party.
"Closing Date Certificate" has the meaning set forth in Section 2.7(a).
"Closing Date Funded Indebtedness" means the Funded Indebtedness as of
immediately prior to the Closing other than the Series E Seller Paper Amount
(which is included in the definition of "Other Adjustment"). As a point of
clarity, the Closing Date Funded Indebtedness
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will include only the applicable amount with respect to HealthScribe India
Private Limited as set forth in the last sentence of the definition of "Funded
Indebtedness".
"Closing Date Incentive Bonus Plan Payments" means all amounts payable to
employees of the Company or any of its Subsidiaries that are triggered as a
result of the Company entering into this Agreement and/or the consummation of
the transactions contemplated hereby under the Incentive Bonus Plan as well as
all costs, taxes, Code Section 280G or Section 4999 gross-up payments and
expenses of the Company and its Subsidiaries incurred as a result of any such
payments. Notwithstanding the foregoing, "Closing Date Incentive Bonus Plan
Payments" shall not include any amounts payable under the Incentive Bonus Plan
pursuant to Section 2.7(c)(i) or from the Escrow Account (as herein defined). As
a point of clarity, the determination of the amounts payable to the employees of
the Company and its Subsidiaries at Closing pursuant to the Incentive Bonus
Plan, which will be the basis for the determination of the "Closing Date
Incentive Bonus Plan Payments", shall be based upon the Enterprise Value less
the estimated Balance Sheet Adjustment less the estimated Other Adjustment and
less the Escrow Amount (as herein defined).
"COBRA" means Part 6 of Subtitle B of Title I of ERISA, Section 4980B of
the Code and any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Voting Common Stock and the
Non-Voting Common Stock.
"Common Stock Aggregate Amount" means $750,000.
"Common Stock Consideration" means (a) the sum of (i) the Common Stock
Aggregate Amount plus (ii) the aggregate exercise price for all Vested and In
the Money Options outstanding immediately prior to the Effective Time divided by
(b) the sum of (i) number of shares of Common Stock outstanding immediately
prior to the Effective Time and (ii) the number of shares of Common Stock
issuable upon the exercise in full of all Vested and In the Money Options
outstanding immediately prior to the Effective Time.
"Common Stock Option Agreements" means the option agreements entered into
by and between the Company and certain Persons as described in Schedule A
attached hereto, each as amended, restated or modified from time to time.
"Common Stock Option Plan" means the Company's Amended and Restated Stock
Option Plan, as amended from time to time.
"Common Stock Options" means each option or warrant to acquire or purchase
shares of the Common Stock of the Company, including without limitation, the (i)
vested and unvested options to purchase up to 6,670,184 shares of Common Stock
outstanding as of the date hereof issued to certain current and former employees
of the Company pursuant to the Common Stock Option Plan or otherwise and
pursuant to certain Common Stock Option Agreements and (ii) warrants to purchase
up to 506,589 shares of Common Stock outstanding as of the date hereof pursuant
to the Common Stock Warrants.
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"Common Stock Warrants" means those warrants to purchase Common Stock
listed on Schedule A.
"Company Preferred Securityholders" means the holders of Preferred Stock.
"Confidentiality Agreement" means that certain agreement, dated as of
August 24, 2004, by and between the Company and Xxxxx Fund Management, LLC.
"Dispute" shall mean the dispute resulting if the Responsible Party in a
Response disputes that all or part of the Claimed Amount is payable pursuant to
the provisions of Article VIII.
"Dissenters Rights Company Representative" means (i) prior to Closing, the
Company and (ii) after the Closing, the Stockholder Representatives.
"Employee Benefit Plan" means each "employee benefit plan" (as such term is
defined in Section 3(3) of ERISA) and each other employee benefit plan, program
or arrangement maintained, sponsored or contributed to by the Company or any of
its Subsidiaries or with respect to which the Company or any of its Subsidiaries
has any actual or potential liability.
"Enterprise Value" means Seventy Five Million Dollars ($75,000,000.00).
"Environmental Laws" shall mean all federal, state, local and foreign
statutes, regulations, ordinances and similar provisions having the force or
effect of law concerning pollution or protection of the environment as such
requirements are enacted and in effect on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity that is considered a single employer
with the Company under Section 414 of the Code.
"Estimated Preferred Purchase Price" means a good faith estimate of the
Preferred Purchase Price, as determined by the Company's Chief Financial Officer
in accordance with the terms of Section 2.7(a). In connection with determining
the Estimated Preferred Purchase Price, the Company's Chief Financial Officer
shall (i) use the actual (A) Enterprise Value and (B) Common Stock Aggregate
Amount and (ii) estimate (A) the Net Working Capital Adjustment, (B) the amount
of Closing Date Funded Indebtedness, (C) the Preferred Stock Warrant
Consideration, (D) the amount of Seller Expenses, (E) the amount of Closing Date
Incentive Bonus Plan Payments, (F) the Escrow Amount and (G) the Other
Adjustment.
"Exchange Act" means the Securities Act of 1934, as amended (together with
the rules and regulations promulgated thereunder).
"Extraordinary Balance Sheet Adjustment" means if the Balance Sheet
Components are greater than $8,600,000, then an amount equal to (x) the Balance
Sheet Components minus (y) $8,600,000.
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"Funded Indebtedness" means, as of any date, without duplication, the
outstanding principal amount of, accrued and unpaid interest on and other
payment obligations (including any prepayment premiums payable as of such date
if such principal and interest is paid in full as of such date) arising under
any obligations of the Company or any Subsidiary consisting of (i) indebtedness
or guarantees of indebtedness for borrowed money or for the deferred purchase
price of property or services (other than (A) guarantees by the Company or any
of its Subsidiaries of indebtedness of the Company or any of its Subsidiaries
and (B) trade payables and accrued expenses arising in the ordinary course of
business but, except as expressly provided in the last sentence of this
definition, including all seller notes and "earn-out" payments), (ii)
indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) obligations under any interest rate, currency or other hedging agreements,
(iv) obligations under conditional sale or other title retention agreements
related to property purchased by the Company or any Subsidiary (other than
accounts payable and accrued expenses incurred in the ordinary course of
business), and (v) all obligations of any Person other than the Company or any
Subsidiary secured by any Lien on property or assets owned by the Company and/or
any of its Subsidiaries, whether or not the obligations secured thereby have
been assumed by the Company and/or any of its Subsidiaries, in each case, as of
such date. Notwithstanding the foregoing, (i) "Funded Indebtedness" shall not
include any obligations under capitalized leases or up to $750,000 in potential
earn-out payments payable by the Company as part of any Advanta Acquisition (as
herein defined) and (ii) instead of the principal amount of any seller note
issued in connection with any HealthScribe India Repurchase (as herein defined)
included in "Funded Indebtedness", (x) if the HealthScribe India Repurchase has
been consummated prior to Closing then an additional $375,000 shall be included
in "Closing Date Funded Indebtedness" and (y) if the HealthScribe India
Repurchase has not been consummated prior to Closing, then an additional
$875,000 shall be included in "Closing Date Funded Indebtedness".
"GAAP" means generally accepted accounting principles as in effect in the
United States on the date of this Agreement.
"Government Bid" means any offer made by the Company or its Subsidiaries
prior to the Closing Date which, if accepted, would result in a Government
Contract.
"Government Contract" means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, pricing
agreement, letter contract or other similar arrangement of any kind, between the
Company or its Subsidiaries, on the one hand, and (a) any Governmental
Authority, (b) any prime contractor of a Governmental Authority in its capacity
as a prime contractor, or (c) any subcontractor with respect to any contract of
a type described in clauses (a) or (b) above, on the other hand. A task,
purchase or delivery order under a Government Contract shall not constitute a
separate Government Contract, for purposes of this definition, but shall be part
of the Government Contract to which it relates.
"Governmental Authority" means any national, federal, state, provincial,
county, municipal or local government, foreign or domestic, or the government of
any political subdivision of any of the foregoing, or any entity, authority,
agency, ministry or other similar body exercising executive, legislative,
judicial, regulatory or administrative authority or functions of or pertaining
to government, including any authority or other quasi-governmental entity
established to perform any of such functions.
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"Hazardous Materials" shall mean (a) petroleum and petroleum products,
radioactive materials, asbestos-containing materials, mold, urea formaldehyde
foam insulation, transformers or other equipment that contain polychlorinated
biphenyls and radon gas, (b) any other chemicals, materials or substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or
"pollutants", or words of similar import, under any applicable Environmental
Law, and (c) any other chemical, material or substance which is regulated by any
Environmental Law.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Incentive Bonus Plan" means the Company's Incentive Bonus Plan approved in
November 2003, as amended, and as in effect from time to time.
"Indemnified Party" shall mean a party entitled, or seeking to assert
rights, to indemnification under Article VIII.
"Intellectual Property Rights" means all of the following in any
jurisdiction throughout the world:
(1) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof,
(2) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith,
(3) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith,
(4) all rights of publicity and rights of privacy,
(5) all trade secrets and confidential business information (including
ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals),
(6) all computer software (including source code, executable code, data,
databases, and related documentation),
(7) all advertising and promotional materials,
(8) all other proprietary rights, and
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(9) all copies and tangible embodiments thereof (in whatever form or
medium).
"Knowledge" means, with respect to any Person, the actual knowledge of such
Person; provided that in the case of the Company, such knowledge shall be
limited to the Knowledge of Xxxxxxx Xxxx, Xxxxx Xxxxxxxx, Xxxxxx Xxxxxxx,
Xxxxxxxxxxx Xxxx, Xxxxx Xxxxxxx, Xxxxx Xxxxxxxx, Xxx Xxxxxx and Xxxxxx Xxxxxx.
"Legal Proceeding" shall mean any action, suit, proceeding, claim,
arbitration or investigation before any Governmental Authority or before any
arbitrator or mediator.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind other than (i) liens arising under worker's compensation,
unemployment insurance, social security, retirement, and similar legislation,
(ii) liens on goods in transit incurred pursuant to documentary letters of
credit and (iii) statutory encumbrances of landlords, carriers or warehousemen
imposed by law, in each case arising in the ordinary course of business of the
Company and not material to the Company.
"Material Adverse Effect" means a material adverse effect upon the
business, assets, liabilities, condition (financial or otherwise), or results of
operations of the Company and its Subsidiaries, taken as a whole; provided,
however, that the following will not be considered a Material Adverse Effect (i)
any adverse effect that primarily results from the announcement of the
transactions contemplated by this Agreement, and/or (ii) any adverse effect that
results from changes in GAAP.
"Merger Documents" means, collectively, this Agreement, the Certificate of
Merger, and all other agreements and documents entered into in connection with
the Merger.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.
"Net Working Capital" means, as of any date:
(I)(A) Cash and Cash Equivalents plus (B) accounts receivable (net of
reserves for doubtful accounts) plus (C) prepaid expenses
minus
(II)(A) accounts payable and accrued expenses plus (B) other current
liabilities; except, however, that Seller Expenses and Funded Indebtedness shall
not constitute current liabilities for purposes of this definition,
in each case, of the Company and the Subsidiaries, on a consolidated basis, as
of such date, as determined in accordance with GAAP and (A) using the same
accounting methods, policies, practices, and procedures, with consistent
classification, judgments, and estimation methodology, as were used by the
Company and the Subsidiaries in preparing the Net Working Capital as of December
31, 2003, which is attached as Exhibit A hereto, and (B) without giving effect
to the transactions contemplated by this Agreement. Notwithstanding the
foregoing, "Net Working Capital" shall not include or take into account property
and equipment, goodwill and other intangible assets, Funded Indebtedness and
Seller Expenses.
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"Net Working Capital Adjustment" means the amount equal to (i) $4,000,000
(the "NWC Target") minus (ii) the Net Working Capital as of immediately prior to
the Closing; provided that if the Net Working Capital as of immediately prior to
the Closing is equal to or greater than the NWC Target, then the "Net Working
Capital Adjustment" shall be zero.
"Non-Voting Common Stock" means the Non-Voting Common Stock, par value
$0.01 per share, of the Company.
"Other Adjustment" means the sum of (i) the Extraordinary Balance Sheet
Adjustment, if any, plus (ii) the Series E Seller Paper Amount.
"Permitted Liens" means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for Taxes, assessments and governmental charges or levies not yet due
and payable as of the Effective Time; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that (i) are not due and payable and (ii) are not in excess of $50,000 in the
aggregate at any time; (c) pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure public or
statutory obligations; and (d) reciprocal easement agreements and other
customary encumbrances on title to the Leased Property that (i) were not
incurred in connection with any indebtedness, (ii) do not render title to the
property encumbered thereby unmarketable and (iii) do not, individually or in
the aggregate, materially adversely affect the use or occupancy of such
property.
"Person" means an individual, partnership, corporation, limited liability
company, joint stock company, unincorporated organization or association, trust,
joint venture, association or other organization, whether or not a legal entity,
or a Governmental Authority.
"Pre-Closing Taxes" means Taxes of the Company or for which the Company may
become liable with respect to a Tax period ending on or before the Closing date
and, in the case of a Tax period that begins on or before the Closing Date and
ends after the Closing Date, the Taxes allocable to the portion of such period
ending on or before the Closing Date based on a deemed closing of the books in
the case of income, profits, sales, employment and other Taxes readily
apportionable between periods and, in the case of all other Taxes, in proportion
to the number of days in the Tax period that arose on and before the Closing
Date.
"Preferred Purchase Price" means (i) the Enterprise Value, minus (ii) the
Balance Sheet Adjustment, minus (iii) the Closing Date Incentive Bonus Plan
Payments minus (iv) the Common Stock Aggregate Amount, minus (v) the Preferred
Stock Warrant Consideration, minus (vi) the Other Adjustment, minus (vii) the
Escrow Amount.
"Preferred Stock" means, collectively, the Series A Preferred Stock, the
Series B Preferred Stock, the Series B1 Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock.
"Preferred Stock Consideration" means, collectively, the Series A Preferred
Stock Consideration, the Series B Preferred Stock Consideration, the Series B1
Preferred Stock
8
Consideration, the Series C Preferred Stock Consideration, the Series D
Preferred Stock Consideration and the Series E Preferred Stock Consideration.
"Preferred Stock Warrant Consideration" means the aggregate amount of all
payments required to be made by the Surviving Corporation to holders of Series C
Preferred Stock Warrants and Series D Preferred Stock Warrants pursuant to
Section 2.11(a) hereof along with all employer-related Taxes and other amounts
payable by the Surviving Corporation in connection therewith.
"Pro Rata Portion" means, with respect to any payment to the Company
Preferred Securityholders pursuant to Section 2.7(c) or directly or indirectly
from the Escrow Account (or as set forth in Section 9.1(b)), that portion of
such payment as equals:
(a) with respect to each share of Series A Preferred Stock (other than any
Dissenting Series A Preferred Shares) outstanding immediately prior to the
Effective Time, (i) the amount of such payment multiplied by (ii) the Series A
Percentage (expressed as a decimal number) divided by (iii) the number of shares
of Series A Preferred Stock outstanding immediately prior to the Effective Time;
(b) with respect to each share of Series B Preferred Stock (other than any
Dissenting Series B Preferred Shares) outstanding immediately prior to the
Effective Time, (i) the amount of such payment multiplied by (ii) the Series B
Percentage (expressed as a decimal number) divided by (iii) the number of shares
of Series B Preferred Stock outstanding immediately prior to the Effective Time;
(c) with respect to each share of Series B1 Preferred Stock (other than any
Dissenting Series B1 Preferred Shares) outstanding immediately prior to the
Effective Time, (i) the amount of such payment multiplied by (ii) the Series B1
Percentage (expressed as a decimal number) divided by (iii) the number of shares
of Series B1 Preferred Stock outstanding immediately prior to the Effective
Time;
(d) with respect to each share of Series C Preferred Stock (other than any
Dissenting Series C Preferred Shares) outstanding immediately prior to the
Effective Time and each share of Series C Preferred Stock issuable upon the
exercise of a Series C Preferred Stock Warrant outstanding immediately prior to
the Effective Time, (i) the amount of such payment multiplied by (ii) the Series
C Percentage (expressed as a decimal number) divided by (iii) the sum of the
number of shares of Series C Preferred Stock outstanding immediately prior to
the Effective Time plus the number of shares of Series C Preferred Stock
issuable upon the exercise of all Series C Preferred Stock Warrants outstanding
immediately prior to the Effective Time;
(e) with respect to each share of Series D Preferred Stock (other than any
Dissenting Series D Preferred Shares) outstanding immediately prior to the
Effective Time and each share of Series D Preferred Stock issuable upon the
exercise of a Series D Preferred Stock Warrant outstanding immediately prior to
the Effective Time, (i) the amount of such payment multiplied by (ii) the Series
D Percentage (expressed as a decimal number) divided by (iii) the sum of the
number of shares of Series D Preferred Stock outstanding immediately prior to
the Effective
9
Time plus the number of shares of Series D Preferred Stock issuable upon the
exercise of all Series D Preferred Stock Warrants outstanding immediately prior
to the Effective Time; and
(f) with respect to each share of Series E Preferred Stock (other than any
Dissenting Series E Preferred Shares) outstanding immediately prior to the
Effective Time, (i) the amount of such payment multiplied by (ii) the Series E
Percentage (expressed as a decimal number) divided by (iii) the number of shares
of Series E Preferred Stock outstanding immediately prior to the Effective Time.
"Purchase Price Escrow Component" means (i) $2,300,000 minus (ii) the
estimated Balance Sheet Adjustment as set forth on the Closing Date Certificate.
"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing, appearing and
the like into or upon any land, building, surface, subsurface or water or air or
otherwise entering into the environment.
"Response" shall mean a written response containing the information
provided for in Section 8.3(f).
"Responsible Party" means (i) with respect to any instance where a Buyer
Indemnitee is an Indemnified Party, Stockholder Representatives, or (ii) with
respect to any instance where a Seller Indemnitee is an Indemnified Party,
Parent.
"Securities Act" means the Securities Act of 1933, as amended (together
with the rules and regulations promulgated thereunder).
"Seller Expenses" means the aggregate of (i) the out of pocket expenses
payable as of the Closing by the Company in connection with the consummation of
the transactions contemplated hereby to any legal counsel, accountants,
investment bankers, or consultants, including, without limitation, the
collective amount payable by the Company or any of its Subsidiaries to Holland &
Knight LLP, Houlihan, Lokey, Xxxxxx & Xxxxx and Xxxxx & Xxxxx LLP as of the
Closing (provided that, in the case of legal fees, only the amount of legal fees
in excess of $75,000 (the "Reimbursement Amount") shall be included in "Seller
Expenses") plus (ii) the Expense Funds (as defined in Section 9.1(a)) plus (iii)
any transfer, sale, use, stamp, conveyance, value added, recording,
registration, documentary, filing and other non-income Taxes and administrative
and filing fees (including, without limitation, any notary fees and the fees
incurred by the Company in connection with the HSR Act filing contemplated by
Section 5.5(b)) arising in connection with the consummation of the Merger and
payable by the Company or the Surviving Corporation plus (iv) all amounts
payable to employees and/or directors of the Company or any of its Subsidiaries
as a result of the Company entering into this Agreement and/or the consummation
of the transactions contemplated hereby (including any and all severance
payments the Company or any of its Subsidiaries may have to make under any of
the Company's or any of its Subsidiaries' employment agreements with its
employees as of the Closing (other than Xxxxx Xxxxxxxx), including, without
limitation, with Xxxxxxx Xxxx, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxx Xxxxxx and
Xxxxx Xxxxxxxx) as well as all costs, taxes, Code Section 280G or Section 4999
gross-up payments and expenses of the Company and its Subsidiaries incurred as a
result of any such payments; provided that this clause (iv) shall not include
any and all severance payments the Company may
10
have to make under the Company's current employment agreement with Xxxxx
Xxxxxxxx and shall not include any and all payments under the Incentive Bonus
Plan.
"Series A Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series A Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Series A Preferred Stock Consideration" means, with respect to each
outstanding share of Series A Preferred Stock, an amount equal to (A) the
Estimated Series A Preferred Stock Consideration plus (B) if and when payable, a
Pro Rata Portion of (i) amounts payable, directly or indirectly, to the Company
Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii) amounts
payable, directly or indirectly, to the Company Preferred Securityholders from
the Escrow Account pursuant to the terms hereof and the Escrow Agreement.
"Series B Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series B Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
"Series B Preferred Stock" means the Series B Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Series B Preferred Stock Consideration" means, with respect to each
outstanding share of Series B Preferred Stock, an amount equal to (A) the
Estimated Series B Preferred Stock Consideration plus (B) if and when payable, a
Pro Rata Portion of (i) amounts payable, directly or indirectly, to the Company
Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii) amounts
payable, directly or indirectly, to the Company Preferred Securityholders from
the Escrow Account pursuant to the terms hereof and the Escrow Agreement.
"Series B1 Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series B1 Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
"Series B1 Preferred Stock" means the Series B1 Convertible Preferred
Stock, par value $1.00 per share, of the Company.
"Series B1 Preferred Stock Consideration" means, with respect to each
outstanding share of Series B1 Preferred Stock, an amount equal to (A) the
Estimated Series B1 Preferred Stock Consideration plus (B) if and when payable,
a Pro Rata Portion of (i) amounts payable, directly or indirectly, to the
Company Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii)
11
amounts payable, directly or indirectly, to the Company Preferred
Securityholders from the Escrow Account pursuant to the terms hereof and the
Escrow Agreement.
"Series C Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series C Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
"Series C Preferred Stock" means the Series C Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Series C Preferred Stock Consideration" means, with respect to each
outstanding share of Series C Preferred Stock, an amount equal to (A) the
Estimated Series C Preferred Stock Consideration plus (B) if and when payable, a
Pro Rata Portion of (i) amounts payable, directly or indirectly, to the Company
Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii) amounts
payable, directly or indirectly, to the Company Preferred Securityholders from
the Escrow Account pursuant to the terms hereof and the Escrow Agreement.
"Series C Preferred Stock Warrants" means all warrants to purchase Series C
Preferred Stock including those listed on Exhibit A.
"Series D Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series D Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
"Series D Preferred Stock" means the Series D Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Series D Preferred Stock Consideration" means, with respect to each
outstanding share of Series D Preferred Stock, an amount equal to (A) the
Estimated Series D Preferred Stock Consideration plus (B) if and when payable, a
Pro Rata Portion of (i) amounts payable, directly or indirectly, to the Company
Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii) amounts
payable, directly or indirectly, to the Company Preferred Securityholders from
the Escrow Account pursuant to the terms hereof and the Escrow Agreement.
"Series D Preferred Stock Warrants" means all warrants to purchase Series D
Preferred Stock including those listed on Exhibit A.
"Series E Percentage" means the aggregate portion of the Estimated
Preferred Purchase Price to be paid to the holders of Series E Preferred Stock,
without duplication, pursuant to the Closing Date Certificate and Sections
2.7(a), 2.7(c) (if any), 2.8 and 2.9, divided by the sum of (i) Estimated
Preferred Purchase Price plus (ii) the aggregate amount paid (if any) to all
Company Preferred Securityholders pursuant to Section 2.7(c).
12
"Series E Preferred Stock" means the Series E Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Series E Preferred Stock Consideration" means, with respect to each
outstanding share of Series E Preferred Stock, an amount equal to (A) the
Estimated Series A Preferred Stock Consideration plus (B) if and when payable, a
Pro Rata Portion of (i) amounts payable, directly or indirectly, to the Company
Preferred Securityholders pursuant to Section 2.7(c) hereof and (ii) amounts
payable, directly or indirectly, to the Company Preferred Securityholders from
the Escrow Account pursuant to the terms hereof and the Escrow Agreement.
"Series E Seller Paper Amount" means the outstanding principal amount of,
accrued and unpaid interest on and other payment obligations (including any
prepayment premiums payable as of the Closing if such principal and interest is
paid in full as of such date) as of immediately prior to the Closing arising
under any seller note issued by the Company or any of its Subsidiaries to
repurchase Series E Preferred Stock.
"Stockholder Consent" means the written consent to the Merger by the
requisite stockholders of the Company pursuant to the provisions of the DGCL.
"Stockholder Representatives" means, collectively, one designee of Blue
Chip Venture Company, Ltd., and one designee of Grotech Capital Group V, L.L.C.
The Stockholder Representatives initially designated are Xxxx X. XxXxxxxxxx and
Xxxxx X. Xxxxx.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) 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 (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director, managing member, general partner or other managing Person of such
partnership, association or other business entity. Unless the context requires
otherwise, each reference to a Subsidiary shall be deemed to be a reference to a
Subsidiary of the Company.
"Taxes" (including with correlative meaning "Tax" and "Taxable") shall mean
(x) any and all taxes, and any and all other charges, fees, levies, duties,
deficiencies, customs or other similar assessments or liabilities in the nature
of a tax, including, without limitation any income, gross receipts, ad valorem,
premium, value-added, alternative or add-on minimum, excise, real property,
personal property, assets, sales, use, capital stock, capital gains,
documentary, recapture, transfer, transfer gains, estimated withholding,
employment, unemployment, insurance, unemployment compensation, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, gains, and other taxes
severance, stamp, occupation, windfall profits, customs, duties, franchise and
13
other taxes imposed by the United States of America or any state, local or
foreign government, or any agency thereof, or other political subdivision of the
United States or any such government, (y) any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof described in this
paragraph or any contest or dispute thereof, and (z) any items described in this
paragraph that are attributable to another person but that the Company is liable
to pay by law, by contract, or otherwise.
"Tax Return" means any return, report, declaration, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or required to be filed in connection
with the determination, assessment or collection of any Tax of any party or the
administration of any laws, regulations or administrative requirements relating
to any Tax (including any amendment thereof).
"Third Party Action" shall mean any suit, claim, action or proceeding by a
person or entity other than a party to this Agreement or any Affiliate of any
such party for which indemnification may be sought under Article VIII.
"Unvested and Out of the Money Common Stock Options" means all Common Stock
Options other than Vested and In the Money Common Stock Options.
"Vested and In the Money Options" means all Common Stock Options that (i)
are vested and exercisable as of the Effective Time and (ii) have an exercise
price per share of Common Stock less than five cents ($0.05).
"Voting Common Stock" means the Common Stock, par value $0.01 per share, of
the Company.
Section 1.2 Interpretation. Unless otherwise indicated to the contrary
herein by the context or use thereof: (i) the words, "herein," "hereto,"
"hereof" and words of similar import refer to this Agreement as a whole and not
to any particular Section or paragraph hereof; (ii) the word "including" means
"including, but not limited to"; (iii) masculine gender shall also include the
feminine and neutral genders, and vice versa; and (iv) words importing the
singular shall also include the plural, and vice versa.
Section 1.3 Accounting Terms. Except as otherwise expressly provided herein
or in the disclosure schedules (the "Schedules") hereto, all accounting terms
used in this Agreement shall be interpreted, and all financial statements,
Schedules, certificates and reports as to financial matters required to be
delivered hereunder shall be prepared, in accordance with GAAP, consistently
applied by Company. The parties understand and acknowledge that there are
elements to GAAP that are subject to interpretation and that there may be more
than one acceptable method of handling a particular item under GAAP.
ARTICLE II -- THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time, Newco shall, pursuant to the provisions
of the Delaware General Corporation Law (as amended from time to time, the
"DGCL"), be merged with and into the Company (the
14
"Merger"), and the separate corporate existence of Newco shall thereupon cease
in accordance with the provisions of the DGCL. The Company shall be the
surviving corporation in the Merger and shall continue to exist as the surviving
corporation under its present name pursuant to the provisions of the DGCL. The
separate corporate existence of the Company with all its rights, privileges,
powers and franchises shall continue unaffected by the Merger. The Merger shall
have the effects specified in the DGCL. From and after the Effective Time, the
Company is sometimes referred to herein as the "Surviving Corporation."
Section 2.2 Certificate of Merger. On the Closing Date, the parties hereto
shall cause certificate of merger substantially in the form attached hereto as
Exhibit B (the "Certificate of Merger"), in accordance with the relevant
provisions of the DGCL to be properly executed and filed in accordance with the
DGCL and shall make all other filings or recordings required under the DGCL. The
Merger shall be effective at the time and on the date of the filing of the
Certificate of Merger in accordance with the DGCL, which filing shall occur on
the Closing Date (the "Effective Time").
Section 2.3 Certificate of Incorporation. The certificate of incorporation
of the Surviving Corporation shall be amended as of the Effective Time to read
as did the certificate of incorporation of Newco immediately prior to the
Effective Time (except that the name of the Surviving Corporation shall be
"HealthScribe, Inc."). Such amended certificate of incorporation of the
Surviving Corporation shall continue in full force and effect until further
amended in the manner prescribed by the provisions of the DGCL.
Section 2.4 By-laws. The by-laws of Newco in effect immediately prior to
the Effective Time shall be the by-laws of the Surviving Corporation until
amended in accordance with applicable law.
Section 2.5 Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and will hold
office until their successors are duly elected or appointed and qualify in the
manner provided in the certificate of incorporation or by-laws of the Surviving
Corporation or as otherwise provided by law, or until their earlier death,
resignation or removal.
Section 2.6 Directors. The directors of Newco immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and will
serve until their successors are duly elected or appointed and qualify in the
manner provided in the certificate of incorporation or by-laws of the Surviving
Corporation or as otherwise provided by law, or until their earlier death,
resignation or removal.
Section 2.7 Preferred purchase price; common stock consideration; escrow
amount.
(a) Estimated Preferred Purchase Price; Common Stock Consideration; Escrow
Amount. No later than three nor more than five Business Days prior to the
Closing, the Company shall deliver to Parent and Stockholder Representatives a
certificate (the "Company Certificate") setting forth the calculation of the
Estimated Preferred Purchase Price, which shall be a good faith estimate of the
Preferred Purchase Price and shall be executed by the Company's Chief Financial
Officer, and which shall be determined based upon the Company's most recent
15
financial statements as of the date of such estimate while taking into account
changes in the Company's financial position since the date of such financial
statements. This Company Certificate shall also set forth the estimated amount
per share that the holder of each share of Series A Preferred Stock (other than
Dissenting Series A Preferred Shares), the holder of each share of Series B
Preferred Stock (other than Dissenting Series B Preferred Shares), the holder of
each share of Series B1 Preferred Stock (other than Dissenting Series B1
Preferred Shares), the holder of each share of Series C Preferred Stock (other
than Dissenting Series C Preferred Shares), the holder of each share of Series D
Preferred Stock (other than Dissenting Series D Preferred Shares) and the holder
of each share of Series E Preferred Stock (other than Dissenting Series E
Preferred Shares) shall be paid at Closing (subject to the terms hereof) based
upon the Estimated Preferred Purchase Price and the calculation thereof (the
"Estimated Preferred Per Share Prices"). Except as set forth in the immediately
succeeding sentence, this calculation of the Estimated Preferred Per Share
Prices shall reflect all amounts that holders of each Series of Preferred Stock
are entitled to receive pursuant to the terms of the Certificate of
Incorporation (and shall be paid pursuant to the priorities on liquidation of
the Preferred Stock as set forth in the Certificate of Incorporation) unless
otherwise agreed to in writing by the holders of a majority of the then
outstanding shares of the Series A Preferred Stock, a majority of the then
outstanding shares of Series B Preferred Stock, a majority of the then
outstanding shares of Series C Preferred Stock, a majority of the then
outstanding shares of Series D Preferred Stock and a majority of the then
outstanding shares of Series E Preferred Stock. The calculation of the Estimated
Preferred Per Share Prices shall account for the fact that the Common Stock
Aggregate Amount shall be funded by the Company Preferred Securityholders out of
the amounts they would otherwise be entitled to receive based on the terms of
the Certificate of Incorporation in proportion to the Estimated Preferred
Purchase Price to be received by such series of preferred stock in relation to
the aggregate Estimated Preferred Purchase Price. The holders of Series B1
Preferred Stock shall not be entitled to vote unless the holders of Series B1
Preferred Stock would receive an amount per share less than the amount per share
received by the holders of Series B Preferred Stock. The Company Certificate
shall also estimate the Common Stock Consideration and the amounts to be paid at
Closing to each participant of the Incentive Bonus Plan pursuant to the
Incentive Bonus Plan. As promptly as practicable but not later than one Business
Day prior to the Closing, each of the Stockholder Representatives and the Parent
shall identify any adjustments that it reasonably believes are required to the
Company Certificate. If the Company, the Parent or the Stockholder
Representatives dispute any such adjustments, they shall all use their best
efforts to resolve such dispute, after which the Company shall re-deliver to
Parent and the Stockholder Representatives a certificate setting forth the
calculation with such adjustments as the parties have agreed are appropriate
(the "Closing Date Certificate"); provided that the Estimated Preferred Purchase
Price shall not be final (and the Closing shall not occur) until it is
reasonably satisfactory to Parent. On the Closing Date, contemporaneously with
the filing of the Certificate of Merger, Parent shall pay, or shall cause the
Company, Newco or the Surviving Corporation to pay the following:
(i) the sum of (A) $7,500,000 of cash and (B) the Purchase Price
Escrow Component (such cash, the "Escrow Amount" and such cash, the "Escrow
Funds") shall be deposited into an escrow account (the "Escrow Account"),
which shall be established pursuant to an escrow agreement (the "Escrow
Agreement"), which Escrow Agreement (x) shall be entered into on the
Closing Date among Parent, Stockholder Representatives and an escrow agent
to be mutually agreed upon between Parent and Stockholder
16
Representatives ("Escrow Agent") and (y) shall be substantially in the form
of Exhibit C attached hereto;
(ii) Each holder of Common Stock (other than any Dissenting Common
Shares) as of immediately prior to the Closing shall receive an amount per
share of Common Stock in accordance with the terms of the Closing Date
Certificate and Sections 2.8 and 2.9 equal to the Common Stock
Consideration; and
(iii) The Estimated Preferred Purchase Price shall be paid to the
holders of the Preferred Stock (other than the Dissenting Preferred Shares)
as follows:
(A) Each holder of Series A Preferred Stock (other than any
Dissenting Series A Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series A Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series A Preferred Stock
Consideration");
(B) Each holder of Series B Preferred Stock (other than any
Dissenting Series B Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series B Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series B Preferred Stock
Consideration");
(C) Each holder of Series B1 Preferred Stock (other than any
Dissenting Series B1 Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series B1 Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series B1 Preferred Stock
Consideration");
(D) Each holder of Series C Preferred Stock (other than any
Dissenting Series C Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series C Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series C Preferred Stock
Consideration");
(E) Each holder of Series D Preferred Stock (other than any
Dissenting Series D Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series D Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series D Preferred Stock
Consideration"); and
(F) Each holder of Series E Preferred Stock (other than any
Dissenting Series E Preferred Shares) as of immediately prior to the
Closing shall receive an amount per share of Series E Preferred Stock
in accordance with the terms of the Closing Date Certificate and
Sections 2.8 and 2.9 (the "Estimated Series E Preferred Stock
Consideration").
17
(iv) Each employee of the Company that is a participant in the
Incentive Bonus Plan and is entitled to receive amounts pursuant to the
Incentive Bonus Plan as a result of the payment of the Estimated Preferred
Purchase Price and the Common Stock Aggregate Amount, shall receive the
amount set forth on the Closing Date Certificate.
(b) Preparation of the Final Statement of Preferred Purchase Price.
(i) As soon as practicable, but no later than 90 days after the
Closing Date, Parent shall prepare and deliver to Stockholder
Representatives a proposed calculation of (A) the Net Working Capital as of
immediately prior to the Closing (the "Proposed Closing Date Statement of
Net Working Capital"), (B) the amount of Closing Date Funded Indebtedness
(the "Proposed Closing Date Funded Indebtedness"), (C) the amount of Seller
Expenses (the "Proposed Seller Expenses"), (D) the amount of Preferred
Stock Warrant Consideration (the "Proposed Preferred Stock Warrant
Consideration"), (E) the amount of the Closing Date Incentive Bonus Plan
Payments (the "Proposed Closing Date Incentive Bonus Plan Payments"), (F)
the amount of the Other Adjustment (the "Proposed Other Adjustment") and
(G) a proposed calculation of the Preferred Purchase Price (the "Proposed
Preferred Purchase Price Calculation") and, in each case, the components
thereof. The Proposed Closing Date Statement of Net Working Capital, the
Proposed Closing Date Funded Indebtedness, the Proposed Seller Expenses,
the Proposed Preferred Stock Warrant Consideration, the Proposed Closing
Date Incentive Bonus Plan Payments, the Proposed Other Adjustment and the
Proposed Preferred Purchase Price Calculation shall collectively be
referred to herein from time to time as the "Proposed Closing Date
Calculations".
(ii) If Stockholder Representatives do not give written notice of
dispute (a "Preferred Purchase Price Dispute Notice") to Parent within 30
days of receiving the Proposed Closing Date Calculations, Stockholder
Representatives and the other parties hereto agree that (A) the Proposed
Closing Date Statement of Net Working Capital shall be deemed to set forth
the Net Working Capital as of immediately prior to the Closing, (B) the
Proposed Closing Date Funded Indebtedness shall be deemed to set forth the
Closing Date Funded Indebtedness, (C) the Proposed Seller Expenses shall be
deemed to set forth the Seller Expenses, (D) the Proposed Preferred Stock
Warrant Consideration shall be deemed to set forth the Preferred Stock
Warrant Consideration, (E) the Proposed Closing Date Incentive Bonus Plan
Payments shall be deemed to set forth the Closing Date Incentive Bonus Plan
Payments, (F) the Proposed Other Adjustment shall be deemed to set forth
the Other Adjustment and (G) the Proposed Preferred Purchase Price
Calculation shall be deemed to set forth the Preferred Purchase Price. If
Stockholder Representatives gives a Preferred Purchase Price Dispute Notice
to Parent (which Preferred Purchase Price Dispute Notice must set forth, in
reasonable detail, the items and amounts in dispute) within such 30-day
period, Parent and Stockholder Representatives will use reasonable efforts
to resolve the dispute during the 30-day period commencing on the date
Parent receives the applicable Preferred Purchase Price Dispute Notice from
Stockholder Representatives. If Stockholder Representatives and Parent do
not obtain a final resolution within such 30-day period, then the items in
dispute shall be submitted immediately to Deloitte LLP (the "Accounting
Firm") which shall be independent and if not independent, Parent and
Stockholder Representatives shall
18
cooperate to designate another independent accountant to serve as the
Accounting Firm. Each party agrees to execute, if required by the
Accounting Firm, a reasonable engagement letter. The Accounting Firm shall
determine only those issues still in dispute at the time of submission to
the Accounting Firm, and the Accounting Firm's determination shall be based
upon and consistent with the terms and conditions of this Agreement. The
determination by the Accounting Firm shall be based on presentations with
respect to such disputed items by the Parent and the Stockholder
Representatives to the Accounting Firm and, if determined necessary by the
Accounting Firm, on the Accounting Firm's independent review. Each of the
Parent and the Stockholder Representatives shall use its reasonable best
efforts to make its presentation as promptly as practicable following
submission to the Accounting Firm of the disputed items, and each such
party shall be entitled, as part of its presentation, to respond to the
presentation of the other party and any questions and requests of the
Accounting Firm. In deciding any matter, the Accounting Firm (i) shall be
bound by the provisions of this Section 2.7(b) and (ii) may not assign a
value to any item greater than the greatest value for such item claimed by
either the Parent or the Stockholder Representatives or less than the
smallest value for such item claimed by the Parent or the Stockholder
Representatives. The Accounting Firm's determination shall be made within
60 days after its engagement, shall be set forth in a written statement
delivered to the Parent and the Stockholder Representatives and shall be
final, conclusive, non-appealable and binding for all purposes hereunder;
provided that such determination may be reviewed, corrected or set aside by
a court of competent jurisdiction but only if upon a finding that the
Accounting Firm committed manifest error with respect to its determination.
The determination of the Accounting Firm shall not be deemed an award
subject to review under the Federal Arbitration Act or any other statute.
The Accounting Firm will revise the Proposed Closing Date Calculations as
appropriate to reflect the resolution of any objections thereto pursuant to
this Section 2.7(b)(ii). The "Final Statement of Preferred Purchase Price"
shall mean the Proposed Preferred Purchase Price Calculation together with
any revisions thereto pursuant to this Section 2.7(b)(ii).
(iii) In the event Stockholder Representatives and Parent submit any
unresolved objections to an Accounting Firm for resolution as provided in
Section 2.7(b)(ii) above, the responsibility for the fees and expenses of
the Accounting Firm shall be as follows:
(A) if such Accounting Firm resolves all of the remaining
objections in favor of Parent's position (the Preferred Purchase Price
so determined is referred to herein as the "Low Value"), then all of
the fees and expenses of the Accounting Firm shall be paid from the
Escrow Fund;
(B) if the Accounting Firm resolves all of the remaining
objections in favor of Stockholder Representatives' position (the
Preferred Purchase Price so determined is referred to herein as the
"High Value"), then Parent will be responsible for all of the fees and
expenses of the Accounting Firm; and
(C) if such Accounting Firm neither resolves all of the remaining
objections in favor of Parent's position nor resolves all of the
remaining
19
objections in favor of Stockholder Representatives' position (the
Preferred Purchase Price so determined is referred to herein as the
"Actual Value"), then that fraction of the fees and expenses of the
Accounting Firm equal to (x) the difference between the High Value and
the Actual Value over (y) the difference between the High Value and
the Low Value shall be paid from the Escrow Fund, and Parent will be
responsible for the remainder of the fees and expenses of the
Accounting Firm.
(iv) Parent will make the financial records of the Surviving
Corporation and its Subsidiaries available to Stockholder Representatives,
their accountants, the Accounting Firm and other representatives at
reasonable times upon reasonable notice at any time before and after the
delivery of the Proposed Closing Date Calculations and continuing during
the resolution of any objections with respect to, the Proposed Closing Date
Calculations. Stockholder Representatives shall not disclose or make use
of, and shall cause each of its accountants and other representatives not
to disclose or make use of, any such information, other than to the extent
reasonably necessary to enforce its rights hereunder.
(c) Adjustment to Estimated Preferred Purchase Price.
(i) If the Actual Adjustment is a positive amount, Parent and/or
Surviving Corporation will (1) deliver joint written instructions with
Stockholder Representatives to the Escrow Agent instructing the Escrow
Agent to deliver to the Stockholder Representatives an amount equal to the
Purchase Price Escrow Component plus all amounts earned on the Purchase
Price Escrow Component and (2) pay (A) to employees the amount of any
additional payments due under the Incentive Bonus Plan as a result of such
increase to the Preferred Purchase Price and (B) pro rata to each holder of
Series A Preferred Stock and Series B Preferred Stock (other than any
applicable Dissenting Preferred Shares) the amount necessary to pay such
holders in full the amount they are due under the Certificate of
Incorporation, taking into account their portion of the Common Stock
Aggregate Amount, in each case net of applicable withholding Taxes, if any,
by check or by wire transfer or delivery of other immediately available
funds, in each case, within three Business Days after the date on which the
Preferred Purchase Price is finally determined pursuant to Section 2.7(b)
above; provided, however, that no payments shall be made pursuant to this
Section 2.7(c)(i)(2) until the holders of Series C Preferred Stock, Series
D Preferred Stock and Series E Preferred Stock have received all amounts
that such holders are entitled to received pursuant to the terms of the
Certificate of Incorporation (pursuant to the priorities on liquidation of
the Preferred Stock as set forth in the Certificate of Incorporation) less
such holders portion of the Common Stock Aggregate Amount (and if the
holders of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock have not received all such amounts, they shall be paid such
amounts before any other payments pursuant to Section 2.7(c)(i)(2)).
(ii) If the Actual Adjustment is a positive amount and any amount
remains after making the payments required by Section 2.7(c)(i)(2), Parent
and/or Surviving Corporation will pay to each holder of Preferred Stock
(other than any Dissenting Preferred Shares) as of immediately prior to the
Effective Time, a Pro Rata Portion of
20
such remaining positive amount up to an amount equal to the Common Stock
Aggregate Amount, net of applicable withholding Taxes, if any, by check or
by wire transfer or delivery of other immediately available funds, in each
case, within three Business Days after the date on which the Preferred
Purchase Price is finally determined pursuant to Section 2.7(b) above.
(iii) If the Actual Adjustment is a positive amount and any amount
remains after making the payments required by Sections 2.7(c)(i) and (ii),
Parent and/or Surviving Corporation will pay to each holder of Common Stock
(other than any Dissenting Common Shares) and each holder of Vested and In
the Money Options as of immediately prior to the Effective Time, an amount
equal to such remaining amount divided by the sum of (i) number of shares
of Common Stock outstanding immediately prior to the Effective Time and
(ii) the number of shares of Common Stock underlying Vested and In the
Money Options, net of applicable withholding Taxes, if any, by check or by
wire transfer or delivery of other immediately available funds, in each
case, within three Business Days after the date on which the Preferred
Purchase Price is finally determined pursuant to Section 2.7(b) above.
(iv) If the Actual Adjustment is a negative amount, then within three
Business Days after the date on which the Preferred Purchase Price is
finally determined pursuant to Section 2.7(b) above, Parent and Stockholder
Representatives shall deliver joint written instructions to the Escrow
Agent instructing the Escrow Agent to deliver to the Surviving Corporation
an amount equal to the absolute value of such negative amount; provided,
however, in no event will such amount exceed the amount then in the Escrow
Account.
Section 2.8 Conversion of Shares.
(a) Conversion of Series A Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series A
Preferred Shares) shall be canceled and converted into the right to receive the
Series A Preferred Stock Consideration, payable in cash to the holder thereof at
the various times set forth herein, without interest thereon, upon surrender of
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
(b) Conversion of Series B Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series B
Preferred Shares) shall be canceled and converted into the right to receive the
Series B Preferred Stock Consideration, payable in cash to the holder thereof at
the various times set forth herein, without interest thereon, upon surrender of
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
21
(c) Conversion of Series B1 Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series B1 Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series B1
Preferred Shares) shall be canceled and converted into the right to receive the
Series B1 Preferred Stock Consideration, payable in cash to the holder thereof
at the various times set forth herein, without interest thereon, upon surrender
of the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
(d) Conversion of Series C Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series C Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series C
Preferred Shares) shall be canceled and converted into the right to receive the
Series C Preferred Stock Consideration, payable in cash to the holder thereof at
the various times set forth herein, without interest thereon, upon surrender of
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
(e) Conversion of Series D Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series D Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series D
Preferred Shares) shall be canceled and converted into the right to receive the
Series D Preferred Stock Consideration, payable in cash to the holder thereof at
the various times set forth herein, without interest thereon, upon surrender of
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
(f) Conversion of Series E Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof or
any party hereto, each share of Series E Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares held in the
Company's treasury or by any of the Subsidiaries and (ii) Dissenting Series E
Preferred Shares) shall be canceled and converted into the right to receive the
Series E Preferred Stock Consideration, payable in cash to the holder thereof at
the various times set forth herein, without interest thereon, upon surrender of
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and 2.9.
(g) Conversion of Common Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof or any party
hereto, each share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than (i) shares held in the Company's treasury or by
any of the Subsidiaries and (ii) Dissenting Common Shares) shall be canceled and
converted into the right to receive the Common Stock Consideration, payable in
cash to the holder thereof, without interest thereon, upon surrender of
22
the Certificate formerly representing such share, all in accordance with the
Closing Date Certificate and Sections 2.7 and Section 2.9.
(h) Treasury Shares. Each share of Common Stock or Preferred Stock held in
the treasury of the Company or by any Subsidiary immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holders thereof, be canceled, retired and cease to exist as of the
Effective Time and no payment shall be made with respect thereto.
(i) Newco Shares. As of the Effective Time, each share of capital stock of
Newco issued and outstanding immediately prior to the Effective Time shall,
without any action on the part of Newco, be converted on a one-for-one basis
into shares of the corresponding class of capital stock of the Surviving
Corporation.
(j) Holders of Certificates. From and after the Effective Time, the holders
of Certificates (other than Certificates representing Dissenting Shares) shall
cease to have any rights with respect to such Certificates, except the right to
receive the Common Stock Consideration, the Series A Preferred Stock
Consideration, the Series B Preferred Stock Consideration, the Series B1
Preferred Stock Consideration, the Series C Preferred Stock Consideration, the
Series D Preferred Stock Consideration, or the Series E Preferred Stock
Consideration, as applicable, with respect to each of the shares represented
thereby.
Section 2.9 Exchange of Certificates.
(a) Upon surrender of any Certificates (other than Certificates
representing Dissenting Shares), together with duly executed letters of
transmittal, on or prior to the Closing Date to Parent, Newco or the Surviving
Corporation, the holder of each Certificate shall receive from the Parent and/or
the Surviving Corporation on the Closing Date in exchange for each share of
Preferred Stock or Common Stock evidenced thereby, the Estimated Series A
Preferred Stock Consideration, the Estimated Series B Preferred Stock
Consideration, the Estimated Series B1 Preferred Stock Consideration, the
Estimated Series C Preferred Stock Consideration, the Estimated Series D
Preferred Stock Consideration, the Estimated Series E Preferred Stock
Consideration, or the Common Stock Consideration, as applicable, in the form of
cash by wire transfer of immediately available funds, to which such holder is
entitled pursuant to the Closing Date Certificate and Section 2.7 and/or Section
2.8, without interest. At the time of distribution of the information statement
in accordance with Section 5.1, the Company shall mail or otherwise deliver to
each record holder of any Certificates a form of letter of transmittal (in a
form reasonably acceptable to Parent) for return to the Company (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Company or the Surviving Corporation) and instructions for use in effecting the
surrender of the Certificates and payment therefor. At any time after the
Effective Time, upon surrender to the Surviving Corporation of any Certificates
(other than Certificates surrendered pursuant to the first sentence of this
Section 2.9(a) and other than Certificates representing Dissenting Shares),
together with such duly executed letter of transmittal, the holder of each such
Certificate shall receive from the Surviving Corporation immediately thereafter
in exchange therefor, the Estimated Series A Preferred Stock Consideration, the
Estimated Series B Preferred Stock Consideration, the Estimated Series B1
23
Preferred Stock Consideration, the Estimated Series C Preferred Stock
Consideration, the Estimated Series D Preferred Stock Consideration, the
Estimated Series E Preferred Stock Consideration, or the Common Stock
Consideration, as applicable, payable in cash pursuant to the Closing Date
Certificate and Section 2.7 and/or Section 2.8, in the form of cash by wire
transfer of immediately available funds, to which such holder is entitled
pursuant to such sections of the Agreement, without interest; provided, however,
that any such payments for less than $20,000 to a particular holder may be made
by check. Each Certificate surrendered pursuant to this Section 2.9(a) shall be
canceled. Holders of Certificates shall not be entitled to receive payment
hereunder until such holder's applicable Certificates have been surrendered
pursuant to this Section 2.9 and after the Effective Time. If payment or
delivery is to be made to a Person other than the Person in whose name a
Certificate so surrendered is registered, it shall be a condition of payment
that the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer, that the signatures on the certificate or any related
stock power shall be properly guaranteed and that the Person requesting such
payment either pay any transfer or other Taxes required by reason of the payment
to a Person other than the registered holder of the Certificate so surrendered
or establish to the satisfaction of the Surviving Corporation that such Tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.9, each Certificate (other than Certificates
canceled pursuant to Section 2.8(h) and Certificates representing Dissenting
Shares) shall represent for all purposes only the right to receive the Series A
Preferred Stock Consideration, the Series B Preferred Stock Consideration, the
Series B1 Preferred Stock Consideration, the Series C Preferred Stock
Consideration, the Series D Preferred Stock Consideration, the Series E
Preferred Stock Consideration, or the Common Stock Consideration, as applicable,
in the form provided for by this Agreement, without interest. Except as provided
herein, all cash paid upon surrender of the Certificates in accordance with this
Section 2.9 shall be deemed to have been paid in satisfaction of all rights
pertaining to the shares of Common Stock or Preferred Stock represented thereby.
(b) In the event that any Certificate (other than any Certificate
representing Dissenting Shares) shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the registered holder of such lost,
stolen or destroyed Certificate in form and substance reasonably acceptable to
Parent and Newco (if such affidavit is accepted before the Effective Time) or
the Surviving Corporation (if such affidavit is accepted after the Effective
Time), the Surviving Corporation will issue in exchange for such lost, stolen or
destroyed Certificate the Preferred Stock Consideration or the Common Stock
Consideration, as applicable, in respect thereof in the manner set forth in
Section 2.7 and/or Section 2.8.
(c) If Certificates are not surrendered prior to the date that is two years
after the Effective Time, unclaimed amounts (including interest thereon) of
Preferred Stock Consideration and Common Stock Consideration shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation and may be commingled with the general funds of the Surviving
Corporation, free and clear of all claims or interest. Notwithstanding the
foregoing, any stockholders of the Company who have not theretofore complied
with the provisions of this Section 2.9 shall thereafter look only to the
Surviving Corporation and only as general creditors thereof for payment for
their claims in the form and amounts to which such stockholders are entitled.
24
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Preferred Stock or
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates (other than Certificates representing
Dissenting Shares) are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Preferred Stock Consideration or the Common Stock
Consideration, as applicable, as provided for, and in accordance with, the
provisions of this Section 2.9.
Section 2.10 Dissenting Shares. Each share of Common Stock or Preferred
Stock issued and outstanding immediately prior to the Effective Time held by
stockholders who shall have properly exercised their appraisal rights with
respect thereto under Section 262 of the DGCL (such shares of Common Stock, the
"Dissenting Common Shares", such shares of Series A Preferred Stock, the
"Dissenting Series A Preferred Shares", such shares of Series B Preferred Stock,
the "Dissenting Series B Preferred Shares", such shares of Series B1 Preferred
Stock, the "Dissenting Series B1 Preferred Shares", such shares of Series C
Preferred Stock, the "Dissenting Series C Preferred Shares", such shares of
Series D Preferred Stock, the "Dissenting Series D Preferred Shares", such
shares of Series E Preferred Stock, the "Dissenting Series E Preferred Shares",
such shares of Preferred Stock, the "Dissenting Preferred Shares", and all such
shares, collectively, the "Dissenting Shares") shall not be converted into the
right to receive the applicable Common Stock Consideration or Preferred Stock
Consideration pursuant to the Merger, but shall be entitled to receive payment
of the appraised value of such shares in accordance with the provisions of
Section 262 of the DGCL, except that each Dissenting Share held by a stockholder
who shall thereafter withdraw his or her demand for appraisal or shall fail to
perfect his or her right to such payment as provided in such Section 262 shall
be deemed to be converted, as of the Effective Time, into the right to receive
the applicable Common Stock Consideration or Preferred Stock Consideration in
the form such holder otherwise would have been entitled to receive as a result
of the Merger. The Dissenters Rights Company Representative shall give Parent
prompt notice of any demands for appraisal, withdrawals of demands for appraisal
and any other instruments served pursuant to Section 262 of the DGCL and
received by the Company in connection with the Merger, and the Dissenters Rights
Company Representative shall have the opportunity to direct and settle all
negotiations and proceedings with respect to such demands. The Dissenters Rights
Company Representative shall conduct all such negotiations and proceedings in
good faith, and shall endeavor to resolve all such demands as promptly as
practicable (and in any event prior to the termination of the Escrow Account
pursuant to the terms of the Escrow Agreement). The Dissenters Rights Company
Representative will not, except with the prior written consent of Parent (such
consent not to be unreasonably withheld or delayed), make any payment with
respect to, settle or offer to settle, any such demands.
Section 2.11 Series C Preferred Stock Warrants and Series D Preferred Stock
Warrants.
(a) As promptly as practicable following the Closing, the Surviving
Corporation shall pay to each holder of any Series C Preferred Stock Warrant
and/or any Series D Preferred Stock Warrant an amount of cash in respect thereof
equal to the amount required to be paid pursuant to the terms of such Series C
Preferred Stock Warrant or such Series D Preferred Stock Warrant as a result of
the Merger, net of applicable withholding taxes. if any.
25
(b) Prior to the Closing, the Company shall take the actions necessary to
give effect to the provisions of this Section 2.11, including without limitation
pursuant to the terms of the Series C Preferred Stock Warrants and the Series D
Preferred Stock Warrants.
(c) The Company shall take or cause to be taken all actions necessary to
ensure that no holder of Series C Preferred Stock Warrants and/or Series D
Preferred Stock Warrants shall have any rights thereunder to acquire any equity
securities of or, except as expressly provided in this Section 2.11, to receive
any payments from the Company, the Surviving Corporation or any Subsidiary.
Section 2.12 Common Stock Options.
(a) As promptly as practicable following the Closing, the Surviving
Corporation shall pay to each holder of any Vested and In the Money Common Stock
Option an amount of cash in respect thereof equal to the product of (i) the
excess of the Common Stock Consideration over the exercise price per share of
Common Stock for which such Vested and In the Money Option is exercisable, and
(ii) the number of shares of Common Stock subject to such Vested and In the
Money Common Stock Option (such gross amount of cash, the "Common Stock Option
Gross Amount"). As of the Effective Time, by virtue of the Merger, all Vested
and In the Money Common Stock Options shall be converted into solely the right
to receive the applicable Common Stock Option Gross Amount as set forth in the
immediately preceding sentence. The payment of Common Stock Option Gross Amount
by the Surviving Corporation shall be net of applicable withholding taxes, if
any. No payments shall be made by Parent, Newco, the Company or the Surviving
Corporation to any holder of Unvested and Out of the Money Common Stock Options
which are outstanding as of the Effective Time.
(b) Prior to the Closing, the Company shall take the actions necessary to
give effect to the provisions of this Section 2.12, including without limitation
pursuant to (i) the terms of the Common Stock Option Plan and (ii) the terms of
the Common Stock Warrants.
(c) The Company shall take or cause to be taken all actions necessary to
cause the Common Stock Option Plan to terminate as of the Effective Time, and to
ensure that no holder of Common Stock Options issued pursuant to the Common
Stock Option Plan or otherwise or any participant in the Common Stock Option
Plan shall have any rights thereunder to acquire any equity securities of or,
except as expressly provided in this Section 2.12, to receive any payments from
the Company, the Surviving Corporation or any Subsidiary.
Section 2.13 Closing. The closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Xxxxxxxx & Xxxxx LLP, 000
Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00 A.M. on the Business Day
following the satisfaction or waiver of the conditions set forth in Article VI
(other than those conditions that by their terms cannot be satisfied until the
Closing), or on such date and time as the Company and Newco shall mutually
agree. The time and date of the Closing is herein called the "Closing Date".
Section 2.14 Withholding Taxes. Notwithstanding any other provision in this
Agreement, Parent, Newco, the Company, the Surviving Corporation and the Escrow
Agent shall have the right to deduct and withhold Taxes from any payments to be
made hereunder (including any payments to
26
be made under the Escrow Agreement) if such withholding is required by law and
to collect any necessary Tax forms, including Form W-9 or the appropriate series
of Form W-8, as applicable, or any similar information, from any stockholder of
the Company and any other recipient of any payment hereunder. To the extent that
amounts are so withheld and paid to the appropriate taxing authority, such
withheld amounts shall be treated for all purposes of this Agreement as having
been delivered and paid to the applicable stockholder of the Company or other
recipient of payment in respect of which such deduction and withholding was
made.
Section 2.15 Seller Expenses; Series E Seller Paper Amount. Parent and
Newco shall cause the Company and the Surviving Corporation to pay (a) all
Seller Expenses required to be paid by the Company on the Closing Date
including, without limitation, the Seller Expenses set forth in items (ii) and
(iv) (including any payments under the Incentive Bonus Plan) in the definition
of Seller Expenses and (b) immediately after Closing, the Series E Seller Paper
Amount to the holders of the seller notes issued by the Company or any of its
Subsidiaries to repurchase Series E Preferred Stock.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Newco as follows:
Section 3.1 Organization and Qualification; Subsidiaries. Each of the
Company and its Subsidiaries (other than HealthScribe India Private Limited) is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation specified on Schedule 3.1.
HealthScribe India Private Limited is a company duly organized and validly
existing under the laws of India. Each of the Company and its Subsidiaries and
has the corporate power and authority and all licenses, permits and
authorizations necessary to own or lease its property and assets and to carry on
its business as presently conducted. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction wherein the nature of its business or the ownership of its
assets makes such qualification necessary, except where such failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
The Company has previously provided to Parent and Newco true and complete copies
of (i) its certificate of incorporation and all amendments thereto or
restatements thereof, (ii) its by-laws as currently in effect and (iii) the
certificate of incorporation and by-laws (or the equivalent thereof), as
currently in effect, of each Subsidiary.
Section 3.2 Authorization. The Company has the corporate power and
authority to execute and deliver this Agreement and each other Merger Document
to be executed by the Company in connection herewith and to perform its
obligations hereunder and thereunder, all of which have been duly authorized by
all requisite corporate action, including the Stockholder Consent. This
Agreement has been duly authorized, executed and delivered by the Company and,
assuming that this Agreement has been duly and validly authorized, executed and
delivered by Parent and Newco, constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforceability hereof may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally or (ii) applicable equitable
principles (whether considered in a proceeding at law or in equity).
27
Section 3.3 Non-contravention. Except as set forth in Schedule 3.3, neither
the execution and delivery of this Agreement or any other Merger Document, the
consummation of the Merger and the other transactions contemplated hereby nor
the fulfillment of and the performance by the Company of its obligations
hereunder will (i) contravene any provision contained in the Company's
Certificate of Incorporation or By-laws, (ii) conflict with, violate or result
in a breach (with or without the lapse of time, the giving of notice or both)
of, or constitute a default (with or without the lapse of time, the giving of
notice or both) under (A) any contract with a customer to which the Company or
any Subsidiary is a party or any other contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, bond, license, permit or other
instrument or obligation, in any such case, material to the Company and its
Subsidiaries taken as a whole or (B) any judgment, order, decree, statute, law,
rule or regulation or other restriction of any Governmental Authority, in each
case to which the Company or any of the Subsidiaries is a party or by which any
of them is bound or to which any of their respective assets or properties are
subject, (iii) result in the creation or imposition of any Lien, other than any
Permitted Lien, on any of the assets or properties of the Company or the
Subsidiaries, or (iv) result in the acceleration of, or permit any Person to
terminate, modify, cancel, accelerate or declare due and payable prior to its
stated maturity, any obligation of the Company or any Subsidiaries.
Section 3.4 Consents. Except for (i) filing and recordation of appropriate
merger documents as required by the DGCL, (ii) filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the HSR Act, and (iii) filings and approvals set forth in
Schedule 3.4, no notice to, filing with, or authorization, registration, consent
or approval of any Governmental Authority or other Person is (x) necessary by
the Company in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby or (y)
required by the Company, in connection with such execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby, in order to prevent any Person from obtaining a claim for a
default, termination, cancellation or acceleration of any right or obligation of
the Company or its Subsidiaries or to create a loss of any material benefit to
which the Company or any of its Subsidiaries is entitled.
Section 3.5 Capitalization; Subsidiaries
(a) The Company's authorized capital stock consists solely of 105,000,000
authorized shares of Voting Common Stock, 15,040,209 of which are issued and
outstanding; 10,000,000 authorized shares of Non-Voting Common Stock, none of
which are issued and outstanding; 11,926 shares of Series A Preferred Stock,
11,714 of which are issued and outstanding (which are convertible into
10,039,424 shares of Common Stock); 12,298 shares of Series B Preferred Stock,
9,507 of which are issued and outstanding (which are convertible into 10,873,842
shares of Common Stock); 9,000 shares of Series B1 Preferred Stock, 2,761 of
which are issued and outstanding (which are convertible into 3,157,955 shares of
Common Stock); 10,105 shares of Series C Preferred Stock, 10,000 of which are
issued and outstanding (which are convertible into 11,437,722 shares of Common
Stock); 6,105 shares of Series D Preferred Stock, 5,353 of which are issued and
outstanding (which are convertible into 8,256,980 shares of Common Stock);
15,000 shares of Series E Preferred Stock, of which 13,400 are issued and
outstanding (which are convertible into 26,493,973 shares of Common Stock), in
each case, which shares are held beneficially and of record by the Persons set
forth on Schedule 3.5(a) in
28
the amounts set forth opposite such Person's name. No shares of the Company's
capital stock are held as treasury shares. Up to 9,112,157 shares of Voting
Common Stock are reserved for issuance upon exercise of all outstanding Common
Stock Options under the Common Stock Option Plan and the Common Stock Warrants.
Up to 105 shares of Series C Preferred Stock are reserved for issuance upon
exercise of all outstanding Series C Preferred Warrants. Up to 38 shares of
Series D Preferred Stock are reserved for issuance upon exercise of all
outstanding Series D Preferred Warrants. Except as set forth in this Section
3.5(a) or in Schedule 3.5(a), the Company does not have (i) any shares of Common
Stock or Preferred Stock reserved for issuance, or (ii) any outstanding or
authorized option, warrant or other right, relating to its capital stock or any
outstanding securities or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire from it, any shares of
its capital stock. Except as set forth in this Section 3.5(a), Schedule 3.5(a)
or in this Agreement, there are no (i) outstanding obligations of the Company or
any of the Subsidiaries to repurchase, redeem or otherwise acquire any capital
stock of the Company or (ii) voting trusts, proxies or other agreements among
the Company's stockholders with respect to the voting or transfer of the
Company's capital stock. All of the issued and outstanding shares of capital
stock of the Company have been duly authorized, validly issued, are fully paid
and are nonassessable. Except as set forth on Schedule 3.5(a), there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company.
(b) All Subsidiaries of the Company are listed on Schedule 3.5(b). Except
as set forth on Schedule 3.5(a) and Schedule 3.5(b), all of the outstanding
capital stock of, or other ownership interests in, each Subsidiary of the
Company is owned beneficially and of record by the Company, directly or
indirectly, is validly issued, fully paid and nonassessable (except in the case
of HealthScribe India Private Limited since this concept does not apply to an
Indian company) and free and clear of any preemptive rights (other than such
rights as may be held by the Company), restrictions on transfer (other than
those which exist as a matter of law), Taxes or Liens. Except as set forth on
Schedule 3.5(a), there are no (i) authorized or outstanding securities of the
Company or any of the Subsidiaries convertible into or exchangeable for, or
options or warrants or the right to subscribe for, or providing for the issuance
or sale of, any capital stock or other ownership interest in, or any other
securities of, any Subsidiary, (ii) voting trusts, proxies or other agreements
among the Subsidiaries' stockholders with respect to the voting or transfer of
the Subsidiaries' capital stock, or (iii) outstanding obligations of the Company
or any of the Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in any
Subsidiary.
(c) Except for the Subsidiaries listed on Schedule 3.5(b), the Company does
not control or have any equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business association or entity. All of the issued and outstanding equity
securities of the Company have been offered, issued and sold by the Company in
compliance with all applicable federal and state securities laws.
Section 3.6 Financial Statements; Liabilities.
(a) Attached hereto as Schedule 3.6(a) are true and complete copies of the
following financial statements (such financial statements, the "Financial
Statements"):
29
(i) the audited consolidated balance sheets of the Company as of
December 31, 2001, December 31, 2002 and December 31, 2003, and the related
audited consolidated statements of cash flows, operations and stockholders'
equity for the years ending on December 31, 2001, December 31, 2002 and
December 31, 2003; and
(ii) the unaudited consolidated balance sheet of the Company as of
August 31, 2004 (such balance sheet, the "Most Recent Balance Sheet", and
the date of such balance sheet, the "Most Recent Balance Sheet Date") and
the related unaudited consolidated statements of cash flows and operations
for the eight-month period ending on such date.
(b) The Financial Statements (i) have been prepared, in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
except as may be indicated in the notes thereto and except, in the case of
unaudited Financial Statements, for the absence of footnotes and subject to
normal year-end adjustments (which are consistent with past practices and which
are not material), (ii) fairly present the consolidated financial position of
the Company as of the dates thereof and its consolidated results of operations
for the periods then ended (subject, in the case of the unaudited interim
Financial Statements, to the absence of footnotes and to normal year-end
adjustments (which are consistent with past practices and which are not
material)), (iii) have been prepared based upon the information contained in the
books and records of the Company and its Subsidiaries, and (iv) fairly present
the consolidated financial condition, assets and liabilities of the Company and
its Subsidiaries (subject, in the case of the unaudited interim Financial
Statements, to the absence of footnotes and to normal year-end adjustments
(which are consistent with past practices and which are not material).
(c) Except as set forth on Schedule 3.6(c), (i) there are no letters of
credit issued for the account of the Company or any Subsidiary and (ii) neither
the Company nor any Subsidiary has guaranteed (or entered into any arrangement
having the economic effect of a guarantee of) the indebtedness of any Person
other than the Company or any Subsidiary.
(d) Neither the Company nor any Subsidiary has any material liability
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except (i) as set forth on
Schedule 3.6(d), or as disclosed, set forth or reserved for in the Financial
Statements (including the notes thereto), (ii) liabilities and/or obligations
incurred in the ordinary course of business since the Most Recent Balance Sheet
Date, (iii) contractual liabilities arising in the ordinary course of business
under the contracts listed on Schedule 3.15 hereto or under other contracts not
scheduled because Section 3.15 does not require them to be scheduled, and/or
(iv) liabilities arising in connection with the transactions contemplated by
this Agreement.
Section 3.7 Absence of Certain Developments. Except as set forth in
Schedule 3.7, since January 1, 2004 there has not been any Material Adverse
Effect and the Company has conducted its business in the ordinary and usual
course consistent with past practices. Without limiting the generality of the
foregoing, and except as set forth in Schedule 3.7, during the period beginning
on January 1, 2004 and ending on the date hereof:
(a) neither the Company nor any of its Subsidiaries has incurred Funded
Indebtedness in aggregate amounts in excess of $50,000;
30
(b) neither the Company nor any of its Subsidiaries has made any
acquisition (by merger, consolidation, or acquisition of stock or assets or
otherwise) of any other Person;
(c) neither the Company nor any of its Subsidiaries has created or
permitted the creation of any Lien, other than Permitted Liens, on any of its
assets, tangible or intangible;
(d) except for sales to customers of the Company's products and services in
the ordinary course of business, neither the Company nor any of its Subsidiaries
has sold, assigned or transferred any of its material tangible assets;
(e) neither the Company nor any of its Subsidiaries has (i) entered into or
amended any written employment or severance or similar agreement with any
employee or any collective bargaining agreement, (ii) adopted or amended, or
materially increased the payments to or benefits under, any profit sharing,
bonus, thrift, stock option plan, deferred compensation, savings, insurance,
restricted stock, pension, retirement, or other employee benefit plan for or
with any of its directors, officers or employees, (iii) granted any increase in
compensation payable or to become payable or the benefits provided to its
directors or officers other than any increases of more than 3% to any individual
whose compensation is in excess of $75,000 per year, or (iv) granted, other than
in the ordinary course of business, any increase in compensation payable or to
become payable to its employees (other than officers);
(f) neither the Company nor any of its Subsidiaries has issued or granted
any credits, rebates or similar discounts or offsets with respect to services
previously rendered or products previously sold other than in the ordinary
course of business;
(g) neither the Company nor any of its Subsidiaries has (i) made or changed
any Tax election or (ii) made any material change in any method of accounting or
accounting practice used by it, other than any such changes required by GAAP;
(h) there has not been any material casualty, loss, damage or destruction
not covered by insurance which has materially, adversely affected the properties
of the Company and its Subsidiaries;
(i) neither the Company nor any Subsidiary has made any capital expenditure
or commitment in excess of $50,000 for additions to property, plant and
equipment;
(j) neither the Company nor any Subsidiary has forgiven, canceled or waived
any material rights under any material debt or claim by the Company or the
applicable Subsidiary other than in the ordinary course of business;
(k) other than in connection with the exercise of options, neither the
Company nor any Subsidiary has issued, sold or otherwise disposed of any
debenture, note, stock, or equity interest or modified or amended any right of
any holder thereof;
(l) neither the Company nor any Subsidiary has terminated, disposed of, or
permitted to lapse, any material license or permit; and
31
(m) there has not been any amendment to the Certificate of Incorporation or
By-laws of the Company or any of its Subsidiaries.
Section 3.8 Compliance with Laws; Governmental Authorizations; Licenses;
Etc.
(a) Except as set forth in Schedule 3.8(a), the business of each of the
Company and its Subsidiaries has been operated in compliance with all applicable
laws, rules, regulations, codes, ordinances, orders, policies and guidelines of
all Governmental Authorities, except where the failure to do so would not
reasonably be expected to result in a material loss or liability to the Company
and/or any of its Subsidiaries.
(b) Except as set forth in Schedule 3.8(b), each of the Company and its
Subsidiaries has all material permits, licenses, approvals, certificates and
other authorizations, and has made all material notifications, registrations,
certifications and filings with all Governmental Authorities, necessary or
advisable for the operation of its business as currently conducted.
(c) Except as set forth in Schedule 3.8(c), there is no action, case or
proceeding pending or, to the Company's Knowledge, threatened by any
Governmental Authority with respect to (i) any alleged violation by the Company
or its Affiliates of any statute, law, rule, regulation, code, ordinance, order,
policy or guideline of any Governmental Authority, (ii) any alleged failure by
the Company or its Affiliates to have any permit, license, approval,
certification or other authorization required in connection with the operation
of the business of each of the Company and its Subsidiaries, or (iii) any Leased
Property (as defined in Section 3.17) or any portion thereof or interest
therein.
Section 3.9 Litigation. Except as set forth on Schedule 3.9, there are no
judgments, decrees, lawsuits, actions, proceedings, claims, complaints,
injunctions, orders or investigations by or before any Governmental Authority
pending or, to the Company's Knowledge, threatened (including any demands or
offers to license any Intellectual Property Rights from any other Person)
against the Company or its Subsidiaries (i) relating to the Company, any
Subsidiary, or their respective businesses or properties, or (ii) seeking to
enjoin the transactions contemplated hereby. The Company is not a party to any
litigation or threatened (including any demands or offers to license any
Intellectual Property Rights from any other Person) litigation which would
reasonably be expected to affect or prohibit the consummation of the
transactions contemplated hereby. Except as set forth on Schedule 3.9, neither
the Company nor any of its Subsidiaries has been a party to any litigation
matter since January 1, 2001.
Section 3.10 Taxes.
(a) The Company and each of its Subsidiaries has filed (or has had filed on
its behalf) all Tax Returns that it was required to file under applicable laws
and regulations. All such Tax Returns were correct and complete in all material
respects and were prepared in substantial compliance with all applicable laws
and regulations. All Taxes due and owing by (or with respect to the operations
of) the Company and each of its Subsidiaries (whether or not shown on any Tax
Return) have been paid. Neither the Company nor any of its Subsidiaries is the
beneficiary of any extension of time within which to file any Tax Return. No
written notice has been received by the Company or any of its Subsidiaries
regarding any claim by an authority in a
32
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that the Person not filing Tax Returns is or may be subject to taxation
by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of the Company or any of its Subsidiaries.
(b) The Company and each of its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with any amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(c) No written notice has been received by the Company or any of its
Subsidiaries regarding any pending or current foreign, federal, state, or local
Tax audits or administrative or judicial Tax proceedings with respect to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received from any foreign, federal, state, or local taxing
authority (including jurisdictions where the Company or any of its Subsidiaries
has not filed Tax Returns) any (i) notice indicating an intent to open an audit
or other review, (ii) request for information related to Tax matters, or (iii)
notice of deficiency or proposed adjustment for any amount of Tax proposed,
asserted, or assessed by any taxing authority against the Company or any of its
Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(e) Except as set forth on Schedule 3.10, neither the Company nor any of
its Subsidiaries is a party to any agreement, contract, arrangement or plan that
has resulted or could result, separately or in the aggregate, in the payment of
any "excess parachute payment" within the meaning of Code Section 280G (or any
corresponding provision of state, local or foreign Tax law). Neither the Company
nor any of its Subsidiaries has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii). The Company and each
Subsidiary has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. Neither the Company nor any
Subsidiary is a party to or bound by any Tax allocation or sharing agreement
(excluding agreements the primary purpose of which is not the allocation of Tax
liability and which provisions regarding Taxes are typical of such
arrangements). Neither the Company nor any Subsidiary (A) has been a member of
an Affiliated Group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) and (B) has any liability
for the Taxes of any person (other than the Company) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law) other than
as a result of being a member of the Affiliated Group of which the Company is
the common parent, as a transferee or successor, by contract, or otherwise.
(f) The unpaid Taxes of the Company and its Subsidiaries (A) do not exceed
the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
33
Company in filing its Tax Returns. Since the date of the Most Recent Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes arising from extraordinary gains or losses, as that term is used in GAAP,
outside the ordinary course of business consistent with past custom and
practice.
(g) Neither the Company nor any of its Subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any:
(i) change in method of accounting for a taxable period ending on or
prior to the Closing Date;
(ii) "closing agreement" as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date;
(iii) except as set forth on Schedule 3.10, intercompany transaction
or excess loss account described in Treasury Regulations under Code Section
1502 (or any corresponding or similar provision of state, local or foreign
income Tax law);
(iv) installment sale or open transaction disposition made on or prior
to the Closing Date; or
(v) prepaid amount received on or prior to the Closing Date.
(h) Neither the Company nor any Subsidiary has distributed stock of
another Person, or has had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Code Section 355 or Code Section 361.
(i) Neither the Company nor any of its Subsidiaries has engaged in any
"listed transaction" as defined in the Treasury Regulations promulgated under
Section 6011 of the Code.
(j) None of the Company's Subsidiaries that are incorporated under the
laws of a jurisdiction other than of United States or a state thereof (i) is, or
at any time has been, engaged in the conduct of a trade or business within the
United States within the meaning of Section 864(b) or Section 882(a) of the
Code, or treated as or considered to be so engaged under Section 882(d) or
Section 897 of the Code or otherwise; (ii) is, or at any time has been, a
passive foreign investment company within the meaning of Section 1297 of the
Code; or (iii) is treated other than as a corporation for United States federal
tax purposes.
Section 3.11 Environmental Matters. Except as set forth on Schedule 3.11
hereto:
(a) The Company is in compliance in all material respects with all
Environmental Laws. Neither the Company nor any Subsidiary has Released any
Hazardous Material on any of the Leased Property or, during the period of the
Company's or any Subsidiary's ownership or lease thereof, on any property
formerly owned or leased by the Company or any Subsidiary. To the Company's
Knowledge, no Person other than the Company or any Subsidiary has Released any
Hazardous Material on any of the Leased Property or, during the period of the
Company's or
34
any Subsidiary's ownership or lease thereof, on any property formerly owned or
leased by the Company or any Subsidiary.
(b) The Company has not received any written or overt notice, written or
overt report or written or overt other information regarding any actual or
alleged violation of Environmental Laws, or any liabilities or potential
liabilities for personal injury, property damage or investigatory or cleanup
obligations arising under Environmental Laws.
Section 3.12 Employee Matters.
(a) Schedule 3.12(a) contains a list of all employees of the Company and
its Subsidiaries as of the date hereof, along with the position and the annual
rate of compensation of each such person. Except as set forth on Schedule
3.12(a), all persons who have been employees of, or consultants to, the Company
or any Subsidiary within the time period beginning on December 31, 2000 and all
persons who are present employees of, and consultants to, the Company or any
Subsidiary, in each case, who have had access to proprietary information about
or created Intellectual Property Rights of the Company or any Subsidiary have
entered into agreements regarding the non-disclosure of confidential information
(such agreements, the "Employee Confidentiality Agreements". The Company has
made available to Parent a copy or form of each Employee Confidentiality
Agreement. Schedule 3.12(a) contains a list, as of the date hereof, of all
employees of the Company or any of its Subsidiaries who are a party to a
non-competition agreement with the Company or any of its Subsidiaries, and
copies of such agreements have previously been made available to Parent. The
execution of this Agreement will not affect the legality, validity, binding
effect or enforceability of the agreements referenced in the preceding three
sentences. Schedule 3.12(a) contains a list of all employees of the Company or
any Subsidiary (other than the employees of HealthScribe India Private Limited)
who are not citizens of the United States. Except as set forth in Schedule
3.12(a), to the Knowledge of the Company, as of the date hereof, no employee of
the Company or any of its Subsidiaries who is paid an annual salary in excess of
$50,000 has announced any plans to terminate employment with the Company or any
of its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries has entered into any
collective bargaining agreements with respect to the employees. There is no
labor strike, labor dispute, or work stoppage or lockout pending or, to the
Company's Knowledge, threatened against or affecting the Company or any of its
Subsidiaries and during the past three years there has been no such action. To
the Company's Knowledge, no union organization campaign is in progress with
respect to any of the employees, and no question concerning representation
exists respecting such employees. There is no unfair labor practice, charge or
complaint pending against the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries has engaged in any plant closing or employee
layoff activities within the last three years that would violate or in any way
implicate the Worker Adjustment Retraining and Notification Act of 1988, as
amended, or any similar state or local plant closing or mass layoff statute,
rule or regulation.
(c) Except as set forth on Schedule 3.12(c), the Company has classified
all individuals who perform services for the Company correctly under the
Employee Benefit Plans, ERISA and the Code as common law employees, independent
contractors, leased employees, and exempt or non-exempt employees.
35
Section 3.13 Employee Benefit Plans
(a) Schedule 3.13(a) contains a complete and correct list of all Employee
Benefit Plans.
(b) Except as set forth on Schedule 3.13(b), none of the Company, any of
its Subsidiaries or any ERISA Affiliate maintains, contributes to or has any
actual or potential liability with respect to any Multiemployer Plan or a plan
that is subject to Title IV of ERISA. Neither the Company nor any of its
Subsidiaries maintains, contributes to or has any actual or potential liability
with respect to any Employee Benefit Plan that provides health or other welfare
benefits to former employees of the Company or any of its Subsidiaries, other
than as required by COBRA.
(c) Except as set forth on Schedule 3.13(c), each Employee Benefit Plan is
maintained, funded and administered in compliance in all material respects with
its terms and the terms of any collective bargaining agreement and the
applicable requirements of ERISA, the Code and any other applicable laws. Each
Employee Benefit Plan that is intended to be qualified under Section 401(a) of
the Code has received a determination or opinion letter from the Internal
Revenue Service that it is so qualified and there are no facts or circumstances
that would adversely affect the qualified status of any such Employee Benefit
Plan. Each such Employee Benefit Plan has been timely amended to comply with the
recent tax legislation commonly known as "GUST" and "EGTRRA" and has been
submitted to the Internal Revenue Service for a determination or opinion letter
on the "GUST" requirements within the "GUST" remedial amendment period.
(d) No liability under Title IV of ERISA has been or is reasonably expected
to be incurred by the Company, any of its Subsidiaries or any ERISA Affiliate.
(e) The Company, its Subsidiaries and any ERISA Affiliates have complied
with the requirements of COBRA; provided that HealthScribe India Private Limited
has only complied with such requirements to the extent so required under
applicable law.
(f) None of the Company, any of its Subsidiaries or any other Person has
engaged in any transaction with respect to any Employee Benefit Plan that would
subject the Company or any of its Subsidiaries to any material Tax or penalty
(civil or otherwise) imposed by ERISA, the Code or other applicable law. To the
Company's Knowledge, no fiduciary (as defined in Section 3(21) of ERISA) has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or the investment of the assets of any
Employee Benefit Plan.
(g) With respect to each Employee Benefit Plan, the Company has provided to
Parent and Newco true, complete and correct copies, to the extent applicable, of
(i) the plan and trust documents and the most recent summary plan description,
(ii) the most recent annual report (Form 5500 series), (iii) the most recent
financial statements, and (iv) the most recent Internal Revenue Service
determination letter.
36
(h) Except as set forth on Schedule 3.13(h), the consummation of the
transactions contemplated hereby will not result in an increase in or accelerate
the vesting of any of the benefits available under any Employee Benefit Plan.
(i) There are no pending claims (other than routine benefit claims) or
lawsuits that have been asserted or threatened relating to any Employee Benefit
Plan and no Employee Benefit Plan has been, in the past three years, or
currently is under audit or examination by any Governmental Authority.
(j) All contributions (including all employer contributions and employee
salary reduction contributions) and all premium payments that are due have been
made within the time periods prescribed by ERISA and the Code to each Employee
Benefit Plan and all such contributions and premium payments for any period
ending on or before the Closing Date that are not yet due have been made or
properly accrued.
Section 3.14 Intellectual Property Rights.
(a) Schedule 3.14(a) contains a complete and accurate list of all of the
following that are owned or used by the Company or any Subsidiary: (i) patented
or registered Intellectual Property Rights assigned to or owned by the Company
or any Subsidiary, (ii) pending patent applications or other applications for
registrations of other Intellectual Property Rights in which the Company or any
Subsidiary is the applicant, (iii) all computer software (other than
mass-marketed software purchased or licensed for less than a total cost per
license agreement of $5,000), (iv) trade or corporate names, trade dress, logos,
slogans, Internet domain name registrations, material unregistered trademarks,
and material unregistered service marks, (v) material unregistered copyrights,
and (vi) any other material Intellectual Property Rights (excluding
inter-company licenses or other rights granted between the Company and any
Subsidiary, and excluding implied licenses that are not material to the business
of the Company or any Subsidiary). Schedule 3.14(c) includes a complete and
accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any Intellectual Property Rights
and all material licenses and other rights granted by any third party to the
Company or any Subsidiary with respect to any Intellectual Property Rights.
Without limiting the generality of Section 3.14, all of such licenses set forth
in Schedule 3.14(c) that are material to the Company or any Subsidiary (1) are
valid and binding obligations of the Company or such Subsidiary, as applicable,
and to the Company's Knowledge, the other parties thereto, and (2) are
enforceable by the Company or such Subsidiary, as applicable, and to the
Company's Knowledge, the other parties thereto, in accordance with their
respective terms, except to the extent that the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws of general application
relating to or affecting the enforcement of creditors' rights or by general
principles of equity. To the Company's Knowledge, the owners of any Intellectual
Property Rights licensed to the Company or any Subsidiary have taken all
commercially reasonable action to maintain and protect the Intellectual Property
Rights subject to such licenses.
(b) Except as set forth in Schedule 3.14(c), the Company and its
Subsidiaries own and possess, free and clear of all Liens, all right, title and
interest in, or have the right to use, pursuant to a valid and enforceable
written license set forth in Schedule 3.14(c) (other than licenses for
mass-marketed software licensed for less than a total cost per license agreement
of
37
$5,000), all Intellectual Property Rights necessary or used for the operation of
the business of the Company and its Subsidiaries as presently conducted
("Company Intellectual Property Rights"). To the Company's Knowledge, all of the
Company Intellectual Property Rights are valid and enforceable and none of the
Company Intellectual Property Rights have been misused by the Company or its
Subsidiaries. No loss or expiration of any of the Company Intellectual Property
Rights is threatened, pending or reasonably foreseeable, other than expiration
of licensed rights as set out in the license agreements, expiration of domain
name registrations, if not renewed, and expiration of registered Intellectual
Property Rights pursuant to the applicable statutory law.
(c) Except as set forth on Schedule 3.14(c), (a) there are no written
claims against the Company or any Subsidiary that were either made within the
past three years or are presently pending contesting the validity, use,
ownership or enforceability of any of the Company Intellectual Property Rights,
and, to the Company's Knowledge, there is no basis for any such claim, (b)
neither the Company nor any Subsidiary has infringed, misappropriated or
otherwise conflicted with, and the operation of the business of the Company and
its Subsidiaries as currently conducted does not infringe, misappropriate or
otherwise conflict with, any Intellectual Property Rights of other Persons and
the neither Company nor any Subsidiary is aware of any facts which indicate a
likelihood of any of the foregoing and neither the Company nor any Subsidiary
has received any notices regarding any of the foregoing (including any demands
or offers to license any Intellectual Property Rights from any other Person),
(c) to the Company's Knowledge, no third party has infringed, misappropriated or
otherwise conflicted with any of the Company Intellectual Property Rights. The
transactions contemplated by this Agreement shall not impair the right, title or
interest of any of the Company or any Subsidiary in and to the Company
Intellectual Property Rights and all of the Company Intellectual Property Rights
shall be owned or available for use by the Company and its Subsidiaries
immediately after the Closing Date on terms and conditions identical to those
under which the Company or its Subsidiary owned or used the Company Intellectual
Property Rights immediately prior to the Closing Date.
(d) The computer systems, including the software, hardware, networks and
interfaces (collectively, "Internal Systems") used or currently planned to be
used in the conduct of the business of the Company and its Subsidiaries are
sufficient for the immediate and planned future needs of the Company and its
Subsidiaries, including without limitation as to capacity and ability to process
current and anticipated peak volumes in a timely manner. Except as set forth in
Schedule 3.14(d), all Internal Systems, other than software, used in the
business of the Company and its Subsidiaries are owned and operated by and are
under the control of the Company or its Subsidiary.
Section 3.15 Contracts. Schedule 3.15 sets forth all contracts, agreements,
leases, permits or licenses currently in effect to which, as of the date hereof,
the Company or any Subsidiary is a party or is otherwise bound, of the type
described below (the "Contracts"):
(a) all agreements or commitments for the purchase by the Company or any of
its Subsidiaries of machinery, equipment or other personal property or any
services requiring payments after the date of this Agreement of more than
$25,000 annually or $100,000 in the aggregate;
38
(b) all employment agreements providing for annual compensation in excess
of $50,000 and all consulting or severance agreements;
(c) all license, royalty or other similar agreements relating to any of the
Intellectual Property Rights used, owned or asserted to be owned by the Company
or any Subsidiary (other than licenses for mass-marketed software licensed for
less than a total cost per license agreement of $5,000);
(d) all agreements containing covenants restraining or limiting the freedom
of the Company or any Subsidiary to engage in any line of business or compete
with any Person including, without limitation, by restraining or limiting the
right to solicit customers or that could reasonably be expected, following the
Closing, to restrain or limit the freedom of Parent or any Affiliate thereof to
engage in any line of business or compete with any Person (but excluding any
agreements containing only confidentiality obligations);
(e) all mortgages, indentures, notes, bonds or other agreements relating to
indebtedness for borrowed money in excess of $25,000 incurred or provided by the
Company or any of the Subsidiaries;
(f) all partnership agreements and joint venture agreements to which the
Company or any of its Subsidiaries is a party;
(g) any agreement (or group of related agreements) for the lease of
personal property from third parties providing for annual lease payments in
excess of $100,000;
(h) any agreement (or group of related agreements) with any customer;
(i) any agreement (or group of related agreements) with vendors,
distributors or sales agents allowing for the resale, marketing or distribution
of the Company's or any Subsidiary's services or products;
(j) any agreement concerning confidentiality entered into within the three
years prior to the date hereof;
(k) any agreement containing a right of first refusal;
(l) any agreement that provides for the Company or any Subsidiary to be the
exclusive or a preferred provider of any product or service to any Person or the
exclusive or a preferred recipient of any product or service of any Person
during any period of time or that otherwise involves the granting by any Person
to the Company or any Subsidiary of exclusive or preferred rights of any kind;
(m) any agreement that provides for any Person to be the exclusive or a
preferred provider of any product or service to the Company or any Subsidiary,
or the exclusive or a preferred recipient of any product or service of the
Company or any Subsidiary during any period of time or that otherwise involves
the granting by the Company or the Subsidiary to any Person of exclusive or
preferred rights of any kind;
39
(n) any agreement in which the Company or any Subsidiary has agreed to
specific service level commitments, the violation of which would result in the
imposition of specified liabilities or penalties against the Company or its
applicable Subsidiary;
(o) any agreement under which the Company or any Subsidiary has created,
incurred, assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness for borrowed money in an amount greater than $25,000, or under
which it has imposed (or may impose) a Lien, other than any Permitted Lien, on
any of its assets, tangible or intangible;
(p) any agreement in which the Company or any Subsidiary has granted
manufacturing rights, "most favored nation" or similar pricing provisions or
marketing or distribution rights relating to any product or territory;
(q) any agreement for (i) the disposition of any of the assets or business
of the Company or any Subsidiary (other than sales of products and services in
the ordinary course of business) for consideration in excess of $50,000 in the
aggregate, or (ii) the acquisition of any assets or business from any other
persons or entities for consideration in excess of $50,000 in the aggregate,
other than purchases, in the ordinary course of business, from suppliers;
(r) any other agreement (or group of related agreements) not otherwise
listed on any disclosure schedule to this Agreement involving annual payments
received or paid by the Company and its Subsidiaries in excess of $50,000; and
(s) any commitment to enter into any of the foregoing contracts or
agreements described in clauses (a) through (r).
Each Contract set forth on Schedule 3.15 is a valid and binding agreement of the
Company or a Subsidiary, as the case may be, enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting generally the enforcement of creditors' rights and
subject to general principles of equity). Except as set forth on Schedule 3.15,
neither the Company, any Subsidiary nor, to the Knowledge of the Company, any
other party, is in breach or violation of, or default under, any material
provision of any Contract, and, to the Knowledge of the Company, no event has
occurred, is pending or is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default of any
material provision of any such Contract by the Company, any Subsidiary, or any
other party under such Contract. The Company has made available to Newco true
and complete copies of all Contracts, including all amendments thereto.
Section 3.16 Insurance. Schedule 3.16 contains an accurate and complete
description of all policies of fire, liability, workers' compensation, property,
casualty and other forms of insurance owned or held by the Company and its
Subsidiaries as of the date hereof. All such policies or equivalent replacement
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Effective Time will have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy. Except as set forth on Schedule 3.16, neither the Company nor
any of its Subsidiaries will be liable for retroactive premiums or similar
payments, and each of the Company and its Subsidiaries is otherwise in
compliance in all material respects with the terms of such policies. Except as
set forth on
40
Schedule 3.16, there is no claim pending or, to the Knowledge of the Company,
any existing facts which are reasonably likely to result in a claim under any
such policy, and if any of the foregoing have been disclosed, no such claim or
existing facts were questioned, denied or disputed by the underwriter of such
policy. Neither the Company nor any of its Subsidiaries has been denied
insurance coverage at any time during the past five years and no policies have
been cancelled or have been refused to be renewed by the insurer in the past
five years except as set forth in Schedule 3.16. Neither the Company nor any
Subsidiary has any Knowledge of any threatened termination of, or, other than in
the ordinary course of business, premium increase with respect to, any such
policy except as set forth in Schedule 3.16. Except as set forth on Schedule
3.16, neither the Company nor the Subsidiary has failed to timely give any
notice required or failed to satisfy any material requirements under such
insurance policies or binders of insurance.
Section 3.17 Real Property. The Company does not own any real property.
Schedule 3.17 sets forth (whether as lessee or lessor) a true and complete list
of all leases, subleases, licenses, concessions and other agreements (written or
oral) (the "Leases"), pursuant to which the Company holds a leasehold or
subleasehold estate in, or is granted the right to use or occupy, any land,
buildings, structures, improvements, fixtures or other interest in real property
(such real property, the "Leased Property") to which the Company is a party or
by which it is bound, in each case, as of the date hereof. The Company has
delivered to Newco a true and complete copy of each Lease. The Company has not
sublet, assigned or otherwise transferred to any Person the right to use or
occupy any of the Leased Property or any portion thereof to any third party.
Except as set forth on Schedule 3.17, each Lease is legal, valid, binding,
enforceable and in full force and effect. Except as set forth on Schedule 3.4,
the transactions contemplated hereby do not require the consent of any other
party to such Lease. Except as set forth on Schedule 3.17, the Company and, to
the Company's Knowledge, each of the other parties thereto has performed in all
material respects all material obligations required to be performed by it under
each Lease. To the Company's Knowledge, the Leased Property complies with all
applicable laws and all licenses or permits required to be maintained for the
development, or use or occupancy of any portion of the Leased Property. Except
as set forth on Schedule 3.17, neither the Company nor any Subsidiary nor, to
the Knowledge of the Company, any other party, is in breach or violation of, or
default under, any Lease, and, to the Knowledge of the Company, no event has
occurred, is pending or is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Company
or any Subsidiary or any other party under such Lease or permit the termination,
modification or acceleration of rent under such Lease. To the Knowledge of the
Company, each parcel of Leased Property is in compliance in all material
respects with all applicable laws and governmental orders. Except as set forth
on Schedule 3.17, neither the Company's nor any of its Subsidiaries' possession
and quiet enjoyment of the Leased Property has been disturbed. No security
deposit or portion thereof deposited with respect to such Lease has been applied
in respect of a breach or default which has not been redeposited in full.
Neither the Company nor any of its Subsidiaries owes, or will owe in the future,
any brokerage commissions or finder fees with respect to the Leases. Except as
set forth on Schedule 3.17, to the Company's Knowledge, all buildings,
structures, improvements, fixtures, building systems and equipment, and all
components thereof included in the Lease Property (the "Improvements") are in
good condition and repair and are sufficient for the operation of the business
of the Company and its Subsidiaries.
41
Section 3.18 Transaction With Affiliates. Except as set forth on Schedule
3.18, none of the Company's stockholders, directors or officers nor any of their
respective Affiliates (other than Subsidiaries) or, to the Company's Knowledge,
members of their immediate family is involved in any business arrangement or
relationship with the Company or the Subsidiaries other than employment
arrangements entered into in the ordinary course of business, and none of the
Company's stockholders, directors or officers nor any of their respective
Affiliates (other than Subsidiaries) or members of their immediate family owns
any property or right, tangible or intangible, which is used or leased by the
Company or the Subsidiaries.
Section 3.19 Brokers. Except as set forth on Schedule 3.19, no Person is or
will be entitled to a broker's, finder's, investment banker's, financial
adviser's or similar fee from the Company or its Subsidiaries in connection with
this Agreement or any of the transactions contemplated hereby.
Section 3.20 HIPAA.
(a) Each of the Company and the Subsidiaries comply in all material
respects with and have implemented all such measures required for it to comply
in all material respects with its obligations as a "Business Associate" and as
an "agent" or "subcontractor" of a Business Associate, as those terms are used
in the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
and/or the privacy regulations promulgated thereunder (45 C.F.R. 160 and 164).
Neither the Company nor any of the Subsidiaries is a Covered Entity as defined
by HIPAA and/or the regulations promulgated thereunder ("HIPAA Laws and
Regulations"). With respect to any HIPAA-related contractual privacy and
security commitments for "Protected Health Information" (as that term is defined
in the HIPAA Laws and Regulations), for which compliance by the Company or any
of its Subsidiaries or is required (collectively, the "HIPAA Commitments"),
(i) the Company and its Subsidiaries are in material compliance with
the HIPAA Commitments;
(ii) the transactions contemplated by this Agreement will not violate
any of the HIPAA Commitments;
(iii) the Company and its Subsidiaries have not received written
inquiries from the U.S. Department of Health and Human Services or any
other Governmental Authority regarding the Company's compliance with the
HIPAA Commitments; and
(iv) the HIPAA Commitments have not been rejected by any applicable
certification organization which has reviewed such HIPAA Commitments or to
which any such HIPAA Commitment has been submitted.
(b) The Company and its Subsidiaries have either entered into valid, and
written Business Associate Agreements or similar privacy agreements, to the
extent required in the HIPAA Commitments, with appropriate parties having access
to "Protected Health Information", including without limitation, all individuals
involved in creating, editing or handling medical transcriptions at the request
of, for or on behalf of the Company or its Subsidiaries.
42
(c) Neither the Company nor its Subsidiaries are aware of any material
violation of HIPAA or of any of the HIPAA Commitments either by the Company or
its Subsidiaries or any subcontractor or agent of the Company or its
Subsidiaries.
(d) Company and its Subsidiaries are taking commercially reasonable
measures to comply with all aspects of the HIPAA Commitments relating to the
HIPAA security regulations, which are enforceable on or about April 20, 2005.
Section 3.21 Compliance with Healthcare Laws and Regulations.
(a) The Company and its Subsidiaries are conducting and have conducted
their business and operations in compliance in all material respects with, and
neither the Company nor any of its Subsidiaries has engaged in any activities
that would constitute a violation, in any material respect, of applicable civil
or criminal statutes, laws, ordinances, rules and regulations of any federal,
state, local or foreign Governmental Authority with respect to regulatory
matters relating to the provision, administration, and/or payment for healthcare
products or services (collectively, "Healthcare Laws"), including, without
limitation, to the extent applicable: (i) rules and regulations governing the
operation and administration of Medicare, Medicaid, or other federal health care
programs; (ii) 42 U.S.C. Section 1320a-7(b), commonly referred to as the
"Federal Anti-Kickback Statute," (iii) 42 U.S.C. Section 1395nn, commonly
referred to as the "Xxxxx Law," (iv) 31 U.S.C. Sections 3729-33, commonly
referred to as the "False Claims Act" and (v) rules and regulations of the U.S.
Food and Drug Administration.
(b) Since September 1, 1999: the Company has not received any written
notice or communication from any Governmental Authority alleging noncompliance
with any Healthcare Laws; to the Company's Knowledge, there is no civil,
criminal or administrative action, suit, demand, claim, complaint, hearing,
investigation, notice, demand letter, warning letter, proceeding or request for
information related to noncompliance with, or otherwise involving, any
Healthcare Laws pending against the Company or any Subsidiary; the Company and
the Subsidiaries have no material liability (whether actual or contingent) for
failure to comply with any Healthcare Laws; there has not been any material
violation of any Healthcare Laws by the Company or any Subsidiary in its
submissions or reports to any Governmental Entity that, to the Knowledge of the
Company, could reasonably be expected to require investigation, corrective
action or enforcement action; neither the Company nor any of its Subsidiaries
has been debarred or excluded from participation in Medicare, Medicaid, or any
other federal or state healthcare program; and the Company has maintained, in
all material respects, all records required to be kept by the Company under any
Healthcare Laws.
Section 3.22 Government Contracts.
(a) A true and correct list of each Government Contract which is in effect
as of the date of this Agreement and Government Bid to which the Company or its
Subsidiaries is a party set forth on Schedule 3.22.
(b) Except as set forth on Schedule 3.22, (A) Company and its Subsidiaries
have complied in all material respects with the terms and conditions of each
Government Contract and Government Bid to which it is a party; (B) Company and
its Subsidiaries have complied with all material requirements of any law
pertaining to such Government Contract or Government Bid; (C)
43
all representations and certifications made by the Company and its Subsidiaries
with respect to such Government Contract or Government Bid were accurate,
current and complete in every material respect as of their effective date and,
the Company and its Subsidiaries have fully complied with all such
representations and certifications in all material respects; (D) neither the
Company nor any of its Subsidiaries is in violation, or currently alleged to be
in violation, in any material respect, of the False Claims Act, as amended, or
any other federal requirement relating to the communication of false statements
or submission of false claims to the Governmental Authority; (E) no termination
or default notice, cure notice or show cause notice has been issued to the
Company or any of its Subsidiaries and remains unresolved, and the Company has
no Knowledge of any plan or proposal of any Person to issue any such notice; and
(F) the Company and its Subsidiaries are not in, and the execution and delivery
of this Agreement by the Company and the consummation of the Transactions will
not result in, any violation, breach or default of any material term or
provision of any Government Contract or any order, statute, rule or regulation
governing any Government Contract.
(c) Except as set forth on Schedule 3.22, (A) to the Company's Knowledge,
none of its nor any of its Subsidiaries' employees, consultants or agents is (or
during the last three years has been) under administrative, civil or criminal
investigation or indictment by any Governmental Authority with respect to the
conduct of the business of the Company or its Subsidiaries; (B) to the Company's
Knowledge, there is no pending audit or investigation of the Company or any of
its officers or employees or any of its Subsidiaries or any of its officers or
employees nor within the last three years has there been any audit or
investigation of any of the foregoing with respect to any material alleged
irregularity, misstatement or omission arising under or relating to any
Government Contract or Government Bid; and (C) during the last three years,
neither the Company nor any of its Subsidiaries has made any voluntary
disclosure in writing to any Governmental Entity with respect to any material
alleged irregularity, misstatement or omission arising under or relating to a
Governmental Contract or Government Bid that has led to any of the consequences
set forth in clause (A) or (B) of the immediately preceding sentence or any
other material damage, penalty assessment, recoupment of payment or disallowance
of cost. Neither the Company nor any Subsidiary has been suspended or debarred
from bidding on contracts or subcontracts with any Governmental Authority; no
such suspension or debarment has, to the Knowledge of the Company, been
initiated or threatened; and the consummation of the transactions contemplated
by this Agreement will not result in any such suspension or debarment.
Section 3.23 Customers and Suppliers. Schedule 3.23 sets forth a list of
(a) each of the top ten customers of the Company and its Subsidiaries, taken as
a whole (by volume in dollars of sales to such customers), for the twelve-month
period immediately preceding the Most Recent Balance Sheet Date and the amount
of revenues accounted for by such customer during each such period and (b) each
of the top five suppliers of the Company and its Subsidiaries, taken as a whole
(by volume in dollars of purchases from such suppliers), for the twelve-month
period immediately preceding the Most Recent Balance Sheet Date (each such
person, a "Major Supplier"). Except as set forth on Schedule 3.23, since the
Most Recent Balance Sheet Date neither the Company nor any of its Subsidiaries
has received written notice from any customer of the Company or any of its
Subsidiaries, nor, to the Knowledge of the Company, has any customer of the
Company or any of its Subsidiaries threatened, that it intends to terminate or
materially modify its existing agreement with the Company and its Subsidiaries,
or materially reduce the aggregate amount paid to the Company and its
Subsidiaries for products and services. Except as set forth on Schedule 3.23,
since the Most Recent Balance Sheet Date neither the Company nor any of its
Subsidiaries has received written notice from any Major Supplier, nor, to the
Knowledge of the
44
Company, has any Major Supplier threatened, that it intends to terminate or
materially modify its existing agreement with the Company and its Subsidiaries,
or materially increase the aggregate amount charged to the Company and its
Subsidiaries for products and services. Neither the Company nor any of its
Subsidiaries has received written notice from any customer of the Company or any
of its Subsidiaries or any Major Supplier that it intends to file a petition
under applicable bankruptcy laws or otherwise seek relief from or make an
assignment for the benefit of its creditors and, to the Company's Knowledge, no
such notice or action has been threatened.
Section 3.24 Assets. The Company and its Subsidiaries have good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by them, located on their premises, or shown on the Most Recent Balance
Sheet, free and clear of all Liens other than Permitted Liens, except for
properties and assets disposed of in the ordinary course of business since the
Most Recent Balance Sheet Date. The Company and its Subsidiaries own or lease
all buildings, equipment, and other tangible assets necessary for the conduct of
their business as presently conducted. Each such tangible asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used.
Section 3.25 Notes and Accounts Receivable. All notes and accounts
receivable of the Company and its Subsidiaries are reflected properly on their
books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their
terms at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of the Company and its Subsidiaries.
Section 3.26 HealthScribe India. The Company has delivered a true and
correct copy of the Repurchase Agreement to Parent. The Repurchase Agreement is
in full force and effect. The Company has no reason to believe that the
transactions contemplated by the Repurchase Agreement will not be consummated on
the terms set forth therein.
Section 3.27 Advanta Acquisition. The Company has delivered a true and
correct copy of the letter of intent which contemplates the Advanta Acquisition
to Parent (the "Advanta LOI"). The Advanta LOI is in effect.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Parent and Newco jointly and severally represent and warrant to the
Company:
Section 4.1 Organization. Each of Parent and Newco is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its property and assets and to carry on its
business as presently conducted. Each of Parent and Newco has delivered to the
Company true and complete copies of its certificate of incorporation (and all
amendments thereto) and by-laws (as currently in effect).
Section 4.2 Authorization. Each of Parent and Newco has the corporate power
and authority to execute and deliver this Agreement and each other agreement or
instrument to be executed in
45
connection herewith and to perform its obligations hereunder and thereunder, all
of which have been duly authorized by all requisite corporate action. This
Agreement and each other agreement or instrument to be executed in connection
herewith has been duly authorized, executed and delivered by Parent and Newco
and constitutes a valid and binding agreement of Parent and Newco, enforceable
against Parent and Newco in accordance with its terms.
Section 4.3 Non-contravention. The execution, delivery and performance by
Parent and Newco of this Agreement and the Certificate of Merger, the
consummation of the Merger and each of the other transactions contemplated
hereby will not (i) contravene any provision contained in such entity's
certificate of incorporation or by-laws, (ii) conflict with, violate or result
in a material breach (with or without the lapse of time, the giving of notice or
both) of or constitute a material default (with or without the lapse of time,
the giving of notice or both) under (A) any contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, bond, license, permit or other
instrument or obligation or (B) any judgment, order, decree, statute, law, rule
or regulation or other restriction of any Governmental Authority, in each case
to which such entity is a party or by which it is bound or to which any of its
assets or properties are subject, (iii) result in the acceleration of, or permit
any Person to terminate, modify, cancel, accelerate or declare due and payable
prior to its stated maturity any material obligation of such entity or (iv)
require any authorization, consent, approval, exemption or other action by or
declaration or notice to any Person or Government Authority (except for the
applicable requirements of the HSR Act and any applicable foreign antitrust laws
or regulations).
Section 4.4 No Consents. Except for (i) filing and recordation of
appropriate merger documents as required by the DGCL, (ii) filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the HSR Act, and (ii) filings and approvals set
forth in Schedule 4.4, no notice to, filing with, or authorization,
registration, consent or approval of any Governmental Authority or other Person
is necessary for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby by Parent and Newco.
Section 4.5 Litigation. Neither Parent nor Newco is party to any litigation
or threatened (including any demands or offers to license any Intellectual
Property Rights from any other Person) litigation which would reasonably be
expected to affect or prohibit the consummation of the transactions contemplated
hereby.
Section 4.6 Brokers. No Person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from Parent or
Newco in connection with this Agreement or any of the transactions contemplated
hereby.
Section 4.7 Parent and Newco Board. The respective boards of directors of
Parent and Newco, by unanimous written consent, have approved the execution of
this Agreement.
Section 4.8 Stockholder Approval. Parent, as sole stockholder of Newco, has
approved this Agreement and the transactions contemplated hereby by written
consent in lieu of special meeting of stockholders, and no other stockholder
vote, approval or consent of any holder of capital stock of each of Parent or
Newco is required or necessary to consummate the Merger.
46
Section 4.9 No Other Representation. Parent acknowledges and agrees that,
except for the representations and warranties of the Company contained in this
Agreement (including the Exhibits and Schedules hereto) and documents delivered
by the Company to the Parent and/or Newco in connection with the Closing, the
Company makes no other representations or warranties, express or implied.
ARTICLE V -- COVENANTS AND AGREEMENTS
Section 5.1 Stockholder Matters. The Company will, within six (6) Business
Days of the date hereof, provide a draft information statement to Parent. Within
two (2) Business Days thereafter, Parent shall provide comments in connection
therewith to the Company. Within two (2) Business Days thereafter, the Company
shall send a final information statement (the form of which shall be reasonably
acceptable to Parent) to the holders of the Common Stock and the Preferred Stock
which have not executed the Stockholder Consent.
Section 5.2 Access and Information. From the date hereof, Parent and Newco
and their potential financing sources shall be entitled to make or cause to be
made such reasonable investigation of the Company and its Subsidiaries, and the
financial and legal condition thereof, as Parent and Newco deem reasonably
necessary or advisable, and the Company and its Subsidiaries shall cooperate
with any such investigation, including by providing reasonable access to the
properties, books and records, officers, counsel, and accountants of the Company
and its Subsidiaries at reasonable hours and upon reasonable advance notice.
Parent and Newco agree to use reasonable efforts to conduct any such inquiries
and investigations with sensitivity to the Company's interests in preserving its
relationships with its employees, customers and suppliers.
Section 5.3 Conduct of Business by the Company. From the date hereof to the
Effective Time, the Company will and will cause each of its Subsidiaries to,
except as otherwise expressly provided herein, or consented to in writing by
Parent and Newco conduct its business only in the ordinary and regular course in
substantially the same manner heretofore conducted and in compliance in all
material respects with all applicable laws, and will not take or intentionally
omit to be taken any action, or permit its Affiliates to take or to
intentionally omit to take any action, which would result in a Material Adverse
Effect or which would have a material adverse effect on the ability of the
Company to operate its business in the manner in which it is conducted at the
time of the Closing. Without limiting the generality of the foregoing, from the
date hereof to the Effective Time, the Company will not and will cause each of
its Subsidiaries not to, except as otherwise expressly required herein or
consented to by Parent in writing (such consent not to be unreasonably withheld,
conditioned or delayed), take any action or intentionally omit to take any
action, or agree to take or omit to take any action, which would result in:
(a) the Company intentionally creating circumstances under which the
officer's certificate referred to in Section 6.2(m)(i) cannot be delivered at
the Closing;
(b) other than in connection with (i) the exercise of options and warrants,
outstanding as of the date of this Agreement, to purchase Company securities,
and (ii) the repurchase of (A) securities of the Company and HealthScribe India
Private Limited pursuant to terms of that certain Purchase and Settlement
Agreement previously provided to Parent (the "Repurchase Agreement") or (B) up
to 3,210 shares of Series E Preferred Stock, the issuance or sale of any
47
stock or other equity securities of the Company or any Subsidiary or any
options, warrants or rights to acquire any such stock or other equity securities
(except pursuant to the conversion or exercise of Preferred Shares or Options
outstanding on the date hereof), or the amendment of any of the terms of any
Options or the repurchase or redemption of any stock or other securities of the
Company (except from former employees, directors or consultants in accordance
with agreements providing for the repurchase of shares at their original
issuance price in connection with any termination of employment with or services
to the Company);
(c) other than in connection with (i) the possible acquisition of Advanta
Medical Solutions, LLC and (ii) equipment financing in the ordinary course of
business of the Company (or if provided for in the current budget of the
Company), incurrence by the Company or any Subsidiary of any additional Funded
Indebtedness, or making any loans or advances to any Person by the Company or
any Subsidiary, except for Funded Indebtedness, loans or advances in a principal
amount not to exceed, in the aggregate, $50,000;
(d) any change by the Company or any Subsidiary in accounting practices,
methods or assumptions, or any material change in its policies or practices in
respect of collection of receivables, or payment of accounts payable or accrued
expenses, in each case, except as may be required by GAAP;
(e) other than in connection with the repurchase of up to 3,210 shares of
Series E Preferred Stock, the authorization, declaration or setting aside of any
dividend payment or other distribution, payable in cash, stock, property or
otherwise, with respect to any equity security of the Company;
(f) the reclassification, combination, split, subdivision or issuance of
any other securities in respect of, or in lieu of or in substitution for shares
of equity securities of the Company or its Subsidiaries;
(g) other than in connection with (i) the possible acquisition of Advanta
Medical Solutions, LLC and (ii) the Repurchase Agreement, the acquisition or
agreeing to an acquisition by the Company or any Subsidiary (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) of any
equity interest in any corporation, partnership, other business organization or
any division thereof;
(h) except as specifically required by or in furtherance of this Agreement,
the entry by the Company or any of its Subsidiaries into any material business
arrangement with any of the stockholders, directors or officers of the Company;
(i) the acquisition, sale, lease, license or disposal of any assets or
property, or any amendment, modification, extension or renewal of any Lease, by
the Company or any Subsidiary (including any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than in the ordinary
course of business;
(j) take any action that could reasonably be expected to cause the loss,
lapse or abandonment of any material Intellectual Property Rights owned or used
by the Company or any Subsidiary;
48
(k) other than in connection with (i) a new $5,000,000 revolver (which
shall only be obtained in connection with the term loan described in (ii), (ii)
a new $10,000,000 term loan to be used in connection with (A) the possible
acquisition of Advanta Medical Solutions, LLC, (B) the repurchase of up to 3,210
shares of Series E Preferred Stock and (C) so long as any of (A) or (B) above
are also part of the use of proceeds of the applicable new loan, the repayment
of the Company's existing revolver, and (iii) debt in connection with the
repurchase of up to 3,210 shares of Series E Preferred Stock, the mortgaging or
pledging by the Company or any Subsidiary of any of its material property or
assets or the subjecting of any such property or assets to any Lien, other than
Permitted Liens;
(l) pay the cash portion of the purchase price in connection with any
acquisition of Advanta Medical Solutions, LLC from any source other than the
issuance of debt as provided in clause (k) above;
(m) the amendment of the charter, by-laws or other organizational documents
of the Company or any Subsidiary other than in furtherance of completing the
Merger on the terms set forth herein;
(n) the amendment of any Tax Return or the making by the Company or any
Subsidiary of any new elections, or changes to any current elections, with
respect to Taxes, other than in order to comply with applicable law;
(o) the entry by the Company or any Subsidiary into any of the following
type of contracts or agreements:
(i) any employment or other agreement providing for severance to any
employee,
(ii) any license, royalty or other similar agreement relating to any
of the Intellectual Property Rights used, owned or asserted to be owned by
the Company or any Subsidiary (other than licenses for mass-marketed
software licensed for less than a total cost per license agreement of
$5,000) other than in the ordinary course of business,
(iii) any agreement containing any covenant restraining or limiting
the freedom of the Company or any Subsidiary to engage in any line of
business or compete with any Person including, without limitation, by
restraining or limiting the right to solicit customers or that could
reasonably be expected, following the Closing, to restrain or limit the
freedom of Parent or any Affiliate thereof to engage in any line of
business or compete with any Person (but excluding any agreement containing
only confidentiality obligations),
(iv) any partnership agreement or joint venture agreement pursuant to
which the Company or any of its Subsidiaries will receive an equity
interest,
(v) any agreement pursuant to which the Company or any of its
Subsidiaries grants any right of first refusal,
49
(vi) any agreement that provides for any Person to be the exclusive or
a preferred provider of any product or service to the Company or any
Subsidiary, or the exclusive or a preferred recipient of any product or
service of the Company or any Subsidiary during any period of time or that
otherwise involves the granting by the Company or the Subsidiary to any
Person of exclusive or preferred rights of any kind,
(vii) any agreement in which the Company or any Subsidiary has agreed
to specific service level commitments, the violation of which would result
in the imposition of specified liabilities or penalties against the Company
or its applicable Subsidiary other than in the ordinary course of business
consistent with past practices,
(viii) enter into any guarantees other than guarantees of debts or
obligations of the Company or any of its Subsidiaries, or
(ix) any agreement in which the Company or any Subsidiary has granted
"most favored nation" or similar pricing provisions or marketing or
distribution rights relating to any product or territory;
(p) the making or committing to make by the Company or any Subsidiary any
capital expenditure in excess of $300,000 in the aggregate or $100,000 on any
one item, unless such capital expenditure is in the ordinary course of business
and is provided for in the current budget of the Company;
(q) the institution or settlement by the Company or any Subsidiary of any
Legal Proceeding other than for a purely monetary payment that will be made
prior to Closing or the settlement of a claim by an employee of the Company
where any resulting restriction on the Company applies only to such employee; or
(r) the Company or any Subsidiary agreeing in writing to take any of the
actions described in clauses (a) through (p) above.
Section 5.4 Closing Documents. The Company shall, prior to or on the
Closing Date, execute and deliver, or cause to be executed and delivered to
Parent and Newco, the documents or instruments described in Section 6.2 that are
to be executed and delivered by the Company and its Subsidiaries. Parent and
Newco shall, prior to or on the Closing Date, execute and deliver, or cause to
be executed and delivered, to the Company, the documents or instruments
described in Section 6.3 that are to be executed and delivered by Parent and/or
Newco.
Section 5.5 Efforts; Further Assurances.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use its commercially reasonable efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
The Company shall use its commercially reasonable efforts to obtain, at its sole
expense, all such waivers, consents or approvals from Governmental Authorities
or third parties and to give all such notices to Governmental Authorities and
third parties, as are required to be listed in Schedule 3.4 hereto. Parent shall
cooperate with the Company in obtaining all such waivers,
50
consents or approvals, as may be reasonably requested by the Company in
connection therewith. Parent shall use its commercially reasonable efforts to
obtain, at its sole expense, all such waivers, consents or approvals from
Governmental Authorities or third parties and to give all such notices to
Governmental Authorities and third parties, as are listed in Exhibit 6.3(b)
hereto. The Company shall cooperate with Parent in obtaining all such waivers,
consents or approvals, as may be reasonably requested by Parent in connection
therewith. Each party shall bear its own costs incurred in connection with
obtaining such consents. Notwithstanding the foregoing or anything contained in
this Agreement to the contrary, neither Parent nor any of its Affiliates shall
have any obligation to consummate the acquisition of the Spheris Business (as
defined in Section 5.9) and, in any case, any such acquisition of the Spheris
Business will be completed on terms deemed acceptable to Parent and/or its
Affiliates in their sole discretion.
(b) Each of Parent and the Company shall pay one-half of the HSR Act filing
fee and any applicable foreign antitrust filing fees. Each party hereto shall
make an appropriate filing, if necessary, pursuant to the HSR Act (and any
applicable foreign antitrust laws) with respect to the transactions contemplated
by this Agreement within ten Business Days after Parent and/or any of its
Affiliates have entered into a definitive purchase agreement to acquire the
Spheris Business (any such agreement, a "Spheris Agreement"), and shall supply
as promptly as practicable to the appropriate Governmental Authorities any
additional information and documentary material that may be requested pursuant
to the HSR Act (and any applicable foreign antitrust laws). Without limitation
of the foregoing, the Company, Newco and their respective Affiliates shall not
extend any waiting period or comparable period under the HSR Act (or any
applicable foreign antitrust laws) or enter into any agreement with any
Governmental Authority not to consummate the transactions contemplated hereby,
except with the prior written consent of the other parties hereto.
Notwithstanding anything herein to the contrary, Parent, Company and their
Affiliates shall not be required to consent to any divestiture or other
structural or conduct relief in order to obtain clearance from any Governmental
Authority and Parent, Company and their Affiliates shall not be obligated to
contest, administratively or in court, any ruling, order or other action of any
Governmental Authority or private party respecting the transactions contemplated
by this Agreement.
(c) In the event any claim, action, suit, investigation or other proceeding
by any Governmental Authority or other Person is commenced which questions the
validity or legality of the Merger or any of the other transactions contemplated
hereby or seeks damages in connection therewith, the parties agree, subject to
the reasonable business judgment of each, to cooperate and use reasonable best
efforts to defend against such claim, action, suit, investigation or other
proceeding and, if an injunction or other order is issued in any such action,
suit or other proceeding, to use reasonable best efforts to have such injunction
or other order lifted, and to cooperate reasonably regarding any other
impediment to the consummation of the transactions contemplated hereby.
(d) Without limiting Section 5.5(a) above, the Company agrees to use, and
to cause its Affiliates to use, commercially reasonable efforts to assist Parent
and Newco with their efforts to obtain (i) the financing necessary to consummate
the transactions contemplated hereby, and (ii) to the extent required by any
lender in connection with the consummation of the transactions contemplated
hereby, title commitments, title policies and surveys.
51
(e) The Company shall give prompt written notice to Parent and Newco of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
would result in the failure to satisfy any of the conditions specified in
Section 6.1 or Section 6.2 and such written notice shall specify the reason such
condition would not be met (provided that such notice shall not be deemed to
cure any such failure or amend and/or supplement the schedule related to any
representation or warranty) and (ii) any failure of the Company to comply in any
material respect with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under the Merger Documents.
(f) The Parent or Newco shall give prompt written notice to the Company of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would result in the failure to satisfy any of the conditions specified
in Section 6.1 or Section 6.3 and such written notice shall specify the reason
such condition would not be met (provided that such notice shall not be deemed
to cure any failure or amend and/or supplement the schedule related to any
representation or warranty) and (ii) any failure of the Parent or Newco to
comply in any material respect with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under the Merger Documents.
Section 5.6 Public Announcements. The timing and content of the initial
announcement of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance by the Company and Parent. Thereafter, Parent and the Company
shall consult with each other before issuing, and shall provide each other with
the opportunity to review and comment upon, all announcements regarding any
aspect of this Agreement or the Merger to the financial community, government
agencies, employees or the general public; provided that each party hereto may
make any such announcement which it in good faith believes, based on advice of
counsel, is necessary or advisable in connection with any requirement of law or
regulation (after using its best efforts to allow the other party to review,
comment and consent to such announcement), it being understood and agreed that
each party shall promptly provide the other parties hereto with copies of any
such announcement. Notwithstanding anything in this Section 5.6, the compliance
with Section 5.1 shall not be a violation or breach of this Section 5.6.
Section 5.7 Exclusive Dealing. During the period from the date of this
Agreement through the Closing Date or the termination of this Agreement pursuant
to Section 7.1, the Company shall not take, nor will the Company permit any of
its respective Affiliates, representatives, consultants, financial advisors,
attorneys, accountants or other agents to take, any action to solicit,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to or enter into any agreement with any person (other than
Parent, Newco and/or their Affiliates) concerning any purchase of any of the
Company's equity securities (other than in connection with (i) the exercise of
options and warrants, outstanding as of the date of this Agreement, to purchase
Company securities, (ii) the Repurchase Agreement, and (iii) the repurchase of
up to 3,210 shares of Series E Preferred Stock) or any merger, sale of
substantial assets or similar transaction involving the Company (other than
assets sold in the ordinary course of business). The Company shall promptly
notify Parent of, and communicate to Parent the terms of, any such inquiry,
proposal or request for information received by, or negotiations or discussions
sought with, either the Company or, to the Company's Knowledge, any of the
Company's representatives or Affiliates. The Company hereby agrees to, promptly
after the date
52
hereof, request of each potential acquirer of the Company to which information,
documents or other materials were provided within the six months prior to the
date hereof that such potential acquirer promptly after such request either (a)
return to the Company all such information, documents and other materials and
all copies thereof, or (b) destroy (such destruction to be certified in writing
to the Company by such potential acquirer) all such information, documents and
other materials and all copies thereof.
Section 5.8 Financial Statements. From and after the date hereof until the
Closing, the Company shall, as soon as practicable and in any event within 20
days after the end of each fiscal month of the Company, deliver to Parent the
consolidated balance sheet of the Company as at the end of such period, along
with the related statements of income and cash flows of the Company, in each
case, for such fiscal month and for the period from the beginning of the then
current fiscal year to the end of such fiscal month.
Section 5.9 Spheris Business.
(a) During the period beginning on the date hereof and ending on the date
of termination of this Agreement, the Company shall not, and shall cause its
Subsidiaries (and, to the extent practicable, its Affiliates) to not, pursue the
acquisition of all or any substantial portion of Spheris, Inc., any of its
Subsidiaries, or any of their respective businesses (collectively, the "Spheris
Business") in any manner (other than on behalf of Parent and its Affiliates or
other than in connection with the operation of the Company's business in a
manner consistent with past practices) without the prior written consent of
Parent. Notwithstanding the foregoing, if the Company or any of its Subsidiaries
or Affiliates purchase all or a substantial part of the Spheris Business (other
than on behalf of Parent and its Affiliates) during this period, the Company
shall immediately pay to Xxxxx Private Equity Investors LP an amount in cash
equal to 3% of the purchase price for that part of the Spheris Business so
purchased.
(b) During the period beginning on the date of termination of this
Agreement until August 5, 2005 (the "Post-Termination Period"), if the Company
or any of its Subsidiaries or Affiliates purchase all or a substantial part of
the Spheris Business (other than on behalf of Parent and its Affiliates), the
Company shall immediately pay to Xxxxx Private Equity Investors LP the total
cash amount of $100,000. In addition, the Company agrees that if, after the end
of the Post-Termination Period and until the one year anniversary of the date
hereof, the Company seeks to purchase all or any portion of the Spheris Business
and raises debt and/or equity capital in connection with the foregoing, it shall
offer Parent the right to purchase at least 49% of the debt and/or equity
securities sold in connection therewith. Such offer shall be made at least 20
calendar days prior to the closing of the sale of such debt and/or equity
securities and Parent shall either accept or reject such offer to participate
within 10 calendar days after it receives such offer. Notwithstanding the
foregoing, the Company shall not be required to offer Parent such right to
participate if (i) an unsolicited investor approaches the Company with such
opportunity (an "Unsolicited Opportunity") and (ii) the Company notifies Parent
in writing of such Unsolicited Opportunity within seven (7) days after the
applicable unsolicited investor so approaches the Company. Notwithstanding the
foregoing, the Company shall not be required to provide Parent the notice
described in the previous sentence if such notice would violate a non-disclosure
or similar agreement with such unsolicited investor (x) in existence prior to
the execution hereof or (y) executed by the Company after the date hereof at a
time at which the
53
unsolicited investor has not disclosed to the Company its intention to purchase
all or any portion of the Spheris Business. However, even if the Company is not
required to provide the disclosure pursuant to the previous sentence, it will
use commercially reasonable efforts to seek the consent of such unsolicited
investor so that it can provide such notice to Parent.
(c) Prior to the Closing, no Affiliate of Parent will acquire Spheris,
Inc. unless such Affiliate is wholly-owned, directly or indirectly, by Parent.
Section 5.10 HealthScribe India Private Limited Ownership. The Company
shall use commercially reasonable efforts to acquire the additional capital
stock of HealthScribe India Private Limited on terms set forth in the Repurchase
Agreement (the "HealthScribe India Repurchase").
Section 5.11 Advanta Acquisition. The Company shall use reasonable
commercial efforts to complete, as promptly as practicable after the date hereof
(but in no event less than three Business Days prior to the Closing Date), the
acquisition of 100% of the membership interests of Advanta Medical Solutions,
LLC (the "Advanta Acquisition"). Notwithstanding the foregoing or anything
contained in this Agreement to the contrary, the Company shall have no
obligation to consummate the Advanta Acquisition unless the Board of Directors
of the Company determines that such acquisition is in the best of interests of
the Company and the Company completes its due diligence to its sole satisfaction
in connection with the Advanta Acquisition.
Section 5.12 FIRPTA. Prior to the Closing, the Company shall deliver to
Parent a notice that the Common Stock and Preferred Stock are not "U.S. real
property interests" in accordance with Treasury Regulations under Sections 897
and 1445 of the Code. If Parent does not receive the notice described above on
or before the Closing Date, Parent, Newco, the Company, or the Surviving
Corporation shall be permitted to withhold from the payments to be made pursuant
to this Agreement any required withholding tax under Section 1445 of the Code.
Section 5.13 Tax Agreements. Any Tax sharing (excluding agreements the
primary purpose of which is not the allocation of Tax liability and which
provisions regarding Taxes are typical of such arrangements), Tax indemnity or
Tax distribution agreements or similar arrangements with respect to or involving
the Company or any of its Subsidiaries shall be terminated prior to the Closing
Date and, after the Closing Date, Parent, the Company, and their Affiliates
shall not be bound thereby or have any liability thereunder for amounts due in
respect of periods ending on or before the Closing Date.
Section 5.14 Tax Matters.
(a) Periods Ending on or Before the Closing Date. Parent shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date. Any Tax Returns filed pursuant hereto must be consistent
with the prior Tax Returns of Company except as required by applicable law. No
later than twenty (20) days prior to filing, Parent shall deliver to the
Stockholder Representatives all such Tax Returns and any related work papers and
shall permit the Stockholder Representatives to review and comment on each such
Tax Return and shall make such revisions to such Tax Returns as are reasonably
requested by the Stockholder Representatives. Without implication for the
indemnification rights Parent or the Company may
54
have under Article VIII, Company, Surviving Corporation or Parent shall timely
pay to the appropriate taxing authority any Taxes of Company with respect to
such periods. The costs, fees and expenses related to the preparation of such
Tax Returns shall be estimated and accrued as a liability of Company for
purposes of calculating Net Working Capital and shall be payable by Company,
Surviving Corporation or Parent.
(b) Periods Beginning Before and Ending After the Closing Date. To the
extent that any Tax Returns of Company relate to any Tax periods which begin
before the Closing Date and end after the Closing Date, Parent shall prepare or
cause to be prepared in a manner consistent with the prior Tax Returns of
Company except as required by applicable law and file or cause to be filed any
such Tax Returns. Parent shall permit the Stockholder Representatives to review
and comment on each such Tax Return described in the preceding sentence and any
related work papers at least twenty (20) days prior to filing such Tax Returns
and shall make such revisions to such Tax Returns as are reasonably requested by
the Stockholder Representatives. Without implication for the indemnification
rights Parent or the Company may have under Article VIII, any Taxes of Company
with respect to the portion of such period ending on the Closing Date, shall be
paid in cash by Company, Surviving Corporation or Parent. The costs, fees and
expenses related to the preparation of such Tax Returns shall be paid by Parent
or the Surviving Corporation. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a taxable period
that includes but does not end on the Closing Date, the portion of such Tax
which relates to the portion of such taxable period ending on the Closing Date
shall be deemed to be Pre-Closing Taxes.
Section 5.15 Director and Officer Indemnification.
(a) Newco and Parent covenant and agree that neither of them shall cause
or permit any repeal or modification of the limitations of liability or rights
to indemnification in favor of the current and previous directors of the Company
(both in their capacity as directors and officers of Company) and the current
and previous officers of Company ("Indemnified Officers and Directors"), as
provided for in the Company's Bylaws and/or Certificate of Incorporation as of
the date hereof, and in the Employment Agreement of Xxxxxxx Xxxx and in the
Employment Agreement of Xxxxx Xxxxxxxx, each set forth on Schedule 3.15(b) which
would result in (i) such limitations of liability or indemnification rights no
longer applying to the Indemnified Officers and Directors for any act, omission
or occurrence prior to the Closing, or (ii) any such rights to indemnification
or any such limitation on liability being reduced or limited for the Indemnified
Officers and Directors for any act, omission or occurrence prior to the Closing.
(b) This Section 5.15 shall be binding on all successors of Newco
(including the Surviving Corporation). The provisions of this Section 5.15 are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Officer and Director, his or her heirs, and his or her representatives.
ARTICLE VI -- CONDITIONS TO CLOSING
Section 6.1 Mutual Conditions. The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions:
55
(a) No Injunction. At the Effective Time there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or Governmental Authority of competent jurisdiction to the
effect that the Merger may not be consummated as herein provided, no proceeding
or lawsuit shall have been commenced by any Governmental Authority or other
Person for the purpose of obtaining any such injunction, writ or preliminary
restraining order and no written notice shall have been received from any such
Governmental Authority indicating an intent to restrain, prevent, materially
delay or restructure the transactions contemplated hereby.
(b) HSR Waiting Period. Any waiting period (and any extension thereof)
under the HSR Act applicable to the transactions contemplated hereby shall have
expired or shall have been terminated.
Section 6.2 Conditions to the Obligations of Parent and Newco. The
obligations of Parent and Newco to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment prior to or at Closing of
each of the following conditions, any and all of which may be waived, in whole
or in part, by Parent and Newco to the extent permitted by applicable law:
(a) Representations, Warranties and Covenants. All representations and
warranties made by the Company in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties made by the Company in this Agreement shall be
true and correct in all material respects, in each case as of the date hereof
and as of the Closing Date as though such representations and warranties were
made as of the Closing Date (or on the date specified in the case of any
representation or warranty which specifically relates to an earlier date), in
each case, except to the extent that the failure of any such representation or
warranty to be so true and correct would not result in a material Loss to any of
Parent, Newco and/or the Surviving Corporation. The Company shall have duly
performed or complied with, in all material respects, all of the covenants,
obligations and conditions to be performed or complied with by it under the
terms of this Agreement on or prior to or at Closing.
(b) Material Adverse Effect. Since the date of this Agreement, there will
not have occurred and there will have been no change, event or development that
has had or may reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
(c) Consents. The Company shall have obtained at its own expense in a form
reasonably acceptable to Parent (and shall have provided copies thereof to
Parent) all of the waivers, permits, consents, approvals, or authorizations, and
effected all of the registrations, filings and notices (collectively, "Consents
or Notices"), in each case, set forth on Exhibit 6.2(c), and any other material
Consents or Notices which are required on the part of the Company or its
Subsidiaries for the execution delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(d) Financing. Parent and/or Newco shall have obtained financing on terms
and conditions reasonably satisfactory to Parent in an amount sufficient to
consummate the transactions contemplated hereby; provided that on the date five
Business Days after the date Parent or one of its Affiliates enters into a
binding purchase agreement for the Spheris
56
Acquisition, this financing condition shall be deemed to be identical to the
financing condition contained in the applicable purchase agreement for the
Spheris Acquisition with the applicable substitution of the financing of the
Merger rather than the financing of the Spheris Acquisition.
(e) Due Diligence. Parent shall no longer have the right to terminate this
Agreement pursuant to Section 7.1(f) hereof.
(f) Spheris Acquisition. Parent and/or its Affiliates shall have completed,
on terms reasonably acceptable to Parent, the acquisition of at least a majority
of the capital stock of Spheris, Inc. or substantially all of the assets of
Spheris, Inc.
(g) Advanta Acquisition. At least three Business Days prior to the Closing
Date, the Company shall have completed, on terms acceptable to Parent, the
Advanta Acquisition.
(h) Pay-off Letters, Notes and Releases of Liens. With respect to each
holder of Closing Date Funded Indebtedness (the "Creditors"), the Company shall
have received and provided Parent (i) a copy of a pay-off letter in a customary
form reasonably acceptable to Parent and (ii) the executed originals of all then
outstanding notes evidencing the loans (or appropriate loss affidavits and
indemnities); and, with respect to each of the Liens on the Company's assets
held by the Creditors, the Company shall have received and provided a copy to
Parent of UCC termination statements and any other required documents to be
filed in release of such Liens upon the payment of the applicable indebtedness
by the Surviving Corporation. The Company shall have received and provided to
Parent evidence of the release of all (x) Liens (other than Permitted Liens) on
all assets of the Company and its Subsidiaries and (y) guarantees made by the
Company or any of its Subsidiaries for the benefit of a Person other than the
Company or any of its Subsidiaries.
(i) Resignations of Directors. The Company shall have delivered to Parent
the written resignations of each of the directors of the Company and its
Subsidiaries as Parent shall have requested at least two Business Days prior to
the Closing.
(j) Unvested and Out of the Money Common Stock Options. The Board of
Directors of the Company shall have taken all action necessary for all Unvested
and Out of the Money Common Stock Options to have terminated as of immediately
prior to the Effective Time in a manner by which the Surviving Corporation will
have no liability or obligation with respect to such Unvested and Out of the
Money Common Stock Options.
(k) Employment Agreements. The Company or HealthScribe India Private
Limited, as applicable, shall have entered into an amendment to each of the
currently existing employment agreements with each of Xxxxxxx Xxxx, Xxxxx
Xxxxxxxx, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxxxx
Xxxx, Xxxxxxxxx Xxxxxxx and M.V. Ravi in a form acceptable to Parent; provided
that if such amendments have not been executed or the requirement to obtain such
amendments has not been waived by the time that Parent no longer has the right
to terminate this Agreement pursuant to Section 7.1(f) hereof, then the
condition set forth in this subsection (k) shall be automatically waived by
Parent and Newco.
(l) Stock Options. Parent shall have received reasonably satisfactory
evidence that, effective as of the Closing and for all times thereafter, none of
the Common Stock Options,
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Series C Preferred Stock Warrants and/or Series D Preferred Stock Warrants shall
be exercisable (without regard to any vesting provisions) for any shares of
capital stock or other equity securities of the Company or the Surviving
Corporation.
(m) Closing Deliveries. Prior to or at the Closing, the Company shall have
delivered the following closing documents in customary form and substance (or
form and substance otherwise reasonably acceptable to Parent):
(i) a certificate of the President of the Company, dated the Closing
Date, to the effect that the conditions specified in Section 6.2(a) has
been satisfied;
(ii) a certified copy of the resolutions of the Company's Board of
Directors authorizing the execution, delivery and consummation of this
Agreement and the transactions contemplated hereby;
(iii) a certified copy of the resolutions of the stockholders of the
Company adopting and approving this Agreement, the other Merger Documents
to which the Company is a party to the extent required to be approved and
the transactions contemplated hereby and thereby; and
(iv) a legal opinion from Holland & Knight LLP, counsel to the Company
in substantially the form attached hereto as Exhibit D, addressed to Parent
and dated as of the Closing Date.
(n) Balance Sheet Components. The estimated amount of Balance Sheet
Components must be less than or equal to $4,100,000.
Section 6.3 Conditions to the Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company to the extent permitted by applicable law:
(a) Representations, Warranties and Covenants. All representations and
warranties made by Parent and Newco in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties made by Parent and Newco in this Agreement shall
be true and correct in all material respects, in each case as of the date hereof
and as of the Closing Date as though such representations and warranties were
made as of the Closing Date (or on the date specified in the case of any
representation or warranty which specifically relates to an earlier date).
Parent and Newco shall have duly performed or complied with, in all material
respects, all of the covenants, obligations and conditions to be performed or
complied with by each of them under the terms of this Agreement on or prior to
or at the Closing.
(b) Consents. Each of Parent and Newco shall have obtained at its own
expense (and shall have provided copies thereof to the Company) all of the
waivers, permits, consents, approvals, or authorizations, and effected all of
the registrations, filings and notices, in each case, set forth on Exhibit
6.3(b).
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(c) Closing Deliveries. Prior to or at the Closing, Parent and Newco shall
have delivered to the Company the following closing documents in form and
substance reasonably acceptable to the Company:
(i) a certificate of the President or a Vice President of Parent and
Newco, dated the Closing Date, to the effect that the condition specified
in Section 6.3(a) has been satisfied;
(ii) certified copies of the resolutions of the board of directors of
each of Parent and Newco authorizing the execution, delivery and
consummation of this Agreement and the transactions contemplated hereby and
thereby; and
(iii) a certified copy of the resolutions of the sole stockholder of
Newco adopting and approving this Agreement, the Merger and the
transactions contemplated hereby.
ARTICLE VII -- TERMINATION AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time, notwithstanding the approval thereof by the
stockholders of the Company at any time prior to Closing:
(a) by mutual consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger shall not have been
consummated on or before January 31, 2005 (the "Termination Date"); provided
that the Termination Date shall be extended to February 28, 2005 if Parent or
any of its Affiliates have entered into a Spheris Agreement prior to January 31,
2005 but the acquisition of the Spheris Business by Parent or any of its
Affiliates has not occurred because the waiting period under the HSR Act has not
expired or been terminated; provided further, however, that notwithstanding the
foregoing, the right to terminate this Agreement and abandon the Merger under
this paragraph shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or prior to such date;
(c) by either Parent or the Company, if any Governmental Authority shall
have issued an order, decree or ruling or taken any other action to restrain,
enjoin or otherwise prohibit the Merger and such order, decree, ruling or other
action shall have become final and nonappealable;
(d) by Parent by giving written notice to the Company in the event (A) the
Company is in breach of any representation, warranty or covenant contained in
this Agreement, and such breach (i) individually or in combination with any
other such breach, would cause the conditions set forth in Section 6.2(a) not to
be satisfied and (ii) is not cured within 20 days following delivery by Parent
to the Company of written notice of such breach or (B) a Material Adverse Effect
occurs;
(e) by the Company by giving written notice to Parent in the event Parent
or Newco is in breach of any representation, warranty or covenant contained in
this Agreement, and such breach (A) individually or in combination with any
other such breach, would cause the
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conditions set forth in Section 6.3(a) not to be satisfied and (B) is not cured
within 20 days following delivery by the Company to Parent of written notice of
such breach; or
(f) by Parent by giving written notice to the Company at any time on or
prior to October 31, 2004 because Parent has determined, in its sole discretion,
that Parent is not satisfied in any manner with Parent's due diligence review of
the Company, the Company's Subsidiaries and their respective businesses,
including, but not limited to, financial, accounting, legal, customer and
business, due diligence.
Section 7.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 7.1 hereof, (a) all rights and obligations of the parties hereunder
shall terminate and no party shall have any liability to the other party, except
for obligations of the parties hereto in Sections 5.6, 5.9 and Article X, which
shall survive the termination of this Agreement and (b) termination shall not
preclude either party from suing the other party for any breach of this
Agreement that occurred prior to the termination; provided that, notwithstanding
the foregoing, if the Parent terminates this Agreement pursuant to Section
7.1(f), then neither Parent nor Newco have any liabilities or obligations under,
as a result of or in connection with this Agreement except pursuant to Section
5.6 or Article X hereof, and neither the Company, the Stockholder
Representatives or any equityholders will have any claim against Parent or Newco
under this Agreement except as a result of any breach by Parent or Newco of any
of Section 5.6 or Article X hereof.
ARTICLE VIII -- SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 8.1 Survival of Representations. The representations and warranties
of the Company, Parent and Newco contained in Articles III and IV of this
Agreement and in any certificate delivered pursuant to Section 6.2 or Section
6.3 shall survive the Closing for a period of fifteen months after the Closing
Date; provided, however, that the representations and warranties of the Company
set forth in Sections 3.5, 3.10, 3.11 and 3.13 shall survive the Closing for a
period of three years after the Closing Date.
Section 8.2 General Indemnification.
(a) After the Closing, Parent, Newco and the Surviving Corporation (each a
"Buyer Indemnitee" and together the "Buyer Indemnitees") shall be indemnified,
defended and held harmless from the Escrow Account from any damages, losses,
liabilities, obligations, claims of any kind, interest or expenses (including,
without limitation, reasonable attorneys' fees and expenses) ("Loss") suffered
or paid, directly or indirectly, as a result of, in connection with, or arising
out of:
(i) the failure of any representation or warranty made by the Company
(A) contained in this Agreement to be true and correct as of the date of
this Agreement or as of the Closing Date or (B) in any certificate
delivered to Parent and Newco pursuant to Section 6.2 to be true and
correct as of the Closing Date;
(ii) any breach by the Company of any of its covenants or agreements
contained herein which are to be performed by the Company on or before the
Closing Date;
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(iii) any (A) payment (whether by settlement or as required by any
court order) by the Surviving Corporation or Parent to any dissenting
stockholder of the Company in excess of the amount such stockholder would
have received pursuant to the terms of this Agreement with respect to the
equity securities that are the subject of such dissent or (B) appraisal
rights proceeding;
(iv) the Incentive Bonus Plan;
(v) any claim by a person who was a stockholder, warrantholder or
optionholder of the Company prior to the Effective Time, seeking to assert,
or based upon: (i) ownership or rights to ownership of any shares of stock
of the Company issued prior to the Effective Time (other than the right to
receive the consideration pursuant to this Agreement or appraisal rights
under the applicable provisions of the DGCL); or (ii) any claim that his,
her or its shares of stock of the Company, warrants or options were
wrongfully repurchased or terminated by the Company;
(vi) (a) any of the Unvested Out of the Money Common Stock Options,
(b) any of the Series C Preferred Stock Warrants or the Series D Preferred
Stock Warrants in excess of the Preferred Stock Warrant Consideration
included in the final Preferred Purchase Price or (c) any of the Vested and
In the Money Options other than for payments to the holders of such Vested
and In the Money Options as provided in Section 2.7(c)(iii) and Section
2.12(a) hereof; or
(vii) any Pre-Closing Taxes except to the extent included in the
calculation of Net Working Capital that is part of the final Preferred
Purchase Price.
(b) After the Closing, each of Parent and the Surviving Corporation agrees
to indemnify, defend and hold each Company Preferred Securityholder and each
holder of Common Stock as of the date of this Agreement (each a "Seller
Indemnitee" and together the "Seller Indemnitees") harmless from any Loss
suffered or paid, directly or indirectly, as a result of, in connection with, or
arising out of (i) the failure of any representation or warranty made by Parent
or Newco (A) in this Agreement contained in Article IV of this Agreement to be
true and correct as of the date of this Agreement or (B) in any certificate
delivered to the Company pursuant to Section 6.3 to be true and correct as of
the Closing Date, (ii) any breach by Parent of any of its covenants or
agreements contained herein, or (iii) any breach by the Surviving Corporation
(including by way of being the successor of Newco and the Company) of any of its
covenants or agreements contained herein which are to be performed by the
Surviving Corporation after the Closing Date.
Section 8.3 Indemnification Claims.
(a) Notice of Third Party Actions. An Indemnified Party shall give written
notification to the Responsible Party of the commencement of any Third Party
Action. Such notification shall be given within 20 days after receipt by the
Indemnified Party of notice of such Third Party Action, and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such Third Party Action and the amount of the claimed
Losses; provided, however, that no delay or failure on the part of the
Indemnified
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Party in so notifying the Responsible Party shall deprive the Indemnified Party
of its rights to indemnification hereunder except to the extent of any damage or
liability caused by or arising out of such delay or failure.
(b) Indemnification of Third Party Actions for the Benefit of the Buyer
Indemnitees. The obligations and liabilities with respect to a Third Party
Action for which any Buyer Indemnitee is entitled to indemnification pursuant to
this Article VIII will be subject to the following terms and conditions:
(i) Stockholder Representatives will have the right, but not the
obligation, to defend against and to direct the defense of any such Third
Party Action and any related Legal Proceeding at the sole cost and expense
of Stockholder Representatives (which costs and expenses shall be on behalf
of, and reimbursable on a pro rata basis by, the Company Preferred
Securityholders from the Expense Funds (as defined in Section 9.1(b)) or
otherwise and with counsel of Stockholder Representatives' choosing
(subject to the approval of Parent, which will not be unreasonably withheld
or delayed) and Parent and Surviving Corporation will reasonably cooperate
in the defense thereof. Parent may participate in such defense with counsel
of its own choosing, provided that Parent will not, following written
notice of Stockholder Representatives' election to defend against and
direct the defense of any such Third Party Action, be entitled to
indemnification under this Article VIII for any fees of other counsel or
any other expenses with respect to the defense of such Legal Proceeding
incurred by Parent or any of its Affiliates in connection with the defense
of such Legal Proceeding. If the Stockholder Representatives assume the
defense of a Third Party Action, no compromise, discharge or settlement of,
or admission of liability in connection with, such claims may be effected
by Stockholder Representatives without the written consent of Parent (which
consent will not be unreasonably withheld or delayed) unless (x) there is
no finding or admission of any violation of law or any violation of the
rights of any Person and no effect on any other claims that may be made
against the Surviving Corporation, Parent or their respective Affiliates,
and (y) the sole relief provided is monetary damages that are paid in full
from the Escrow Account. Notwithstanding the foregoing, Stockholder
Representatives will not have the right to defend (but may participate in
such defense) against or to direct the defense of any such Third Party
Action and any related Legal Proceeding (and Parent shall expressly have
such right) if (X) the amount of the claimed damages in the applicable
Third Party Action is greater than the amount of Losses for which the Buyer
Indemnities are entitled to indemnification under this Article VIII or (Y)
the Third Party Action involves any Governmental Authority as a party
thereto, criminal liability, or any Third Party Action in which equitable
relief is sought against any of the Buyer Indemnitees.
(ii) Notwithstanding the provisions of Section 8.3(b)(i) of this
Agreement, if Stockholder Representatives fail or refuse to undertake the
defense of such Third Party Action within 10 days after delivery of written
notification to Stockholder Representatives of the commencement of such
Third Party Action or if the Stockholder Representatives later withdraw
from such defense, Parent will have the right to undertake the defense of
such claim with counsel of its own choosing, with the costs and expenses of
such defense to be paid for from the Escrow Account and with the Company
Preferred
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Securityholders bound by any determination made in such Third Party Action
or any compromise or settlement effected by Parent (so long as any such
compromise or settlement is reasonably acceptable to the Stockholder
Representatives; provided that if Stockholder Representatives are requested
to approve any such compromise or settlement and do not respond within 5
business days of such request, then such compromise or settlement will be
deemed reasonably acceptable to the Stockholder Representatives).
(iii) Parent will have the right (including the selection of counsel,
which counsel must be reasonably satisfactory to the Stockholder
Representatives) to defend against, direct the defense of, or, subject to
the last sentence of this Section 8.3(b)(iii), settle any Third Party
Action described in the last sentence of Section 8.3(b)(i) and any related
Legal Proceeding. In connection with any such Third Party Action described
in the last sentence of Section 8.3(b)(i), Parent agrees (i) to keep
Stockholder Representatives reasonably informed of its defense and
resolution of the Third Party Action, (ii) to report to Stockholder
Representatives in writing, at least quarterly, as to the amount of Losses
(including attorneys' fees and expenses) incurred as of the date of such
report, and (iii) that it will make reasonable judgments with respect to
incurring costs and expenses and other Losses (including the selection of
outside counsel).
(c) Indemnification of Third Party Actions for the Benefit of the Seller
Indemnitees. The obligations and liabilities with respect to a Third Party
Action for which any Seller Indemnitee is entitled to indemnification pursuant
to this Article VIII will be subject to the following terms and conditions:
(i) Parent will have the right, but not the obligation, to defend
against and to direct the defense of any such Third Party Action and any
related Legal Proceeding at Parent's sole cost and expense and with counsel
of Parent's choosing (subject to the approval of Stockholder
Representatives, which will not be unreasonably withheld or delayed) and
Stockholder Representatives will reasonably cooperate in the defense
thereof. Stockholder Representatives may participate in such defense with
counsel of their own choosing, provided that Parent will not, following
written notice of its election to defend against and direct the defense of
any such Third Party Action, be liable to the Buyer Indemnitees under this
Article VIII for any fees of other counsel or any other expenses with
respect to the defense of such Legal Proceeding incurred by Stockholder
Representatives or any Company Preferred Securityholder in connection with
the defense of such Legal Proceeding unless Parent is also a party to such
Third Party Action and Stockholder Representatives determines in good faith
that the Company Preferred Securityholders have available to them one or
more defenses or counterclaims that are inconsistent with those of Parent.
If Parent assumes the defense of a Third Party Action, no compromise,
discharge or settlement of, or admission of liability in connection with,
such claims may be effected by Parent without the written consent of
Stockholder Representatives (which consent will not be unreasonably
withheld or delayed) unless (x) there is no finding or admission of any
violation of law or any violation of the rights of any Person and no effect
on any other claims that may be made against the Company Preferred
Securityholders, and (y) the sole relief provided is monetary damages that
are paid in full by Parent.
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(ii) Notwithstanding the provisions of Section 8.3(c)(i) of this
Agreement, if Parent fails or refuses to undertake the defense of such
Third Party Action within 10 days after delivery of written notification to
Parent of the commencement of such Third Party Action or if Parent later
withdraws from such defense, Stockholder Representatives will have the
right to undertake the defense of such claim with counsel of their own
choosing, with Parent responsible for the costs and expenses of such
defense and bound by any determination made in such Third Party Action or
any compromise or settlement effected by Stockholder Representatives (so
long as any such compromise or settlement is reasonably satisfactory to
Parent; provided that if Parent is requested to approve any such compromise
or settlement and does not respond within 5 business days of such request,
then such compromise or settlement will be deemed reasonably acceptable to
the Parent).
(d) Cooperation. All of the parties hereto shall cooperate in the defense
or prosecution of any Third Party Claim in respect of which indemnity may be
sought hereunder and shall furnish such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials and appeals, as
may be reasonably requested in connection therewith.
(e) Claim Notice. In order to seek indemnification under this Article VIII,
an Indemnified Party shall deliver a Claim Notice to the Responsible Party.
(f) Response. Within 30 days after delivery of a Claim Notice, the
Responsible Party shall deliver to the Indemnified Party a Response, in which
the Responsible Party shall: (i) agree that the Indemnified Party is entitled to
receive all of the Claimed Amount (in which case (x) if the Responsible Party is
Parent, then the Response shall be accompanied by a payment by Parent to the
Indemnified Party of the Claimed Amount, by check or by wire transfer of
immediately available funds and (y) if the Responsible Party is the Stockholder
Representatives, then Parent and Stockholder Representatives shall deliver to
the Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to disburse
the Claimed Amount to Parent), (ii) agree that the Indemnified Party is entitled
to receive the Agreed Amount (in which case (xx) if the Responsible Party is
Parent, then the Response shall be accompanied by a payment by Parent to the
Indemnified Party of the Agreed Amount, by check or by wire transfer of
immediately available funds and (yy) if the Responsible Party is the Stockholder
Representatives, then Parent and Stockholder Representatives shall deliver to
the Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to disburse
the Agreed Amount to Parent), and/or (iii) dispute that the Indemnified Party is
entitled to receive any or all of the Claimed Amount.
(g) Dispute. During the 30-day period following the delivery of a Response
that reflects a Dispute, the Responsible Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 30-day period, such Dispute shall be resolved in a state or federal
court sitting in New York, New York. In connection with any such Dispute, if the
Responsible Party is the Stockholder Representatives, then Parent and
Stockholder Representatives shall deliver to the Escrow Agent, promptly
following the resolution of the Dispute (whether by mutual agreement, judicial
decision or otherwise), a written notice executed by both parties instructing
the Escrow Agent as to what (if any) portion
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of the Escrow Funds shall be disbursed to Parent and/or the Stockholder
Representatives (which notice shall be consistent with the terms of the
resolution of the Dispute).
Section 8.4 Limitations on Indemnification Obligations.
(a) The rights of the Buyer Indemnities to indemnification pursuant to the
provisions of Section 8.2(a) are subject to the following limitations:
(i) the Buyer Indemnitees will not be entitled to recover Losses
pursuant to clause (i) of Section 8.2(a) until the total amount which the
Buyer Indemnitees would recover under clause (i) of Section 8.2(a), but for
this clause (ii), exceeds $375,000 (the "Threshold") (at which point the
Buyer Indemnitees shall be entitled to receive only the aggregate Losses
that exceed the Threshold); provided, however, that, subject to clause (ii)
of this Section 8.4(a), the Buyer Indemnitees will be entitled to recover
all Losses (without regard to the Threshold) as a result of any breach of
the representations and warranties contained in Section 3.5 or Section 3.10
of this Agreement; and
(ii) in the aggregate, the Buyer Indemnitees, with respect to Losses
pursuant to Section 8.2(a), (x) will be entitled to recover no more than
the remaining portion of the Escrow Amount (the "Cap") and (y) pursuant to
this Agreement or in connection with any certificate delivered in
connection herewith, will not be entitled to recover Losses from any source
other than the Escrow Account.
(b) No Company Preferred Securityholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any amounts payable as a result of the indemnification obligations set forth in
Section 8.2(a) hereof.
(c) The obligations to indemnify and hold harmless pursuant to clause (i)
of Section 8.2(a) and pursuant to clause (i) of Section 8.2(b) shall survive the
consummation of the transactions contemplated hereby for fifteen months; except
(i) the obligations to indemnify and hold harmless pursuant to clause (i) of
Section 8.2(a) for representations and warranties of the Company set forth in
Sections 3.5, 3.10, 3.11 and 3.13 shall survive the consummation of the
transactions contemplated hereby for three years, and (ii) for claims for
indemnification pursuant to clause (i) of Section 8.2(a) and clause (i) of
Section 8.2(b) asserted prior to the end of the fifteen-month period or
three-year period, as applicable, which claims shall survive until final
resolution thereof.
(d) Exclusive Remedy. Notwithstanding anything else contained in this
Agreement to the contrary, including, without limitation, Section 10.12, after
the Closing, other than for equitable remedies, willful breaches of covenants,
representations and warranties and fraud, indemnification pursuant to the
provisions of this Article VIII shall be the exclusive remedy for the parties
hereto for any misrepresentation or breach of any warranty, covenant or other
provision contained in this Agreement or in any certificate delivered pursuant
hereto.
(e) Treatment of Indemnity Payments. Any payments made to an Indemnified
Person pursuant to this Article VIII shall be treated as an adjustment to the
Preferred Purchase Price for Tax purposes.
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(f) Subrogation. Upon making an indemnity payment pursuant to this
Agreement, the Responsible Party will, with the prior written consent of the
Indemnified Party, such consent not to be unreasonably withheld, to the extent
of such payment, be subrogated to all rights of the Indemnified Party against
any third party in respect of the damages to which the payment related. Without
limiting the generality of any other provision hereof and subject to the
foregoing sentence, each such Indemnified Party and Responsible Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above described subrogation rights.
Section 8.8 No Double Recovery. Notwithstanding anything herein to the
contrary, no party shall be entitled to indemnification or reimbursement under
any provision of this Agreement for any amount to the extent such party or its
Affiliate has been reimbursed for such amount under any other provision of this
Agreement, the Exhibits or Schedules attached hereto, or any document executed
in connection with this Agreement, by any insurance proceeds or under any
insurance policy, or otherwise. To the extent that any Losses are covered by
insurance of which a party hereto is a beneficiary, then such party shall use
its commercially reasonable efforts to collect any such amounts from such
insurer.
ARTICLE IX -- REPRESENTATIVE OF THE HOLDERS OF PREFERRED STOCK
Section 9.1 Authorization of Representative.
(a) Stockholder Representatives are hereby appointed, authorized and
empowered to act as the representatives, for the benefit of the Company
Preferred Securityholders, as the exclusive agent and attorney-in-fact to act on
behalf of each holder of Preferred Stock, in connection with and to facilitate
the consummation of the transactions contemplated hereby, including pursuant to
the Escrow Agreement, which shall include the power and authority:
(i) to execute and deliver the Escrow Agreement (with such
modifications or changes therein as to which the Stockholder
Representatives, in their sole discretion, shall have consented) and to
agree to such amendments or modifications thereto as Stockholder
Representatives, in their sole discretion, determine to be desirable;
(ii) to execute and deliver such waivers and consents in connection
with this Agreement and the Escrow Agreement and the consummation of the
transactions contemplated hereby and thereby as Stockholder
Representatives, in their sole discretion, may deem necessary or desirable;
(iii) to enforce and protect the rights and interests of the holders
of Preferred Stock (including Stockholder Representatives, in their
capacity as stockholders in the Company) and to enforce and protect the
rights and interests of Stockholder Representatives arising out of or under
or in any manner relating to this Agreement and the Escrow Agreement, and
each other agreement, document, instrument or certificate referred to
herein or therein or the transactions provided for herein or therein
(including, without limitation, in connection with any and all claims for
indemnification brought under Article VIII hereof), and to take any and all
actions which Stockholder Representatives believe are necessary or
appropriate under the Escrow Agreement and/or this Agreement for and on
behalf of the holders of Preferred Stock, including, without
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limitation, asserting or pursuing any claim, action, proceeding or
investigation (a "Claim") against Parent, Newco and/or Surviving
Corporation, defending any Third Party Claims or Claims by the Purchaser
Indemnitees, consenting to, compromising or settling any such Claims,
conducting negotiations with Parent, Surviving Corporation and their
respective representatives regarding such Claims, and, in connection
therewith, to (A) assert any claim or institute any action, proceeding or
investigation; (B) investigate, defend, contest or litigate any claim,
action, proceeding or investigation initiated by Parent, the Surviving
Corporation or any other person, or by any federal, state or local
Governmental Authority against Stockholder Representatives and/or any of
the holders of Preferred Stock and/or the Escrow Funds, and receive process
on behalf of any or all holders of Preferred Stock in any such claim,
action, proceeding or investigation and compromise or settle on such terms
as Stockholder Representatives shall determine to be appropriate, and give
receipts, releases and discharges with respect to, any such claim, action,
proceeding or investigation; (C) file any proofs of debt, claims and
petitions as Stockholder Representatives may deem advisable or necessary;
(D) settle or compromise any claims asserted under the Escrow Agreement;
and (E) file and prosecute appeals from any decision, judgment or award
rendered in any such action, proceeding or investigation, it being
understood that the Stockholder Representatives shall not have any
obligation to take any such actions, and shall not have any liability for
any failure to take any such actions;
(iv) to refrain from enforcing any right of the holders of Preferred
Stock or any of them and/or Stockholder Representatives arising out of or
under or in any manner relating to this Agreement, the Escrow Agreement or
any other agreement, instrument or document in connection with the
foregoing; provided, however, that no such failure to act on the part of
Stockholder Representatives, except as otherwise provided in this Agreement
or in the Escrow Agreement, shall be deemed a waiver of any such right or
interest by Stockholder Representatives or by the holders of Preferred
Stock unless such waiver is in writing signed by the waiving party or by
Stockholder Representatives; and
(v) to make, execute, acknowledge and deliver all such other
agreements, guarantees, orders, receipts, endorsements, notices, requests,
instructions, certificates, stock powers, letters and other writings, and,
in general, to do any and all things and to take any and all action that
Stockholder Representatives, in their sole and absolute discretion, may
consider necessary or proper or convenient in connection with or to carry
out the transactions contemplated by this Agreement, the Escrow Agreement,
and all other agreements, documents or instruments referred to herein or
therein or executed in connection herewith and therewith.
(b) Stockholder Representatives shall not be entitled to any fee,
commission or other compensation for the performance of their services under
this Article IX, but shall be entitled to the payment of all their expenses
incurred as representatives. In connection with the foregoing, at the Closing,
the Surviving Corporation shall transfer $350,000 (the "Expense Funds") to
Stockholder Representatives, to be used by Stockholder Representatives to pay
expenses incurred by Stockholder Representatives in their capacity as
representatives (and shall use such amounts to pay any of the fees and expenses
they incur in connection with disputes related to Article VIII and adjustments
pursuant to Section 2.7(b) and (c)). Once Stockholder
67
Representatives determine, in their sole discretion, that they will not incur
any additional expenses in their capacity as representatives, then they will
appropriately distribute the remaining unused Expense Funds, if any, to the
Company Preferred Securityholders. In connection with this Agreement, the Escrow
Agreement and any instrument, agreement or document relating hereto or thereto,
and in exercising or failing to exercise all or any of the powers conferred upon
Stockholder Representatives hereunder (i) Stockholder Representatives shall
incur no responsibility whatsoever to any holders of Preferred Stock by reason
of any error in judgment or other act or omission performed or omitted hereunder
or in connection with the Escrow Agreement or any such other agreement,
instrument or document, excepting only responsibility for any act or failure to
act which represents willful misconduct, and (ii) Stockholder Representatives
shall be entitled to rely on the advice of counsel, public accountants or other
independent experts experienced in the matter at issue, and any error in
judgment or other act or omission of Stockholder Representatives pursuant to
such advice shall in no event subject Stockholder Representatives to liability
to any holders of Preferred Stock. Each holder of Preferred Stock shall
indemnify the Stockholder Representatives for a Pro Rata Portion of all losses,
damages, liabilities, claims, obligations, costs and expenses, including
reasonable attorneys', accountants' and other experts' fees and the amount of
any judgment against them, of any nature whatsoever (including, but not limited
to, any and all expense whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened or any
claims whatsoever), arising out of or in connection with any claim,
investigation, challenge, action or proceeding or in connection with any appeal
thereof, relating to the acts or omissions of Stockholder Representatives
hereunder, or under the Escrow Agreement or otherwise. The foregoing
indemnification shall not apply in the event of any action or proceeding which
finally adjudicates the liability of Stockholder Representatives hereunder for
its willful misconduct. In the event of any indemnification hereunder, upon
written notice from Stockholder Representatives to the holders of Preferred
Stock as to the existence of a deficiency toward the payment of any such
indemnification amount, each holder of Preferred Stock shall promptly deliver to
Stockholder Representatives full payment of their Pro Rata Portion of the amount
of such deficiency.
(c) All of the indemnities, immunities and powers granted to Stockholder
Representatives under this Agreement shall survive the Effective Date and/or any
termination of this Agreement and/or the Escrow Agreement.
(d) Parent and Surviving Corporation shall have the right to rely upon all
actions taken or omitted to be taken by Stockholder Representatives pursuant to
this Agreement and the Escrow Agreement, all of which actions or omissions shall
be legally binding upon the holders of Preferred Stock.
(e) The grant of authority provided for herein (i) is coupled with an
interest and shall be irrevocable and survive the death, incompetency,
bankruptcy or liquidation of any holder of Preferred Stock; and (ii) shall
survive the consummation of the Merger.
(f) Should a Stockholder Representative resign or be unable to serve, the
Stockholder Representative shall appoint a single substitute agent to take on
the responsibility of such representative hereunder, whose appointment shall be
effective on the date of Stockholder Representative's designee's resignation or
incapacity.
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(g) The Stockholder Representatives shall be required to act unanimously.
ARTICLE X -- MISCELLANEOUS
Section 10.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express air mail, postage prepaid,
and shall be deemed given when so delivered personally, or by facsimile, or if
mailed, two days after the date of mailing, as follows:
If to Parent and/or Newco:
MTS Group Holdings, Inc.
c/x Xxxxx Private Equity Investors LP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: General Counsel and Xxxxxxxx Xxxxxx
Facsimile: (000) 000-0000 and (000) 000-0000
with a copy to (which shall not constitute notice):
Xxxxxxxx & Xxxxx LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: W. Xxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
If to the Company:
HealthScribe, Inc.
00000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Holland & Knight LLP
0000 Xxxxxx Xxxxxxxxx, Xxxxx 000
XxXxxx, XX 00000
Attention: Xxxx Xxxxxxxxxxxx
Facsimile: (000) 000-0000
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
Section 10.2 Exhibits and Schedules. All exhibits (as exhibits and not as
binding agreements) and schedules hereto, or documents expressly incorporated
into this Agreement, are hereby
69
incorporated into this Agreement and are hereby made a part hereof as if set out
in full in this Agreement.
Section 10.3 Computation of Time. Whenever the last day for the exercise of
any privilege or the discharge or any duty hereunder shall fall upon a Saturday,
Sunday, or any date on which banks in New York City, New York are authorized to
be closed, the party having such privilege or duty may exercise such privilege
or discharge such duty on the next succeeding day which is a regular Business
Day.
Section 10.4 Expenses. Regardless of whether the transactions provided for
in this Agreement are consummated, except as otherwise provided herein, each
party hereto shall pay its own expenses incident to this Agreement and the
transactions contemplated herein; provided that if the transactions provided for
in this Agreement are consummated, the Company's failure to pay such expenses
shall not breach the foregoing covenant but instead shall cause a purchase price
adjustment pursuant to Sections 2.7(b) and (c). Subject to the foregoing
sentence, Parent and Newco understand and acknowledge (but without limiting the
adjustment to the Preferred Purchase Price effected thereby and the other
adjustments set forth in this Agreement) that all Seller Expenses will be paid
by the Company in cash at or prior to the Closing. In addition, if the Closing
occurs, then Parent may have the Surviving Corporation pay (or reimburse Parent
for) Parent's expenses incidental to this Agreement and the transactions
contemplated herein (but the payment of such expenses shall have no effect on
the Preferred Purchase Price). Notwithstanding the foregoing, (x) if this
Agreement is terminated, then promptly after such termination, Parent and/or
Newco shall pay the Reimbursement Amount to the Company and (y) if this
Agreement is terminated and, as of the date of such termination, the Company has
failed to satisfy any of the conditions set forth in Sections 6.2(g), 6.2(l) or
6.2(n), then, in either case, the Company shall promptly reimburse Parent and
its affiliates for 50% of their respective reasonable out-of-pocket fees and
expenses incurred in connection with the negotiation of this Agreement and the
due diligence review of the Company and its Subsidiaries up to a maximum of
$250,000 (provided further that if the Company has failed to satisfy the
conditions set forth in Section 6.2(n) and the amount of the Balance Sheet
Components would have been greater than or equal to $8.6 million then the
Company shall promptly reimburse Parent and its affiliates for all of their
respective reasonable out-of-pocket fees and expenses incurred in connection
with the negotiation of this Agreement and the due diligence review of the
Company and its Subsidiaries up to a maximum of $500,000).
Section 10.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without reference to the choice of law or conflicts of law principles thereof.
Section 10.6 Assignment; Successors and Assigns; No Third Party Rights.
Except as otherwise provided herein, this Agreement may not, without the prior
written consent of the other parties hereto, be assigned by operation of law or
otherwise, and any attempted assignment shall be null and void; provided that
without such consent, prior to Closing, Parent and/or Newco may assign their
rights and interests to any Affiliate and/or as collateral security to any
financial institution or underwriter providing financing in connection herewith;
provided further that, following any such assignment of rights and interests,
Parent or Newco, as applicable, shall remain liable for all of its obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon and
70
inure to the benefit of the parties hereto and their respective heirs,
successors, permitted assigns and legal representatives. This Agreement shall be
for the sole benefit of the parties to this Agreement and their respective
heirs, successors, permitted assigns and legal representatives and is not
intended, nor shall be construed, to give any Person, other than the parties
hereto and their respective heirs, successors, assigns and legal
representatives, any legal or equitable right, remedy or claim hereunder except
(i) as expressly provided in Section 5.15 hereof and (ii) on or after the
Closing, the enforcement by the holders of Company's equity securities of their
respective rights to receive any consideration owed to them pursuant to the
terms of Article II.
Section 10.7 Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, each of which shall be
deemed an original and all of which together will constitute one and the same
instrument. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of a mutually executed
counterpart to this Agreement.
Section 10.8 Titles and Headings. The titles, captions and table of
contents in this Agreement are for reference purposes only, and shall not in any
way define, limit, extend or describe the scope of this Agreement or otherwise
affect the meaning or interpretation of this Agreement.
Section 10.9 Entire Agreement. This Agreement, including the Schedules
attached thereto, and the Confidentiality Agreement, constitute the entire
agreement among the parties with respect to the matters covered hereby and
supersedes all previous written, oral or implied understandings among them with
respect to such matters (including the letter agreement, dated as of August 5,
2004, by and between the Company and Xxxxx Private Equity Investors LP and any
amendments thereto). The Confidentiality Agreement shall terminate at the time
of the Closing.
Section 10.10 Severability. The invalidity of any portion hereof shall not
affect the validity, force or effect of the remaining portions hereof. If it is
ever held that any restriction hereunder is too broad to permit enforcement of
such restriction to its fullest extent, such restriction shall be enforced to
the maximum extent permitted by law.
Section 10.11 No Strict Construction. Each of the parties hereto
acknowledge that this Agreement has been prepared jointly by the parties hereto,
and shall not be strictly construed against either party.
Section 10.12 Specific Performance. Each of the Company and Parent and
Newco acknowledge that the rights of each party to consummate the transactions
contemplated hereby are unique and recognize and affirm that in the event of a
breach of this Agreement by any party, money damages may be inadequate and the
non-breaching party may have no adequate remedy at law. Accordingly, the parties
agree that such non-breaching party shall have the right, in addition to any
other rights and remedies existing in their favor at law or in equity, to
enforce their rights and the other party's obligations hereunder not only by an
action or actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief (without posting of bond
or other security).
Section 10.13 Waiver of Jury Trial. Each of the parties hereto waives any
right it may have to trial by jury in respect of any litigation based on,
arising out of, under or in connection with this
71
Agreement or any course of conduct, course of dealing, verbal or written
statement or action of any party hereto.
Section 10.14 Failure or Indulgence not Waiver. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
parties exercise of any such right preclude any other or further exercise
thereof or any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
Section 10.15 Amendments. This Agreement may be amended, at any time prior
to the Effective Time, by action taken by the respective boards of directors of
the Company, and Parent and Newco. This Agreement (including the provisions of
this Section 10.15) may not be amended or modified except by an instrument in
writing signed on behalf of all of the parties required pursuant to the
preceding sentence.
* * * * * * *
72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be duly executed as of the day and year first above written.
HEALTHSCRIBE, INC.
By: /s/ Xxxx Xxxx
------------------------------------
Name: Xxxx Xxxx
----------------------------------
Title: CEO
---------------------------------
MTS GROUP HOLDINGS, INC.
By: /s/ Xxxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxxx Xxxxxx
----------------------------------
Title: Vice President
---------------------------------
HSI MERGER SUB, INC.
By: /s/ Xxxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxxx Xxxxxx
----------------------------------
Title: Vice President
---------------------------------
The undersigned Stockholder Representatives hereby accept appointment as the
representatives for the benefit of the holders of Preferred Stock as set forth
herein and agrees to the provisions hereunder relating thereto.
/s/ Xxxx X. XxXxxxxxxx
------------------------------------
XXXX X. XXXXXXXXXX, as the designee of Blue Chip Venture Company, Ltd.
/s/ Xxxxx X. Xxxxx
------------------------------------
XXXXX X. XXXXX, as the designee of Grotech Capital Group V, L.L.C.
